Bitcoin continues to be a major advancement in the digital age by allowing people to transact with each other without the need for a third party. Bitcoin Magazine Featured Silent Payments Over two years ago, I highlighted one of Bitcoin’s shortcomings: privacy. It was an issue then, and it’s an issue now… as stated:
“… Bitcoin, being a push-based payment system (no one can “pull” a payment from you, you have to “push” it to someone else with your own explicit approval), requires that the sender has the information necessary to decide where to send the payment. This requires that the receiver somehow communicate their Bitcoin address to the sender. If you are trying to raise funds from the public, this has huge implications in terms of privacy, or the need to maintain a continuous interactive presence online. It is entirely possible for anyone to simply post a single Bitcoin address somewhere online, and from that point on, anyone who wants to send money to that person can easily do so, but there is no privacy in raising funds this way. Not only can you see how much has been sent to that person by simply taking that address and searching it on the blockchain, but you can also see the footprints on the blockchain of everyone who has sent money to that person. There is absolutely no privacy for the person trying to raise funds and everyone who has donated to that person. Everything is completely open and correlated for the whole world to see.”
Before Silent Payments, your only options to preserve privacy were to either reuse addresses for each contact, or run a server that provided a new address every time someone requested a transfer. Neither option was usable or scalable for most users, and privacy remained only for the privileged few who knew how to make it happen. Luckily, the community has made great strides since then with the release of Silent Payments.
BIP352 (Silent Payments)
After much discussion about how to implement this feature as efficiently as possible, BIP352 has come to fruition. Anyone who wants to receive money personally, for example an activist organization, can post a silent payment address on their site instead of a traditional Bitcoin address. When a user wants to send money to the organization, they use the silent payment address in their supporting wallet. This automatically uses the unique public key attached to the silent payment address, combined with the public key of the output they send, to generate an entirely new disposable address that looks just like any other Bitcoin address. It sounds complicated, but this all works behind the scenes. All a user needs to do is paste the address and send money, just like they would any other address. There are many benefits:
1) The organization itself benefits from only having to list one address on the site and a new address is generated for each transaction.
2) Users sending money to your organization can always reference the same static address, making it easier to send money consistently without having to keep track of multiple addresses.
3) If the same user continually sends to the same Silent Payments address, a new Bitcoin address is generated each time, so the sender doesn’t have to worry that the receiver knows the transfer is coming from the same user.
4) Recipients enjoy significant privacy benefits, as users cannot easily see the funds in their wallets or see who is sending them.
5) The addresses generated for transactions between the two users will appear like any other Bitcoin transaction, making use of this feature invisible to outside parties.
6) No servers are needed: wallets that support silent payments handle all of this technology locally within the wallet.
To sum up the benefits, Silent Payments allows individuals or organizations to now choose to use static Silent Payments Bitcoin addresses instead of traditional static addresses, not only increasing their own privacy but also protecting those attempting to send money by ensuring that even the recipient cannot learn anything about the sender. With Silent Payments, senders and recipients can enjoy significantly enhanced privacy while still benefiting from the power of the underlying Bitcoin protocol and transacting freely.
That being said, there are drawbacks as well. The first is a direct result of the benefit of not needing a dedicated device online to facilitate transactions: users must scan blockchain transactions to detect payments made to them. This scanning can take time, but has significant privacy benefits for both users. Over time, the performance of the scans will also improve, making them less of an issue for users.
The second issue is one of adoptability, as silent payments are new and therefore have fairly limited wallet support at the time of writing: both sender and receiver need to use wallets that support the feature. Silent Payment A resource for sharing wallets that support silent payments.
Currently, Cake Wallet is fully supported, and if the community wants to see wider adoption of silent payments, wallets will need to integrate the feature to provide more users with the privacy benefits that Bitcoin silent payments offer.
Overall, the idea of protecting user privacy through the native Bitcoin protocol is an important one that ensures user privacy without compromising what makes Bitcoin Bitcoin. Indeed, the privacy benefits of silent payments reinforce a fundamental belief of the Bitcoin community by providing users the freedom to transact more privately if they so choose.
This is a guest post by Henry Fisher. The opinions expressed here are entirely Fisher’s own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
