Robert Steinadler, 5 months ago

Bitcoin privacy as a feature: Trezor implements CoinJoin

Bitcoin transactions are not anonymous. Its blockchain is public and all transactions can be audited at any time. This is not a bug but a feature because only if every person in the world can audit every detail, then Bitcoin becomes a truly decentralized and secure digital form of money. This transparency also comes with a downside. Unlike a bank account, any company can watch the blockchain for activity and use the data for all kinds of purposes. One specific technology has been thought of several years ago to improve the situation.

What are CoinJoins and why is Trezor implementing them?

CoinJoins are effective

As the name already suggests, a CoinJoin is a transaction where many users join their funds in one single giant transaction. After that happened, the transaction is split into many smaller and equal amounts which are then transferred to the Bitcoin addresses of the designated recipients.

In doing so it becomes impossible to determine who was the sender and who was the recipient. According to the company’s Twitter account, the hardware wallet manufacturer is integrating this feature in its “Model T” product line.

Using CoinJoin with Trezor also comes at a cost. Along with the transaction fees, there is also a one-time service fee of 0.3% of the total amount that is coinjoined. It is also important to keep in mind that while it is not possible to determine the connection between sender and recipient, it is still visible that a transaction was coinjoined.

Do we need such a feature?

This strongly depends on whom the sender and the recipient are. Let’s say somebody is buying something from an online store with Bitcoin. The store already knows with whom they are dealing since they need to ship the goods to that person. The same applies to all other services that require the customer’s name and home address.

Of course, it could be argued that others can pry on the transaction for their purposes but since Bitcoin addresses are pseudonymous, they cannot tell who the sender is. However, the recipient might be identified if he reuses an address that is publicly available to receive Bitcoin payments.

Another important factor is that not all businesses accept transactions that stem from a CoinJoin and reject them according to the terms of services for compliance reasons. While some Bitcoiners argue that more privacy is needed the pseudonymous nature of Bitcoin already provides reasonable protection of personal information.

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