An important part of practicing good Bitcoin privacy is not just keeping your Bitcoin stack private. It’s also about keeping your transaction history private.
If you’ve read any of my other articles focused on Bitcoin privacy, you might have noticed that I mention using burner wallets to protect Bitcoin privacy by “burning” the links between old transactions and new ones with a wallet that you only use once and then delete. Here’s how burner wallets are a practical way to add a simple layer of privacy to your bitcoin.
Big Data Wants Your Transaction History
While we all understand the importance of protecting our bitcoin, not enough of us seem to understand the value of protecting our transaction history. Even though we cannot lose bitcoin from an empty wallet, the data provided by a wallet’s transaction history may prove to be more valuable to chain analysis companies than our actual sats. Anyone with access to any one of your wallets may be able to discover your real-world identity, holdings in other wallets, or de-anonymize any bitcoin that you were able to get privately.
Since it’s practically impossible to erase a transaction once it’s on the blockchain, it’s incredibly important to prevent leaking information about your current bitcoin holdings as well as any past, present, or future transaction data.
Every time you make an on-chain transaction, a number of different heuristics can be applied to learn more about who controls the addresses involved. Chain analysis companies are constantly working on building better and better systems to follow the flow of on-chain transaction data to de-anonymize users and the Bitcoin transaction graph. With the recent rise of AI in almost every industry online, these chain analysis companies are becoming more and more efficient and effective at breaking down Bitcoin privacy.
While there are limited circumstances when someone could compromise your wallet or transaction history, using a burner wallet can protect your privacy and help to prevent leaking information about which addresses you control and how much bitcoin you have.
What Is A Burner Wallet?
A burner wallet is any wallet that you create to use for a limited time and then delete or “burn” after you’re done with it. You can think of burner wallets as a sort of onion routing for your own personal wallets. The purpose of deleting or “burning” a wallet is to delete your own transaction history in the event that someone compromises even an empty wallet that and could they could use to link your addresses to each other and verify that you are the owner of them.
There are a few ways to use burner wallets to protect Bitcoin privacy and add a layer of plausible deniability between different wallets and addresses. You can use PayNyms as burner wallets for a limited time, a wallet that you exclusively CoinJoin with, a “paper” wallet like OpenDime/SatsCard, or even a Lightning wallet for spending.
Why Should You Use Burner Wallets?
The primary reason to use a burner wallet is to add a layer of privacy between any wallets that you use to receive payments and wallets that you use for spending or long term savings. The idea is to move bitcoin through Bitcoin addresses that are completely unassociated with all of your other addresses and then delete or “burn” the wallet as soon as you zero out the balance.
If you use the same wallet for receiving payments, CoinJoining, and spending, then all of your transaction data is linked to the same wallet. Even if the balance is 0 sats, the transaction history still has all sorts of important information that can be potentially catastrophic for your privacy if it ever falls into the wrong hands.
There are all sorts of ways an attacker could compromise your wallet that you may not think of:
- Security screening at an airport
- Border crossing checkpoints
- Search & seizure
- Bad actors, hackers, and scammers
- A friend or family member finds your seed phrase (by accident or intentionally)
It’s therefore critical that you use burner wallets as a buffer between attackers potentially stealing a minuscule amount of bitcoin and potentially stealing your life savings. And the more careless you are with your bitcoin’s privacy, the more likely one of those thieves will want to target you.
4 Ways To Use Burner Wallets
Burner wallets can come in handy for all kinds of situations, but these are some of the most common and useful ways that you’ll likely come across.
1. PayNym Burner Wallets
Using a PayNym is a great way to receive payments without having to publicly reveal any of your private information such as a Bitcoin address or an xPub key. These have a number of benefits over receiving payments, donations, or tips with a static Bitcoin address.
The primary benefit of sharing a PayNym is that it doesn’t reveal the address data, which makes them ideal for sharing on social media, websites, and other online platforms. PayNyms used to receive multiple payments also don’t create an address cluster from address reuse like static Bitcoin addresses do.
PayNyms have grown in popularity more recently after one of the most popular desktop wallets, Sparrow Wallet, added support for them. There is even a mining pool that will allow you to receive payments to a PayNym instead of a single address or xPub key. This can help to preserve user privacy if the mining pool is ever hacked and user information (like an xPub key) is compromised which would reveal payments made to the same entity.
You can create a PayNym with Sparrow wallet on desktop and Samourai wallet on Android. As far as I know, there is not a way to generate a PayNym on iOS but if you know of a way, send me a DM on Twitter and I will add any relevant resources to this article.
2. CoinJoin Burner Wallets
An obvious application for using burner wallets to protect Bitcoin privacy is to generate a new Bitcoin wallet specifically to CoinJoin and then delete it after you mix to your destination wallet.
Instead of using CoinJoin directly within a wallet that you use to receive payments, you can add a layer of privacy by first sending to a burner wallet that is specifically used to CoinJoin and then delete the wallet after you have completed as many rounds of CoinJoin as you’d like.
For example, if you CoinJoin directly from a wallet that you use to receive a payment or donation, your transaction history shows the origin address, your CoinJoin history, and the destination address that it was sent to after you completed your CoinJoin. If you generate an entirely new burner wallet just to CoinJoin, then you can delete the wallet after you have completed your CoinJoin and the balance is 0 sats.
3. “Paper” Burner Wallets
If you want to generate a Bitcoin address and the corresponding private key that’s unassociated with your seed phrase, you can always use a paper burner wallet. Although the term paper wallet is used, it is not necessarily made out of paper.
Paper wallets are good for receiving a single payment that can be swept at a later time and location. You can also generate paper burner wallets in a way that does not link them to your seed phrase or any of the other addresses in your wallet.
A common “paper” burner wallet that has been available for years is the OpenDime, and now there is a newer version called the SatsCard. An OpenDime is a Bitcoin hardware wallet meant to receive payment to a single address and then it can be physically exchanged an unlimited number of times just like cash. In order to send from an OpenDime to another Bitcoin address, the device needs to be irreversibly damaged to reveal the private key and sweep the wallet balance.
After you empty an OpenDime device, it’s now worthless, and you can destroy or “burn” it.
The SatsCard works in a similar fashion except that it can generate up to 10 different addresses (one at a time) and the device does not need to be permanently damaged to sweep the balance. After using up all 10 of the different address balances, you can destroy the SatsCard without leaving any record of any of those addresses ever belonging to you.
4. Lightning Burner Wallets
Using burner wallets on Lightning is another great way to preserve your privacy when using bitcoin. If done correctly, burner wallets can be a great way to spend post-mix bitcoin on Lightning and then burn after the balance reaches 0 sats. You can send a single post-mix UTXO to a Lightning burner wallet and then spend those sats out in the real world. Since you are only using a single UTXO, you are not creating any address clusters to follow on-chain. All you have to do is delete the Lightning wallet after your balance reaches 0 sats.
In the unlikely event that your phone is ever stolen, searched, seized, hacked, or otherwise compromised, there is no transaction history on your device if you delete your burner wallet as soon as you spend all of your sats. Lightning burner wallets can even be a useful way to spend doxxic change without linking it to any of your other UTXOs.
A simple way to use a non-custodial burner wallet with Lightning is with Muun and Phoenix which are both available on iOS and Android.
Where People Can Mess Up
You need to ensure that with all of these methods, that you too are properly integrating your burner wallet effectively to avoid compromising yourself. All too often, people make these mistakes when using burner wallets:
- Keeping too much bitcoin in a burner wallet leaves that stack vulnerable to the previously mentioned attacks, and you may not have covered all bases to ensure it’s safe from those scenarios.
- Reusing the same burner wallet address — instead of burning it — is an obvious mistake that will link all previous activity to your current activity, thus negating the privacy efforts you made in the first place.
- Storing the private key information online, for obvious reasons, is a quick way to lose all of the bitcoin that’s on the burner wallet. It’s no different than your cold storage, so don’t loosely store the private keys on your computer or mobile device. It shouldn’t exist for very long in the first place, so don’t take the risk exposing the private keys like that even for a moment.
Burner Wallet Best Practices
Now that you have a better understanding of burner wallets, keep these tips in mind moving forward:
- Only use burner wallets for small, short-term transactions rather than storing your net worth on one for a long period of time.
- After using a burner wallet, make sure you burn it. Clear any remaining bitcoin from it and properly destroy it as to not leave
- Create new wallet addresses every time you use a burner wallet to start with a fresh transaction history and maintain your privacy.
- Don’t overcomplicate a burner wallet’s recovery setup. In case you somehow lose access to the burner wallet while using it, having a multisig setup for a simple burner wallet will only be a nuisance to the process.
- Use reliable wallets for burner wallets. Despite the fact that you won’t be using them for long, the last thing you want to happen is losing your bitcoin in the process by using a scam wallet provider.
- Be mindful along the way. Ensure you’re acting with intention with each move, and always double check your wallet addresses to ensure you don’t send bitcoin to the wrong place.
Burn Your Transaction History
Protecting Bitcoin privacy with burner wallets is a simple, but effective way to safeguard your personal information and increase the anonymity of your transactions. By adding a simple layer of plausible deniability between addresses, wallets, and transactions, you create less possible links between all of your transactions, and are thus less likely to have your digital fingerprint tracked by surveillance companies and other potential threats.
If you want to keep your Bitcoin transaction history private and secure, consider using a burner wallet to protect your anonymity and keep your personal information out of the hands of prying eyes.
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