Privacy is one of the standards of bitcoiners and, day after day, new proposals and improvements are analyzed to enhance this attribute when operating on the network. CoinJoin is precisely one of the protocols that allows transactions with Bitcoin (BTC) without exposing some data of users and their cryptocurrencies.
The developer of the bitcoin wallet Samourai Wallet explained in a twitter thread why the use of CoinJoin is beneficial, protocol that these wallets support. To do this, he resorted to everyday language and comparisons to cash that anyone, even non-experts, can understand.
First of all, it is worth briefly explaining what CoinJoin consists of. This protocol allows grouping input and output operations in the Bitcoin network to make it almost impossible to track the funds of each of them. While the latter could be achieved, it would require significant effort from blockchain data analytics, such as Chainalysis.
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By expanding the size of transactions, CoinJoin makes it possible to enter various inputs (inputs) and outputs (outputs) of funds. In this way, it is more difficult to analyze which address sent the bitcoins that are reflected when the transaction is confirmed. By April 2020, CoinJoin adoption had peaked at 70,000 BTC in the month, as reported by CriptoNoticias.
CoinJoin in Bitcoin, explained by Samourai Wallet
To make this operation more graphic and understandable, Samourai compares it to withdrawing cash from an ATM. By doing so, the bank knows how much you took out, when, and how much money is left in the account, but it can’t know what you do after you take it out.
Similarly, when paying with a debit or credit card, the merchant receiving the money does not know how much more you have in your account. It is simply enough for you to know that it is enough to finance that purchase. A) Yes, the fiat money system has basic transactional privacySamourai explains.
This system is guaranteed by updates and improvements made through legislation. Delegating that task — that of ensuring privacy in the traditional monetary system — to third parties is dangerous, say the wallet’s developers. Instead, they consider it safer that this privacy is guaranteed through a code.
The Bitcoin network, being public and transparent, appears as an alternative to build a more private monetary system. Every transaction is recorded unalterably on the blockchain, and everyone can access that information.
But Bitcoin does not associate addresses with identities, as it is a pseudo-anonymous network. Such an association does occur when extracting cryptocurrencies from an exchange —where most people buy them—, since the company can associate those coins with a real identity, provided by the same user at the time of registration. It’s “just like an ATM printing your name and account number” every time you withdraw money from it.
Something similar happens when transacting with another user. In the operation, data about the past is shared and the door is opened for future tracking of that direction, says Samourai. Something like “showing the pastor your subscription to Only Fans when you donate a ticket at church”, they compare.
As a solution to this, CoinJoin “erases the history” of cryptocurrencies, as if filing a gold bar to remove all marks. Although it is not a “silver bullet”, that is, a definitive solution, Samourai clarifies that the company is doing “everything possible” to reduce the complexity of privacy solutions for its users.