June 10th Is privacy becoming decentralized?
education
Today we take a look at recent developments in the Bitcoin privacy landscape, particularly in response to increasing regulatory scrutiny. With the retirement of Wasabi Wallet’s CoinJoin coordinator and the emergence of multiple community-run coordinators, the Bitcoin community is witnessing a shift toward decentralized privacy solutions. This transition highlights the resilience of Bitcoin users in the face of privacy and surveillance, and raises important questions about the future of decentralized financial privacy in the face of regulatory challenges.
As Wasabi Wallet ceases operations, a new CoinJoin coordinator emerges
In late April 2024, Wasabi Wallet announced that it would ban US customers from participating in CoinJoins. This decision comes shortly after the arrest of an individual linked to Samourai Wallet, another Bitcoin privacy tool, highlighting the growing regulatory scrutiny of privacy-focused cryptocurrency services. Wasabi Wallet’s move has raised concerns among Bitcoin users about the future of privacy and anonymity in the cryptocurrency space. Because these tools are widely used applications to maintain user privacy.
Just a few days after the initial announcement, Wasabi Wallet’s parent company, zkSNACKs, announced that it would cease operations entirely. This closure, which took effect in the first week of June 2024, marks a significant change to the Bitcoin privacy landscape. The closure of zkSNACK not only ended the CoinJoin reconciliation service provided by Wasabi Wallet, but also signaled a broader challenge for privacy-focused Bitcoin users who want to store their coins privately.
A CoinJoin Coordinator is a server, entity, or service that facilitates CoinJoin transactions, a method of combining multiple Bitcoin transactions from different users into a single transaction. This process helps enhance user privacy by obscuring the source and destination of the funds involved. The coordinator manages communication between participants, organizes inputs and outputs, and ensures that all parties provide the required signatures before broadcasting the final transaction to the Bitcoin network. Coordinators do not manage funds, but play an important role in coordinating transactions to achieve the desired anonymity.
In response to these developments, the Bitcoin privacy community quickly mobilized to fill the void left by zkSNACK. Within a few days of the shutdown, a new Wasabi Wallet fork called Ginger Wallet was launched and is already carrying CoinJoins. Ginger Wallet aimed to continue its mission of providing privacy tools to Bitcoin users by integrating CoinJoin functionality and maintaining a commitment to open source development. Additionally, Wasabi Wallet itself has released a final software update that allows users to select custom coordinators directly from the wallet’s user interface, significantly lowering the barrier for users to find and use alternative CoinJoin services.
Up to nine new community-run CoinJoin coordinators were launched shortly after zkSNACKs ended. The rapid emergence of decentralized coordinators signals a strong response from the Bitcoin privacy community. By decentralizing CoinJoin coordination, this effort aims to ensure that users continue to have access to privacy tools without relying on a single, centralized service. This decentralized approach is considered an important step in securing Bitcoin’s censorship resistance, protecting against malicious forks, and maintaining the overall decentralization and security of the network.
AutoPay Samourai’s Code and Nostr Powered by CoinJoins
Following the recent closure of privacy-focused wallets Wasabi and Samourai, Cake Wallet has launched support for Bitcoin Silent Payments with the goal of protecting user privacy. Automated payments are a type of payment method that allows users to receive Bitcoin transactions at a unique on-chain address, even if they provide the sender with a reusable off-chain address. This approach mitigates the risk of address reuse, which can expose transaction history and violate user privacy. Autopay allows recipients to create a single autopay address that the sender uses to generate a unique address for each transaction, increasing privacy without requiring ongoing interaction between the parties.
Automatic payments are used by the sender and recipient to use their respective secret keys and the recipient’s public key to derive a shared secret, which then generates a unique destination address. The recipient detects the payment by searching the blockchain for transactions that match the automatic payment address and performing an Elliptic Curve Diffie-Hellman (ECDH) calculation. This method increases computational load and synchronization time, but significantly improves privacy compared to reusing existing addresses.
Cake Wallet’s introduction of Bitcoin Silent Payments comes at a critical time when regulatory pressure is mounting on privacy tools in the cryptocurrency space. This feature, currently out of beta, ensures users can maintain their privacy through on-device searches for transactions without relying on external servers that may compromise anonymity. Users can enable autopay within their wallets to automatically retrieve relevant transactions, providing a powerful solution for those concerned about privacy.
Despite the legal proceedings facing Samourai Wallet’s founders, the source code of privacy-enhancing tools including Whirlpool and Dojo CoinJoin has been made public. This move highlights their commitment to maintaining and advancing Bitcoin privacy. They also released code for Soroban, a decentralized CoinJoin implementation, further demonstrating their commitment to empowering users with robust privacy solutions. By making these tools publicly available, Samourai Wallet ensures that the community can continue to use, develop, and improve the technology.
In addition to automatic payments starting to appear in wallets and the release of the Samourai code, the cryptocurrency community is also seeing the emergence of Joinstr, a decentralized CoinJoin implementation that leverages the Nostr protocol. Unlike traditional CoinJoin implementations, which often rely on centralized coordinators, Joinstr operates in a completely decentralized manner, enhancing user privacy. Participants use Nostr to register the desired outputs, generate PSBT (Partially Signed Bitcoin Transactions), and then combine them to finalize the CoinJoin transaction. This decentralized approach mitigates the risks associated with centralized coordination and increases the overall security of the process.
Joinstr integrates seamlessly with Electrum, providing a user-friendly way to access CoinJoin features. The platform prioritizes privacy and simplicity, making it accessible to a wide range of users without fiduciary assurance. By eliminating the need for a centralized coordinator and leveraging Nostr for coordination, Joinstr ensures that the CoinJoin process remains private and secure. Ongoing development includes improvements such as new Tor circuits for each request and encrypted channels to further protect user privacy.
The launch of Cake Wallet’s automated payments and the upcoming Joinstr CoinJoin product highlight the resilience and innovation of the cryptocurrency community. These developments signal a shift toward decentralizing privacy services and preserving the privacy and autonomy of Bitcoin users.
What’s behind the rise of resilient decentralized privacy?
The emergence of decentralized and resilient privacy tools in the cryptocurrency space often comes as a wake-up call to the crackdown on privacy-focused wallets and trading services, which are increasingly targeted due to concerns about illicit activities such as money laundering and terrorist financing. This can be seen as a response. However, these actions have unintentionally fostered the development of more powerful, decentralized privacy solutions that are inherently more difficult to regulate and control. The closure of centralized privacy services like Wasabi Wallet’s coordinator and the seizure of Samourai Wallet servers has accelerated this trend, forcing the community to innovate in ways that preserve privacy and decentralization.
Decentralized privacy tools, such as the community-run CoinJoin Coordinator and Joinstr’s Nostr-based CoinJoin implementation, represent significant advances in this field. Automated payments allow users to receive transactions at a unique on-chain address derived from a reusable off-chain address, effectively mitigating the risk of address reuse without requiring ongoing interaction. This method decentralizes the process of receiving payments. Likewise, Joinstr’s distributed coordination using the Nostr protocol eliminates dependency on a central entity.
These innovations emphasize resistance to censorship and control, a fundamental principle of the cryptocurrency ethos. By decentralizing the infrastructure needed for privacy-preserving transactions, these tools ensure that users can remain anonymous even in the face of increasing regulatory scrutiny. The decentralized nature of these solutions means there is no single point of failure or control. This resilience not only protects individual users, but also strengthens the overall privacy infrastructure of the cryptocurrency ecosystem.
These tools implement principles of privacy and autonomy, providing users with the means to protect their financial activities. The community’s response has been to innovate and adapt to ensure privacy remains a core principle in the cryptocurrency world.