Key facts:
PayNym allows to hide the identity of those who carry out transactions in Bitcoin.
Until now, it is only available in Samourai, but more wallets could add it.
When operating in the Bitcoin network, each user leaves a “trace” that, if analyzed in depth, allows us to know their transaction history and even their account balance. As if that weren’t enough, this leads to a tracking of your activity in the future. There is a function that solves this problem. We present to you what PayNym is all about.
Although for many it has gone unnoticed, PayNym is a BIP (Bitcoin Improvement Proposal) incorporated into the protocol in 2016. It’s about the BIP-47, whose author is Justus Ranvier, a mechanical engineer who has worked on the development of Bitcoin since the early years of the cryptocurrency. Who even wrote informative articles published by Bitcoin Magazine in 2013.
As of today, this is not a well-known feature in Bitcoin, compared to other recent BIPs like SegWit or Taproot. However, has a lot of potential when it comes to improving user privacyand that is why it is getting more and more into bitcoin conversations.
In fact, not even among the large companies in the ecosystem has it gained so much space. At the moment, only Samourai Wallet allows to operate with this tool. Recently, CriptoNoticias reported on the intention of Blue Wallet users to reward whoever develops the incorporation of this BIP into their code.
Likewise, a Samourai developer specializing in privacy assured On twitter last Tuesday, February 22, having carried out an operation with PayNym using “another wallet that is not Samourai” and that worked “wonderfully”. Although he did not specify which wallet it is, he slipped that “the use of BIP-47 will expand very soon.”
What is Paynym?
As we mentioned before, PayNym is a BIP, that is, an improvement added to the Bitcoin protocol. Its original name is not that, but it was called “Reusable Payment Codes” or “reusable payment codes” by Ranvier. PayNym was the name given to it by Samourai, the first wallet to implement it, to make it easier to understand.
What PayNym does is give a user an identifier or unique ID that you can share with others, explains Bitcoiner Guide. This code is reusable, while the address it is linked to is renewed randomly. That constant variation ensures that tracking previous activity is a much more complicated task.
Through the use of an ID, public address sharing is avoided. By disclosing this address in network profiles or on websites —for example, to receive donations—, it can end up seriously affecting privacy, since anyone can analyze the history of that address using a block explorer.
For this reason, BIP-47 would favor this type of interaction without harming the privacy of the person who receives the funds. However, regarding this point, PayNym has a limitation, and that is that its use is not entirely accessible. At the moment, as we will see later, it is quite complex or, alternatively, expensive.
Continuing with the advantages, having a payment code is much more practical than generating a new address for each transaction to be carried out. This precaution is currently one of the most recommended for those who want to preserve their privacy above all else when using Bitcoin.
For example, if I want to receive funds from a person I don’t know and I don’t want them to be able to access my address data (such as transaction history), what an experienced bitcoiner would traditionally do is generate a new address. manually for each operation. What PayNym offers is to do that job automatically.
Finally, the user could also choose to use a server such as BTCPay, which offers a solution similar to BIP-47, but outsourced to a company and always with the same “disguised” address. PayNym is a native solution to the Bitcoin protocol itself, so the concept of self-custody is preserved. In other words, it is the people who take care of their money and can access it, without trusted third parties. For these reasons, it is better.
2 ways to use PayNym or BIP-47 in Bitcoin
When two users using the BIP-47 want to trade with each other, they can connect their IDs or payment codes to create an address and transact through it. There are two ways to do it.
The first and most direct is to create a direct connection between two PayNyms. This is the easiest method of doing this type of transaction, but the downside is that Samourai charges a fee for creating this unique address between two IDs. Currently, that charge is 15,000 sats (USD 5.73 according to the price index of CriptoNoticias at the closing of this note) for each individual channel that is generated. To this are also added the commissions for the miners in each transaction.
As the programmer explains Andreas AntonoupolousWhat allows the creation of this “secret” channel between two people is the sending of a small amount of data (8 bits) between the public addresses. This, says the expert, is the only thing that a third party could observe when analyzing the interactions between the two participants, no matter how many transactions they have made in his exclusive channel.
The second way of using PayNyms is a bit more complex, but it allows to reduce the costs. To do this, you have to use other tools, such as Cahoots, Stowaway, Stonewall or Stonewallx2.
The first of these, Cahoots, is defined by Samourai as “a collaborative framework for transactions”. The purpose of this functionality is to build a transaction between the two parties to display two different types of transactions. In this way, “it is possible to confuse the observers of the blockchain by corrupting the heuristics on which they are based”. Heuristics are research and data search techniques that many companies use to earn millions, as explained in this medium.
For its part, Stowaway —which is a type of Cahoots— consists of creating a transaction that “looks like any other Bitcoin on-chain transaction, but is actually a form of Coinjoin between two people.” By combining the UTXOs —unspent outgoing transactions— of the sender and receiver, it becomes impossible to identify the transaction amounts when scanning the blockchain.
In addition to Stowaway, other alternatives that offers Samourai They are Stonewall and Stonewallx2. The first of these options, Stonewall, is based on creating a Coinjoin (a mix of several UTXOs) but for a single user. Its limitation is that those wallets with few UTXOs will have problems using this tool, since there will not be enough outputs to combine them. Also, while there are no additional costs, the miners’ fee could be higher because the transaction will be larger.
Stonewallx2, meanwhile, consists of a mix of UTXO (Coinjoin) between two wallets, with the receiver collaborating by paying half of the miners’ fee.
In all these cases, the disadvantage is that both users must be online at the time of the transaction. In other words, both must maintain contact through some external channel to know when to proceed with each step of the process.
How to make a PayNym in Samourai?
Samourai Wallet is currently the only Bitcoin wallet to have implemented BIP-47, which it named PayNym for use on the platform. Its activation, as mentioned, has two possible methods.
The first of these is to create a unique connection between two Samourai users. This is done by tapping on the bottom right of the screen, on the + sign, and entering “Paynym”. From there, you will have to follow the steps until you achieve this connection.
Insteadif you choose the second alternative, the one based on Cahoots and Stowaway, who must initiate the process will be the user who sends the funds. You must do it from the «Post-mix» mode in the home of the app. After following the steps that the application indicates, you must choose the Stowaway option when it appears.
In this step, it should be clarified, it is when you can also choose Stonewall or Stonewallx2. This can be done with the app’s contact directory (in this case, the counterparty must have the use of Tor activated in the wallet) or manually using a QR or payment code.
To finish the process, the one who must do his part is the receiver. Basically, your participation consists of accepting the Stowaway (or the selected method) and confirming the receipt of the funds from your wallet.
PayNym and BIP-47, a future of greater privacy in Bitcoin
With everything reviewed, it is clear that this improvement of Bitcoin still has a long way to go. On the one hand, more wallets need to implement it. In addition, it is also necessary to produce more information, so that its use is more practical and cheaper for users.
PayNym is a tool that offers undoubted advantages in terms of privacy. However, it does not offer a good user experience, and it is likely that only those who are most knowledgeable about Bitcoin can take advantage of it. Everything seems to indicate that it will not have a massive adoption as long as its use is not facilitated.
However, there is increasing awareness of its relevance. In times when governments face the fear of losing control of money and therefore try to interfere in Bitcoin, privacy becomes a bastion that will have to be defended. And BIP-47, “PayNym” in Samourai Wallet, is a way out in this regard.