One Wrong Bitcoin Transaction Can Undo Years of Privacy, Cake Wallet COO Says

A single transaction can undo years of discreet Bitcoin activity, Cake Wallet’s chief operating officer has cautioned.

Appearing on the Bitcoin Rails podcast this week, activist Seth for Privacy outlined several techniques for staying private while using Bitcoin and argued that Western users have to make privacy a priority.

Privacy in Bitcoin has become a pressing subject again after the creators of the Samourai Wallet mixing service stood trial last year and ended up in prison.

This week, however, the United States Treasury Department withdrew two long-delayed cryptocurrency surveillance measures, a substantial victory for privacy advocates and the digital asset sector.

“If you ever spend your no-KYC coins with one of your KYC coins — which if you just let the wallet do its thing, it could do because it doesn’t know the difference — you immediately connect all of the non-KYC Bitcoin that you spend in that with your identity,” Seth said in remarks about UTXO management, also called “coin control” by some wallets.

A Bitcoin wallet does not contain a single balance; rather, it holds a series of individual unspent transaction outputs, or UTXOs, each representing a distinct “coin” that came from a particular prior transaction.

Seth noted that a payment greater than any individual UTXO triggers the wallet to take several outputs and bundle them as inputs in the same transaction, an easy slip to make.

He added that people in the West, unlike those in the global South who have lived under more repressive governments, will have to “feel pain” before they recognize privacy’s value.

Still, he said views were evolving, with more individuals now taking their privacy more seriously.

“It has been shifting, in the last five or six years a lot of people — even in the West — are starting to think [privacy] really matters, we really need to think about this seriously now,” he said.

Cake Wallet is an open-source, self-custody wallet designed with privacy in mind, and it integrated Bitcoin’s Lightning Network into its platform earlier this year.

The second-layer solution is not just quicker and cheaper to use; it also provides greater privacy than Bitcoin’s main chain.

Even though Cake Wallet supports other cryptocurrencies, including the privacy coin Monero, Seth for Privacy said he would prefer it if that digital coin did not exist.

“If Bitcoin’s privacy got good enough that you could use it and have at least almost as good privacy as Monero without massive hoops to jump through, and Monero ceased to exist, that’s fine,” he said.

“I would much rather the thing that more people use has better privacy than a more niche tool that has perfect privacy, and that’s something that less people are using because it’s less well known.”