Particularly, it gives you a perspective on how Wasabi wallet enables coinjoins without gaining access to your bitcoin or collecting and revealing your private financial data.

The “zk” stands for Zero-Knowledge. zkSNACKs is a pun originating from the cryptographic techniques zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) and zk-STARKS (Zero-Knowledge Succinct Transparent Argument of Knowledge).

In simplistic terms, zero knowledge refers to cryptographic methods that allow sharing of secrets between two parties without ever revealing the secret.  

Zero-knowledge is the base on which the WabiSabi coinjoin protocol runs. This article highlights the following:

1. How zero knowledge works

2. Other ways Wasabi Wallet implements zero knowledge

3. Why Wasabi and the future of technology rely on zero knowledge

Problem: What To Know vs What Not To Know

The goal of a coinjoin is to achieve privacy. That said, a coinjoin would defeat its practical application if it divulges information about the user to anyone, even to the coordinator.

Yet for the coinjoin transaction to happen, the coordinator would have to:

1. Know the users’ input amounts and addresses from the inbound transactions

2. Know the amount and output addresses to map the coinjoined bitcoin

3. Access the network information of user wallets connecting to the coordinator

But even with the challenges posed, Wasabi Wallet always enables coinjoins while remaining blind to your private transaction details.

So how does the wallet achieve this?

The Magic Behind Zero Knowledge Proofs

The idea behind zero-knowledge proofs is that you don’t have to reveal something if you can prove that you know something. And in the context of the zkSNACKs coordinator, you don’t have to pass your private information if you have proof that the information you’re sending to the coordinator is true.

Wasabi Wallet implements cryptographic proofs to allow you to prove your transactional details such as the amount and output addresses, so you never disclose your information to the zkSNACKs coordinator.

Having these zero-knowledge proofs also means that you never have to send/trust the zkSNACKS coordinator with your bitcoin to coinjoin. In the background, wallets send proofs which are verified by the coordinator to allow your bitcoin to be included in the jointly spent transaction.

Zero Knowledge Doesn’t Stop With Coinjoins, Your Network Privacy Matters

If privacy-enhancing measures ended at the blockchain level, then Wasabi Wallet would still leak your network information and reveal your IP address or location.

This flaw happens to be the chink in the armor for many bitcoin wallets when they access and broadcast transactions over unshielded Internet connections. Transmitting to other peers over the Internet gives away your network information and as a result, your wallet becomes easy to fingerprint for surveillance.

Similarly, connecting to the coordinator for coinjoins over the Internet would reveal your network information. To circumnavigate this privacy flaw, Wasabi Wallet integrates Tor to uphold its zero-knowledge policy.

Tor achieves privacy by passing communications over multiple hops, separating your identity from its original source. Each hop contains no information about the starting or ending point, it only provides information about the next hop on the route. Or put simply, Tor cloaks the communication by adding layers (Onion Layers) on top of your Internet connection when connecting to Wasabi Wallet.

How Tor Is Used To Preserve Zero Knowledge

1. Using Tor during the registration of inputs and outputs to the coordinator

When the inputs and outputs are registered for a coinjoin through one connection, they become linked. The link will tell the coordinator the network identity of the user associated with the inputs and outputs. By using different Tor connections for inputs and outputs, there is no single network identity that is revealed to the coordinator.

Zero-knowledge between inputs and outputs is necessary for the coinjoin to gain any privacy. Wasabi takes this a step further by also using a new Tor identity for registering each individual input or output. For example, since up to 10 inputs and 8 outputs can be registered by a single client in a single round, this uses 18 unique Tor addresses to prevent any two addresses from being matched.

2. Using Tor when making queries to the public ledger

When Wasabi Wallet is querying ledger data from peers, it downloads one block per Tor identity so that peers do not become aware the same user received transactions in multiple blocks. To further prevent linking or building associations with specific peers, queries are made to random peers while including random data that does not necessarily relate to your query.

“False positive” blocks downloaded by your wallet prevent spies from “narrowing down” any transactions recorded by you on the blockchain since the data you download may include blocks you are not interested in at all.

Conveniently, Tor found a perfect use case in Wasabi Wallet. Without it, all your transaction information would remain tied to your network identity, negating the purpose of participating in a coinjoin.

Beyond Zero Knowledge in Wasabi Wallet

What is extraordinary about the application of zero knowledge in Wasabi Wallet is that it effectively adds a thick layer of privacy on top of bitcoin while still remaining a bitcoin wallet.

Ironically, the most groundbreaking applications of zero-knowledge are best suited, and even much more needed outside the realm of bitcoin. In particular, Internet applications collect more data than they could ever use. The application of zero-knowledge would mean that users can use applications without revealing data they would prefer not to share.

Some interesting ways zero knowledge improves applications include;

1.  Creation of digital identities without giving away personal details such as date of birth or phone numbers by using a public/private key pair, such as Nostr.

2.  Data privacy: zero-knowledge could allow you to complete a credit card payment without revealing your credit card number or personal information.

3.  Secure data sharing: data could be shared between two parties without revealing more information about the data itself. For example, drug companies could reveal that their drugs are effective on various test models without revealing the structure of the drug’s proprietary compounds.

Using zero-knowledge software reduces the amount of data collected by companies and therefore, reduces attack vectors in case of a cyber breach. Additionally, the future application of zero-knowledge is what will save Internet privacy from its potential demise.

Wasabi Wallet ensures users achieve zero knowledge for the maximum level of financial privacy without needing extra tools.

Download Wasabi Wallet.

The post What Does the “zk” in zkSNACKs Stand For? appeared first on Wasabi Wallet - Blog.

xPub stands for Extended Public Key while xPrivs stands for Extended Private Key. Simply put, xPubs and xPrivs are the parent keys that can allow a wallet to mathematically produce billions of child keys that work as public keys and private keys within your wallet.

As a Bitcoin user, knowing about xPubs and xPrivs will help you to:

• Discover ways to unlock more out of your Bitcoin experience
• Understand how xPubs and xPrivs affect the security and privacy of your bitcoin
• Know why the best bitcoin wallets use this

xPubs and xPrivs have not always been around since the beginning of Bitcoin wallets, here is why they were introduced.

Bitcoin Before xPubs and xPrivs

The first bitcoin wallet, Bitcoin-Qt, had a key-management problem. It generated private keys at random which were all stored on the computer in a wallet.dat file.

While this worked, there was a flaw in that users could lose their bitcoin when they accidentally deleted the file or fell victim to malware. In the case that you encrypt this file and forget your wallet’s password, there is no way to recover your funds.

For your funds to be safe as a Bitcoin-Qt user, you had to make continual backups of the newer versions of the wallet.dat file every time you made a transaction. Still, there was no solution for losing your password.

To make this less cumbersome, Bitcoin Improvement Proposal 32 (BIP32) was devised to change how private keys are generated. In the proposal, instead of Bitcoin wallets needing to generate private keys at random for every transaction, a wallet can have one master key that can generate other keys from itself in a predefined way.

Having a determined way to generate private keys means that:

• You only need to backup one (master) private key
• You have the convenience of using the private keys across different wallet applications

Here’s how one parent private key can replace multiple private keys:

How xPubs and xPrivs Work

The key-pair concept is inseparable from Bitcoin, where private keys are meant to sign transactions and public keys, derived from private keys, are used to receive transactions.

When it comes to xPubs (Extended Public Keys) and xPrivs (Extended Private Key) they also  serve as public keys and private keys, only in a morphed manner. Their “extendedness” gives them the ability to derive more child private keys and public keys. And just as in normal private keys and public keys, the extended public key is generated from an extended private key.

What’s more, all derived child keys can also derive their own future generations of grandchild keys. But even with continued derivation, all derived keys always carry the unique signature (like DNA) of their parent keys throughout their generation. It’s this family-tree-like derivation process that serves as the origin of a new breed of Bitcoin wallets, hierarchical deterministic wallets.

In hierarchical deterministic wallets (also called HD-wallets), a specific tree-path/branch is selected from which future child keys will be held in. And by having the parent keys, which are the xPub and xPriv, you can traverse through all branches to check for child keys.

The convenience of having a master key to derive all possible keys generated opened a new world in Bitcoin where users no longer have to make the decision between better privacy or easy backups.

xPubs and xPrivs in Action

You Can Have Many Accounts in One Wallet

By having a parent key that can generate many child keys, a wallet can derive child private keys and child public keys that serve as parent keys for new wallets within one main wallet.

As a user, you can find this useful if you wish to have multiple accounts within one wallet. You can use this to separate your financial concerns. For example, you could have an account for personal expenses, business, or even savings without needing to set up multiple bitcoin wallets.

Securing your Keys is Easier

Generating private keys at random meant you had many keys to backup. This is not the case with wallets that implement xPubs and xPrivs.

With parent keys that can deterministically generate child keys for all your wallet transactions, you’ll only have to backup one master key. This master key can be used to derive all other keys you previously generated to transact. Thus, you only need one backup to restore everything.

You Can Share Funds in One Bitcoin wallet

Since an xPriv can sign for transactions from any address generated by it, sharing it can allow other trusted parties to make payments on your behalf. For example, an organization can use the Master xPriv to give child keys to both the procurement and employee payments departments without giving either department the ability to spend each others’ funds.

With this in mind, sharing your xPriv should be done with extreme caution since anyone who holds your private key gains control over all your funds.

More Privacy for your Transactions

An xPub can generate multiple child public keys that can be used to receive funds. This is a simple way to improve privacy for Bitcoin transactions as it prevents linking transaction data together by reusing an address to receive unrelated transactions.

A Multi-Wallet Experience is Possible

xPriv and xPubs are the advancement in Bitcoin that allows users to use more than one wallet software application without creating multiple backups.

Using your wallet’s seed, any wallet application can derive both the xPub and the xPriv and recover coins that you previously received with another wallet.

Despite this, there is always a challenge when wallets use different schemes to derive keys. As a user you can benefit from checking for Bitcoin wallet compatibility before switching vendors.

Payments are Secure With Untrusted Parties

Since private keys have full control of your wallets, storing them on an Internet connected device to accept payments may be sub-optimal. Particularly, if you store your private keys on an unsecure payment processor to generate addresses, any breach can lead to the loss of your funds.

Instead, with an xpub you can generate multiple payment addresses without having to expose your private keys to potential threats.

The post xPubs & xPrivs appeared first on Wasabi Wallet - Blog.

The best way to know how much KYC affects your privacy is to ask: What could happen to your KYC data behind closed doors?

A little digging can reveal that a lot more goes on with your data; some of which you would never willingly consent to. Among other things:

• Your KYC data is shared with other parties
• Your KYC data enables the monitoring of your behavior
• Your KYC data is sometimes leaked in data breaches

Why The Name KYC Is Misleading

Going by definition, the KYC process exists to identify you as a customer. But the name makes it easy to overlook what happens after the customer is known. How?

When it comes to the traditional KYC processes, the following three steps will be involved:

• Identification –  You offer personally identifiable information to the service provider, i.e. name, date of birth, address, or even tax id numbers issued by a government
• Verification – The information is checked for validity
• Monitoring and due diligence – Activity tied to the identity is tracked for any misconduct

Visibly, the name KYC barely hints at the existence of the third step where your activity utilizing the service is tracked alongside your verified identity. It’s the third step that consequently holds the most implications on your privacy in the following ways:

1.  KYC Makes Money The Perfect Surveillance Tool

Before money became all bits, having an identity was a necessary part of enabling banks to function. It was only in this way that money could be accounted for. Without an identity, chances are that money could often end up in the wrong hands. Furthermore, only having a verifiable identity would allow for responsible action in the case of liabilities or misconduct.

Although all money existed in the form of paper and balance books as large physical books, financial institutions could still know financial information about their customers. But unlike before, tracing users’ transactions was greatly limited for one key reason. It was an extremely labor-intensive task. The challenge posed meant that tracking users’ transactions only had to be viable when there were strong motivations to do so.

Fast forward to today and even the weakest motivation to trace and track user activity is backed by computers that can store huge amounts of data and retrieve it quickly. The result is that encroaching on users’ privacy is easier than ever before.

With a mouse click, one person can have an entire list of all your transactions throughout your lifetime, down to a single cent. Even further, your transactions can be tracked as you make them in real-time.

How Much Data Do You Give Away?

Using the data tied to your KYC, a lot more information can be gleaned from your transactions. For example, a coffee charge on your card lets someone know your addictions, or your donation to a cause reveals your political standing.

Furthermore, the use of KYC means that users end up being categorized based on their identities and activities in the real world. These categories are created based on your activities within the service you signed up for or from perceived opinions you may keep.

For example, frequent travel overseas can put you on a travel risk list, or close association with a government faction can make you labeled as a politically exposed person. It is for these reasons that KYC is the easiest way for someone to encroach upon your private life.

2. Your Data Is Shared And Sold

Your KYC information and data generated from it has immense value because it is an extension of your real life. Selling your data often happens because you likely signed away some rights in a complex terms of use that is not read 99% of the time.

When it comes to KYC, the personally identifiable information fetches a higher price, creating a stronger incentive to sell your data for profit.

The data is used in marketing campaigns, promotions, and even more recently, to train commercial AI models. This reinforces the paradigm that data is the new oil and users are the new oil wells.

Additionally, users’ information is shared with other parties to meet compliance mechanisms put in place. For example, data relating to your trading activities is shared with tax authorities, or data from your medical facility is shared with insurance.

The sum result is that the user’s KYC information ends up in more hands than what would be acceptable, compounding to a situation where users’ privacy is habitually out of their control.

3. Your KYC Data is a Hacker’s Dream

The personally identifiable information held in KYC is the most valuable information a hacker could get their hands on.

What aggravates this further is the fact that KYC information is handled by third parties. These third parties act as verifiers and also tend to keep the data for much longer than they are obligated to.

Understandingly, keeping a huge amount of sensitive data puts a target on their back by hackers. What’s more, providing KYC data to multiple services results in your data being exposed across multiple locations. Recent data breaches reveal that even the biggest companies get hacked.

When cyber attacks are successful, hackers get away with valuable user information. The private information collected is the biggest catalyst for identity theft and encourages other cyber threats such as phishing.

And while measures are often put in place to protect user data, often the best solution would have been if such personally revealing information was never collected in the first place.

The KYC Dilemma: Trust or Privacy

The idea behind KYC is that for you to be trusted, you need to reveal as much personally identifiable information as possible. This is the only way you can be accountable as a user.

From a regulatory point of view, tracking and invading the privacy of all is taken as the right way to prevent the misdoings of a few bad actors.

But how much privacy should be traded away for trust to exist?

The solution lies in applying more privacy-focused trust technologies or even yet, switching to trustless systems, like Bitcoin. Trust doesn’t always have to be dependent on vulnerability, especially when the vulnerability predisposes you to manipulation.

The post How KYC Affects Your Privacy appeared first on Wasabi Wallet - Blog.

However, not all Bitcoin wallets deliver on this promise. In fact, some wallets purposefully take it away. Nonetheless, getting into Bitcoin will always bring you to make a choice of a wallet.

The two things that you have to be aware of in order to make an informed decision on a Bitcoin wallet are:

• Bitcoin wallets don’t store bitcoin in them, they are stored on the blockchain
• Bitcoin is not private by default, using it leaves publicly available tracks

Having this in mind is what will give you a picture of what you might have traded away in your choice of wallet. Rather than jumping blindly into a choice, the qualities highlighted in this article help you:

• Find a Bitcoin wallet that suits you
• Keep your Bitcoin safe
• Avoid possible mishaps while using Bitcoin since transactions are irreversible once confirmed
• Use Bitcoin privately

1. You Want Your Bitcoin to be Safe.

When it comes to your hard-earned Bitcoin, the worst that can happen is that you lose it all.

Often this is the price you pay for not understanding how Bitcoin wallets work.  

Bitcoin wallets don’t keep any bitcoin in them. Instead, they store the relevant credentials called private keys that allow you to control any bitcoin sent to you. Losing these keys means losing your bitcoin.

The safety of your bitcoin depends on who stores your private keys and how they do it.

Who has Control of Your Private Keys?

You can either keep your private keys or trust someone else to keep them for you.

This creates the two major classes of wallets in terms of control:

• Custodial Wallets – someone else has your private keys and they control access to your funds.
• Non-Custodial Wallets – your private keys are in your possession and only you can control your funds.

This is similar to a bank vault for your assets. You either let the bank store your assets for you or you have a personal vault at home.

Custodial Wallets

You don’t own the vault at the bank, the bank does but they offer a service that will allow you to access your assets. You have trusted them enough to know about your assets and store them for you.

Similarly, in custodial wallets, third parties are entrusted to permit you to transact and to keep your Bitcoin safe. A common example of custodial bitcoin wallets is centralized bitcoin exchanges.

Non-Custodial Wallets

The vault at your home is yours and yours alone. You’re responsible for its safety and only you control who can or cannot access your vault. Likewise, non-custodial wallets give you full responsibility for the security of all of your Bitcoin.

Keeping Your Non-Custodial Wallet’s Seed Phrase Safe

Going the non-custodial route means that you’ll have the wallet’s seed phrase to keep safe.

This mnemonic phrase is what you use to initiate or recover your wallet. It is also the source of your private keys and the public keys you use to receive bitcoin in your wallet.

Understandingly, this seed phrase should be for your eyes only. If any other person has it, they can use it to recreate your wallet and steal your funds.

What is also worth noting about seed phrases is that bitcoin wallets go about them differently.

Depending on your wallet, the length of the word phrase will vary from 12 to 24 words. While more words mean stronger security from a potential brute force, a 12-word seed also does the job.

Which Way to Go, Custodial or Non-Custodial?

Custody is a big deal with bitcoin because Bitcoin’s core intent is to remove any third parties or intermediaries from how people transact. Despite that, the type of custody you choose only matters to the extent that it can keep your bitcoin safe.

With Custodial Wallets, you can lose your bitcoin if the central exchange gets hacked, goes bankrupt or your funds get frozen.

Funds in your non-custodial wallet will always be safe as long as you can keep a secret. However, your funds will be gone if you lose your private keys either by accident or through theft.

How Does Your Bitcoin Wallet Store Your Private Keys?

Your bitcoin wallet can either be Hot or Cold. This depends on whether the private keys are stored on a device connected to the Internet or not.

Bitcoin wallets that run on the web, on desktops and on phones are considered hot. The term hot refers to their extent of connectedness to the Internet to allow for transactions.

Cold wallets use hardware that has no ability to connect to the internet and are considered the safer option between the two.  Examples of such cold wallets are Trezor, Coldcard and Ledger.

The choice between cold and hot wallets is motivated by the length of time and the amount of bitcoin one wishes to store. The common practice involves keeping huge amounts of Bitcoin in cold wallets and intermittently transferring small amounts to hot wallets for transactions.

Watch out for Fake Wallets

Fake Bitcoin wallets and exchanges exist primarily to swindle you of your Bitcoin.

Be vigilant of fake websites. Cybercriminals try to exploit new users by imitating legitimate websites using a different domain extension, and can even pay to promote these scams to the top of search engine results. In the case of application installations, make an effort to verify the authenticity of your downloads using PGP keys.

2. Your Financial Privacy Doesn’t Have to be Sacrificed

Bitcoin wallets are not private by default. When you don’t prepare for this, anyone can access your private financial data.

Your wallet leaks your transactional information when:

• Your wallet needs KYC(Know your Customer) details for you to transact
• Your wallet reuses addresses in transactions
• Your wallet does not incorporate any privacy-enhancing techniques like Tor
• Your wallet accesses the blockchain’s data through a third party instead of directly

So what can wallets do for your privacy?

Bitcoin Wallets can Work With Zero Knowledge(zk)

Bitcoin is a permissionless technology. All wallets can work and let you transact without revealing any personal information to the wallet service. This includes how your wallet accesses the public ledger.

When your wallet needs your personal information in order to use it, you ultimately surrender your privacy. This might be what seems like common practice with exchanges but the personal information collected is meant to be used against you, not used for your protection.

Wallets Should Always Generate A Fresh Address for New Transactions

A wallet that does not allow you to generate new addresses for transactions you receive will hurt your privacy. Since all addresses can be publicly viewed, receiving bitcoin using the same address multiple times will remove any doubts that two transactions were made to the same entity.

Address reuse hurts your privacy as the sender also, so before you spend your Bitcoins, check the address you are paying merchants or exchanges and request a new one if you see it has already received coins before.

There are also other risks associated with address reuse in Bitcoin.

Privacy Tools can be Built Right Into Your Wallet

Since Bitcoin implements a public ledger to keep transactions, privacy consideration cannot come as a second thought when picking a wallet.

For users who are conscious about their privacy, multi-participant transactions like coinjoins and the Lightning Network provide a crowd to hide in. That said, having a wallet with built-in privacy tools will make safeguarding your privacy effortless.

3. Your Bitcoin Wallet Should be Nice to You

A wallet’s user-friendliness is what inevitably makes your Bitcoin experience smooth. It will also be what stops you from making unintended mistakes.

But how exactly can a wallet be nice to you?

Your Wallet Helps You Track Your Transactions

The pseudonymous nature of Bitcoin transactions can quickly throw you into an organizational chaos.

The easiest way a wallet can help you follow the privacy properties of your addresses is by offering you a way to label your deposits and expenses.

Your Wallet Stops You from Sending to Faulty Bitcoin Addresses

If you send your coins to the wrong address, you might never get them back. This means you’ll always have to exercise care when sending bitcoin and your wallet can help you with this. How exactly?

A wallet can detect invalid addresses and help you double-check addresses before confirming transactions.

Your Wallet Saves You from Erroneous Transaction Fees

If you were to pay for a $15 meal with two $20 bills, you would confuse the cashier since you could complete the payment with a single $20 bill.

Bitcoin wallets should avoid this confusion as well. Since transactions with extra input addresses waste an unnecessary amount in mining fees. A wallet should be smart enough to only spend just enough coins to make your payment, without overusing your wallet’s balance.

A Friendly Wallet Offers You A Back-Up Option

Seed phrase backups are a critical feature that will allow you to quickly recover your wallet in case of accidents.

A Simple User-Friendly Interface is the Way to Go

Is the wallet’s design straightforward to use? Only when it makes it easy for you to find your way around it regardless of your level of tech expertise can it be considered easy to use.

There Is Always Room for A Better Experience

Having a wallet that is upgradable means that any experience you currently have can be made better. Moreover, new updates are what inevitably resolve new bugs, improve usability, and fix vulnerabilities.

You’ll Need Technical Support When Things Go Sideways

Whether in the form of documentation, video tutorials, or live customer support, good technical support goes a long way. When it comes to your valuable bitcoins, having a helping hand when you get stuck is a nice thing to have.

Can There Be A Perfect Bitcoin Wallet?

Fatefully for Bitcoin, no single wallet can rule them all. In fact, the nature of Bitcoin is that anyone can make their own wallet if they so wish.

Regardless of this, the best bitcoin wallet will always remain the one that keeps your bitcoin safe, shields your privacy and is friendly to you.

The post Qualities of a Good Bitcoin Wallet appeared first on Wasabi Wallet - Blog.

Compared to the existing fiat-based financial ecosystem, Bitcoin has a lot to offer as a medium of exchange. This article will list some of the reasons why Bitcoin serves as the best currency for everyone.

Global Acceptance

When it comes to money, perhaps the most startling realization is that money itself is not useful, it only serves a purpose within a social contract. Money only has value when there is someone who is ready to accept it as valuable. To explain this, imagine if the richest man was rocketed to another planet alone with billions worth of paper cash.  He would be as poor as someone with nothing here on Earth, because the rich person doesn’t have anyone to accept the money he has in exchange for something on the new planet. This is in contrast to Bitcoin which is a borderless means of exchange. In a financial ecosystem that is largely cashless, there are always people ready to accept Bitcoin for a service or for goods, anywhere in the world.

All of the 5 billion people connected to the Internet around the world can set up a Bitcoin wallet and accept bitcoin and verify their transactions in real time without being inhibited by physical or political boundaries. Unlike most fintech applications that don’t have a presence in every country around the world, Bitcoin transcends all borders. Bitcoin bridges the chasms of national territories, different languages, and the use of different currencies that have been established throughout the world. In addition, international transfer with fiat is largely fragmented, resulting in higher fees and complicated processes to set up payments. Bitcoin simplifies this. In an economy becoming all the more digitized, every business can benefit from integrating Bitcoin and accepting payments and more and more businesses are realizing this. Just as how the wheel made travel easier and the Internet made the globe smaller, Bitcoin as a medium of exchange makes global payments simpler.

True Ownership

Henry Ford, “It is enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”. As a famous industrialist and one of the wealthiest men in the world, Ford understood a lot about the world and his remarks reflect an informed perspective. Why would he make such remarks that are seemingly outrageous? One would wonder why there hasn’t been a revolution yet. The truth is that much of the information surrounding how fiat-based financial systems work is enshrouded in a mesh of jargon that may make it uninteresting to the person who doesn’t have a deep understanding of economics. Either way, what Ford tried to infer isn’t any secret knowledge someone who’s curious cannot discover for themselves. So what about banks and the monetary system that could lead to a revolution? The covered-up fact is that the monetary system allows banks to create and own all the money in circulation and profit off the work of everyone else through loans; all while creating the illusion that the customers actually own the money. The fancier term for this monetary system is the fractional reserve banking system.

With this system, any money kept at the bank is never yours and is possessed by the banks to be given out as loans. Banks do not have every single dollar given to it by their customers. In fact, if a small percentage of customers would request their deposits, banks will fall into a cash crisis. With this debt-based system, banks lend out customers’ deposits based on the faith that not all customers will at one point in time withdraw all their money. By doing this, they essentially create a pyramid-like system where they can lend and profit from money that isn’t theirs. Since banks make money when they create loans, they become incentivized to create more debt in order to profit even more. This serves to allow banks to increase the amount of capital in the economy by lending out money that is idle. Furthermore, if all the financial decisions made in giving out loans fail to be repaid, the debt-based monetary system obliges the government to bail the banks out using taxpayer money. This creates a system where banks can make money out of thin air while creating an alliance between a small minority of politicians and bankers to profit off the backs of the rest of society in the name of a monetary policy.

The only way the pyramid scheme fails is when the players below the pyramid bail out of the game. Otherwise, the bankers and politicians continue to gain by creating more profit out of thin air. As long as the game continues and the banks are still entrusted with other people’s money, the circle persists in a way that results in banks owning all the money in circulation as deposits or money given out as debt. By buying bitcoin and transacting in bitcoin, you opt out of a fiat system that is built and exists mainly to profit off your hard-earned money. Unlike the fiat system where any deposit you make is equivalent to the bank repossessing that share of the money in supply, any Bitcoin which you own as money is truly yours and only yours. The exception is is you keep your bitcoin on an exchange where it is treated the same way as banks treat your money. When you transact with Bitcoin as your currency, one prevents banks from controlling all the money in supply (and in turn owning you). The revolution Henry Ford foresaw is Bitcoin.

Transactional Freedom

Bitcoin removes limitations existing in fiat-based currencies. As a good medium of exchange, Bitcoin allows you to transact anywhere and anytime. No daily limitations on the maximum amount you can send or receive. As a self-sustaining system that has no intermediaries, you can hold any amount of funds with bitcoin and no one can freeze or limit who you can transact with. Bitcoin is a purely digital asset; so long as you keep your private keys with you, no one can confiscate your Bitcoin. The nature of Bitcoin is that users literally become their own bank. With your wallet seed phrase in your head, one can move about their daily activities and travel anywhere in the world while controlling millions worth of bitcoin. With just an address, you can send or receive bitcoin with no need for approvals permission or 3rd parties charging pointless fees. Furthermore, setting up a Bitcoin wallet does not require anyone’s approval or scrutiny.

Unlike fiat-based money transfer services, no one can impose any terms of service that you don’t understand. As a result, you don’t sign up for liabilities or pick up consequences that you don’t mean to in order to transact. In regards to transactional freedom, Bitcoin is the most inclusive financial system. The human element in finance unavoidably breeds bias. As a decentralized system, no one is in charge and therefore doesn’t have any preference as to who should or shouldn’t use it. By being independent of human bias, Bitcoin spans across all genders, races, ages or sexual orientations, serving all equally.

Deflationary

A harsh reality is that governments intentionally make you poor by printing and devaluing money. Despite the narrative of printing being necessary to stimulate economic activity, it simultaneously results in devaluing all existing money. This makes any money you hold lose its purchasing power. As a result, the same effort required to live will always increase. The resulting inflation hits lower-income earners more. The low-income earners are the ones who pay the heaviest price in an inflationary money system where there’s a sky-high ceiling to the amount of money that can be poured into the economy. The decisions around monetary policy aren’t always sound and when they fail, the results can be disastrous to an economy. An example is in Venezuela where poor monetary policy resulted in a rapid devaluing of their currency to the extent that the weight of notes required to buy a whole chicken weighed more than the chicken itself.

While inflation is disastrous to an economy, money printing also has its winners too. The inflation caused by printing money is famously referred to as a poor person’s tax because those who hold store value in fiat are the ones most hit. With Bitcoin, the amount of Bitcoin in circulation will always remain capped to a certain limit and as a result, the more people use the currency, the more its purchasing power increases.

Privacy and trustlessness

Of interest is the fact that the fiat-based monetary system enables the most sophisticated surveillance system that can be conceived. While the worry around surveillance is mainly focused on the internet and other communication channels, the amount of surveillance made possible by the electronic cashless system is greatly overlooked. Financial services offered by both banks and financial applications collect a lot of personal data about their users. There is no option for anyone to use the existing fiat-based electronic services without revealing a great deal of private information about themselves. This hurts any amount of privacy one might wish to enjoy while transacting. Additionally, financial services generate a lot of financial information relating to all our daily financial affairs. Banks and financial services know who you transact with, what your sources of money are, and what you spend your money on.

Surveillance of their customers is greatly incentivized for both banks and financial services because such information is valuable in allowing businesses to profit more. The financial benefits accrued from surveilling customers supersede the motivation to respect the customer’s privacy.

While using Bitcoin frees one from giving away sensitive personal information in order to transact, the amount of privacy one can enjoy while transacting with Bitcoin is largely dependent on how well one uses the technology. In fact, since Bitcoin utilizes a public ledger to enable transactions, it can equally serve as a great surveillance tool. However, with the right tools when using Bitcoin, one can be free from intrusive surveillance. A good wallet is usually a start but further using conjoins allows one to use it privately. By using bitcoin anyone can reclaim their privacy and at the same time unsubscribe from the fiat-based electronic transfer system, which exposes you to exploitative banking practices.

Bitcoin may have its fair share of challenges in its use as a currency but it offers great features that make it a better alternative to fiat currencies. Everyone is allowed to take advantage of Bitcoin to enable them to transact without “middlemen”, as Satoshi intended.

The post Bitcoin as the Currency for Everyone appeared first on Wasabi Wallet - Blog.

A bitcoin address can be likened to a digital “invoice” used to accept payment on the blockchain. It acts as an intended destination for payment on the blockchain. An address is generated from a wallet in the form of a string of 26-35 characters and is shared with the party who intends to pay you in bitcoin. Any funds sent to an address are under the control of its originating bitcoin wallet.

Address reuse is when a user uses one address for more than one transaction. But what makes address reuse so bad for privacy? What risks does it extend to other users transacting with you?

To bring the matter to light it’s useful to understand what happens under the hood when we reuse an address.

Many users are now getting familiar with the fact that bitcoin transactions are stored on a public ledger which acts like an open receipt book containing all inbound and outbound transactions from all addresses. Anyone can view transactions associated with an address even without sophisticated tools, for example here. However, the only information a viewer can get is the bitcoin transacted into and out of an address.

When you pay or receive bitcoin, the address(es) associated with the transaction can be viewed. However, due to the pseudonymous nature of bitcoin addresses, this is not enough information to reveal the real-world identity of a user.

Despite the anonymity offered, bitcoin addresses only act as an alias involved in a transaction on the blockchain. It takes a single transaction to reveal enough information about the identity of the user and every transaction associated with an address opens a door to traceability. With each transaction, more information about the user is revealed and available for possible real-world identification.

Users transacting with addresses belonging to users whose privacy has been compromised risk losing their privacy through association. One address reuse is enough to give away your privacy even years after it’s long-forgotten because the blockchain is immutable. Once on the blockchain, forever on the blockchain.

Address reuse is intentional when a user only uses one address to receive and store unspent coins. Such cases may be due to habit, the need to maintain trust, or availability. An example of such address reuse happens on exchanges and donation addresses. As bitcoin users, we may also intentionally send bitcoin to the same address to others resulting in address reuse. This type of address reuse is the most rampant affecting half of all bitcoin users.

For some use cases, address reuse may happen when a user owns a single address wallet or paper wallet. Single address wallets are meant to offer convenience and ease to the users by generating a single address that is meant to receive and store their unspent change. In the case where a user prefers privacy, they are better suited to using Deterministic Address Pool Wallets that generate new addresses for new transactions. Paper wallets, on the other hand, may always require the user to be physically present to make a transaction.

Addresses are designed to receive bitcoin and are supposed to be disposable with every use. When the address is reused, the owner’s balance user is open on the ledger. As a business or individual using bitcoin to receive payments, the amount of revenue or balance may always be known if it is tied to one address. Unless your money matters are meant to be public, reusing an address will always make sure your balances are open for everyone to see.

With a discovered identity associated with an address, the user faces the risk of censorship. For example, an address observed donating funds to an activist may be blacklisted from exchanges, and addresses sending funds to the activist may risk being targeted as adversaries in dictatorial states.

Address reuse facilitates surveillance. If you transact with one address, it is easy to generate a relationship graph of who you transact with, where your money goes and who you receive it from. Every single piece of your financial information will be ushering you into the arms of many surveilling organizations that are always analyzing and tracking transactions on the public ledger. Despite the distance between conspiracy and fact about the level of surveillance on bitcoin, it’s important to understand that present technology is potent in allowing full deanonymization of bitcoin transactions.  A little more effort is required by a user to be free from such surveillance but changing addresses does enough to keep your transactions hard to trace.

With all the apparent risks that address reuse poses to privacy, transacting with a new address for every transaction is about care, that the amount of privacy you have is transmissible to every user you transact with. It’s not necessary to understand the intricacies of bitcoin to use the technology safely.  Picking a good wallet that allows you to generate fresh addresses for every new transaction is good enough. Bitcoin allows us the generation of new addresses whenever we need them. This feature was meant to preserve anonymity. All coins sent to every address generated are always under our control meaning we can transact with as many addresses as we need. The convenience of reusing addresses has the price of privacy.

The post Risks Associated with Address Reuse appeared first on Wasabi Wallet - Blog.