Bitcoin continues to be a huge breakthrough in the digital age as it allows people to transact with each other without the need for third parties. Bitcoin Magazine wrote about silent payments over two years ago to shed light on one of Bitcoin’s shortcomings: privacy. It was an issue then and it still is…as stated:
“…a push-based payment system (no one is allowed to “pull” payments from you, you have to explicitly authorize them yourself and “push” them to other people), Bitcoin requires the sender to have the information necessary to define the destination for the money they are sending. This requires the recipient to somehow communicate their Bitcoin address to the sender. In the case of trying to collect money from the general public, this has huge implications in terms of privacy or the need to maintain a constant interactive presence online. Anyone is perfectly capable of just posting a single Bitcoin address somewhere online, and from that point on anyone who wants to send money to that person can just do so, but there is no privacy in collecting money this way. Just take that address and look it up on the blockchain, and not only can you see how much money that person has sent, but you can also see the footprint on the blockchain of everyone who has sent them money. Both the person trying to collect money and everyone who has donated to them have no privacy at all; everything is completely open and correlated for the whole world to see.”
Before Silent Payments, the only alternative was to reuse addresses per contact to protect your privacy, or to run a server that offered a new address every time someone wanted to send you money. Neither of these are viable or scalable options for most users, leaving privacy reserved for a privileged few who knew how to achieve privacy. Fortunately, the community has made tremendous progress since then with the release of Silent Payments.
BIP352 (Silent payments)
After much debate on how to implement the feature as efficiently as possible, BIP352 is now a reality. When someone wants to receive funds privately, say an activist organization, they can post their Silent Payments address on their site instead of a traditional Bitcoin address. Now, when a user wants to send funds to the organization, they use a Silent Payment address in a supporting wallet. This automatically uses the unique public key associated with the Silent Payment address, combined with the public keys of the outputs they want to send to generate a brand new, single-use address that looks just like any other Bitcoin address. It sounds complicated, but this all works behind the scenes. All a user has to do is paste the address and send funds to it, just like any other address. There are many advantages:
1) The organization itself only needs to place one address on its site to still benefit from generating new addresses with each transaction.
2) The user sending money to the organization can always refer to the same permanent address. This allows him or her to easily send money continuously without having to maintain multiple addresses.
3) If the same user continuously sends money to the same Silent Payments address, a new Bitcoin address will be generated each time. The sender then doesn’t have to worry about the recipient knowing it’s the same user sending them money.
4) The recipient enjoys huge privacy benefits as users cannot simply view the funds in their wallets and see who else is sending them money.
5) The addresses generated for transactions between both users look like other Bitcoin transactions. This means that the use of the feature is invisible to outsiders.
6) No server is required. Any wallet that supports Silent Payments processes all of this technology locally within the wallet.
To summarize the benefits: With Silent Payments, any person or organization can now choose to use a static Silent Payments Bitcoin address instead of their traditional static address to not only have more privacy for themselves, but it also protects people trying to send them money by ensuring that even they as the recipients cannot get their hands on any information about the senders. With Silent Payments, the sender and recipient are given a huge layer of privacy, while still largely benefiting from the power of the underlying Bitcoin protocol to give them the freedom to transact as they please.
That said, there are drawbacks. The first is a direct result of the advantage of not needing a special device online to facilitate the transactions. Users must scan blockchain transactions to detect payments to them. This scanning can be time-consuming, but it provides huge privacy benefits for both users. Over time, the performance of the scanning can also be improved to make this less of a problem for users.
The second issue is one of adoptability, as Silent Payments are new and wallet support is quite limited at the time of writing. Both the sender and receiver must use a wallet that supports the feature. silent payments.xyz is a resource that shares which wallets support Silent Payments, the first of which
to currently have full support as Cake Wallet. If the community hopes for wider adoption of Silent Payments, wallets will need to integrate the functionality to provide more users with the privacy benefits that Bitcoin Silent Payments offers.
Overall, the idea of protecting user privacy through the native Bitcoin protocol is an important one that can provide user privacy without compromising what makes Bitcoin, Bitcoin. In fact, the privacy benefits of Silent Payments reinforce the fundamental beliefs of the Bitcoin community by giving users the freedom to transact with greater privacy if they so choose.
This is a guest post by Henry Fisher. The opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.