Are You a Bitcoin Target?
You may be leaking data
I make no secret of the fact I buy Bitcoin every Friday morning. I’ve been doing this for years, and never consider the price of Bitcoin before I purchase. I just buy using the same amount of money every week. Sometimes I get more Bitcoin, sometimes less, but I don’t really care.
YOU CAN’T TIME THE MARKETS
and people who incessantly boast of “trading” and “profits” almost always are simply trying to sell you something: a course, a substack, a book, or even reads on Medium. But it’s well known over 90% of stock market “traders” lose money, and we suspect this metric is much, much higher in the cryptocurrency markets. So I don’t even try; I just buy and hold.
BUT WHENEVER I BUY BITCOIN
I follow best practices, starting with purchasing from a regulated exchange. Of course it wasn’t always like this; when I first started buying Bitcoin all transactions were strictly counterparty to counterparty; Bitcoin meet-ups were the norm, but we often just purchased from folks we just met in clubs and pubs. The community was much smaller and tighter, our practices more casual back then. But Bitcoin has gotten much, much larger since those days, and increasingly, subject to regulation.
REGULATORS PROTECT THE PUBLIC GOOD
by insuring only “fit and proper” entities are allowed to offers services to the general public. In The UK The Financial Conduct Authority, FCA, regulates all financial services firms doing business with the general public, cryptocurrency exchanges included. You need to have a level of protection in case the exchange you are using is untrustworthy or doesn’t implement adequate security. Although I was very lucky in my “casual” dealings, others often fell prey to scammers. So some regulation is necessary to protect us. But it isn’t enough to rely solely upon the regulators.
YOU STILL NEED TO PROTECT YOURSELF
and the best thing you can besides only transacting on a regulated exchange, is to never reuse addresses. Every time I buy Bitcoin I use a new receiving address. Each address is generated by my hardware wallet. It’s based upon my seed phrase, and I don’t need to worry about running out of addresses thanks to two algorithms the creators of Bitcoin integrated
ELLIPTIC CURVE MULTIPLICATION
and hashing, which insure every receiving addresses generated by my Bitcoin wallet is unique. And a unique receiving address is important, as there is no way to reverse these algorithms and link these addresses to me. And by using a fresh receiving address for every Bitcoin transaction you are protecting your privacy in ways that might not be apparent.
THIS IS A SECURITY BEST PRACTICE
and I’m not the only individual who engages in this best practice; so should you. But why?
BECAUSE REUSING ADDRESSES LEAKS DATA
and allows others to collect information about you and your activities. By reusing an address you are providing data to people who routinely scan the public blockchain. These people are looking for addresses with large amounts of Bitcoin, and then tracing back to see what other information they can gather.
INFORMATION THAT MAY UNCLOAK YOU
from the strong privacy Bitcoin provides by default. Depending upon how much Bitcoin you own, uncloaking may create a large number of problems, some minor but others severe. And this isn’t just theory, let’s look at some scenarios.
YOU WISELY HAVE BEEN BUYING AND SAVING
Bitcoin for years. But unwisely, you used a single receiving address for all your transactions. Due to a combination of regularly buying and an increase in the price of Bitcoin, you are now financially comfortable, perhaps even wealthy.
One evening you buy Bitcoin from someone you found on a peer to peer exchange. This trader has high ratings, but requires a bank transfer for payment. He even requests your mobile phone number, “in case there are problems”. Since the amount you are spending is modest, his feedback positive, he seems service oriented and you are paying by bank transfer you see little risk, and agree to his terms. The transaction is consummated quickly and you leave positive feedback.
But later this trader uses a Blockchain explorer to find out your address contains a large, perhaps very large amount of Bitcoin. He also knows your legal name, phone number and bank details. Knowledge is valuable, and specific knowledge like you provided this individual with, very valuable.
How valuable? Depends upon how much Bitcoin is held at your receiving address. Be aware, bad actors pay for information like this.
PERHAPS YOU ARE LUCKY ENOUGH
to get paid in Bitcoin. Similar to how you operate a bank account, you use a single Bitcoin address to get paid, as well as to pay your bills. Anyone who with that address can see a complete picture of your income and outgoings. Your private life is at severe risk.
Perhaps you donate to a political party using their public Bitcoin address. Of course this political party has its opponents. Unfortunately for you, the opponents of this political party are digitally literate.
They routinely scan the public receiving address to see what addresses are donating to the party they oppose. Your single use address is identified, and with it a full picture of your income and spending habits. They can see where your funds are going and, if enough information is available, who your employer is. But that’s not your biggest problem.
Your employer is also digitally literate, and scans employees receiving addresses. They track your spending, and perhaps your employer objects to this political party. Or you are spending money for what they consider immoral purposes. Now your job could be at risk, simply because you unnecessarily provided data to anyone who knows how to use a blockchain scanner.
TO PROTECT YOURSELF
always generate and use a new receiving address. When it comes to spending Bitcoin, your wallet will assemble the required amount from one or more receiving addresses; you won’t have to do anything.
BY DOING THIS
you are no longer leaking data unnecessarily. Only unique receiving addresses are used. Each address goes to whoever needs it, and is used once. Your privacy is protected.
And you are no longer a Bitcoin target.
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