As with everything in Bitcoin, taking control of your privacy is a gradual, step-by-step process. Learning about and implementing these best practices takes patience and responsibility, so do not be discouraged if it seems overwhelming at first. Every step, no matter how small, is a step in the right direction.
The following are actionable steps you can take to increase your privacy:
- Self-custody your coins
- Do not reuse addresses
- Minimize exposure to KYC (Know Your Customer)
- Minimize exposure to third parties
- Run your own node
- Use the Lightning Network for small transactions
- Do not use public block explorers
- CoinJoin early and often
Self-custody your coins
Not your keys, not your bitcoin. If someone else is holding your bitcoin for you, they know everything there is to know about these coins: amounts, transaction histories, future transactions, etc. Taking self-custody of your coins is the first and most essential step.
Do not reuse addresses
Reusing addresses destroys the privacy of both the sender and the receiver. It should be avoided at all costs.
Minimize exposure to KYC
Linking your real-world identity to your bitcoin addresses is a necessary evil in most jurisdictions. While the effectiveness of these regulations is questionable, the implications for regular users are mostly negative as a multitude of data leaks have shown. If you choose to use KYC on- or off-ramps, make sure that you understand the relationship between yourself and the service in question. You are trusting this service with your personal data, including the future safety of this data. If you want to skip KYC entirely, have a look at no-KYC only.
Minimize exposure to third parties
Trusted third parties are security holes. If you can rely on yourself instead of trusted third parties, you should.
Trusted Third Parties Are Security Holes
Run your own node
Not your node, not your rules. Running your own node is essential to use Bitcoin in a private manner. Every interaction with the Bitcoin network is facilitated by a node. If you are not in control of this node, whatever you are doing is seen by the node you are interacting with. This means whoever is in control of the node is able to see what you are doing. The bitcoiner node guide is a great resource to get you started.
Use the Lightning Network for small transactions
The off-chain nature of the lightning network increases the transactional privacy of its users without having to jump through too many hoops. While it is still early, the absolutely reckless days of the lightning network are likely behind us. Using it for small- and medium-sized transactions can help improve both your privacy as well as your fee footprint.
Do not use public block explorers
Looking up addresses in public block explorers will link those addresses with your IP, which, in turn, can be linked to your real identity. Software packages like Umbrel, Citadel, RaspiBlitz, and BTCPay Server make it easy to run your own block explorer. If you have to use a public block explorer, make sure to mask your IP by connecting to them via Tor, or at least use a VPN.
CoinJoin early and often
Because Bitcoin is forever, using transactional best practices such as collaborative CoinJoin transactions will ensure that your privacy is protected going forward. While CoinJoin transactions are nuanced, user-friendly software exists to help you create and automate these kinds of transactions. Samourai's Whirlpool is a good solution for Android users, for example. There is also JoinMarket, which, thanks to projects like JoininBox and Jam, can be set up quite easily on your own node.
The above is a slightly modified version of Bitcoin Privacy: Best Practices" by Gigi, released originally under a CC BY-SA 4.0 license and modified for Jam by the author.