• Change outputs in Bitcoin are bad for privacy as they can be tracked by anyone.
• CoinJoins are a type of collaborative bitcoin transaction that enables users to gain privacy without losing custody of their coins.
• However, CoinJoins still produce a change output which can be used to track payments and undo UTXO management.
What Are Bitcoin Change Outputs?
When making a Bitcoin transaction, instead of only sending the exact amount needed like traditional payment systems, you send all the sats from the original address into new ones. This creates a change output, which is the amount you get back when making a payment. Outsiders don’t know which output was the payment and which one went back to the sender as change, but receivers can track this change output to see where payments come from. As pointed out by many Bitcoin privacy researchers, this is a privacy nightmare that can undo years of diligent UTXO management.
Why Are Change Outputs “Toxic”?
Change outputs are referred to as “toxic” because they make it easy for anyone to track related payments and compromise user privacy on pseudonymous networks like Bitcoin. This means that even if users have been managing their UTXOs diligently for years, one single change output could be enough for someone to trace all related payments.
CoinJoins To The Rescue?
CoinJoins are a type of collaborative bitcoin transaction that allows users to group up their UTXOs with other people’s coins in order to gain privacy without losing custody over them. Hundreds of participants might join together and make it hard to trace flows of funds including change outputs sometimes. This creates an obscure environment where nobody knows who owns what after the CoinJoin is done. Most implementations have minimum-amount requirements though, so participants must meet these before joining in order to ensure anonymity is preserved.
Are CoinJoins 100% Safe?
Although CoinJoins offer higher levels of obscurity than regular transactions, they still produce some form of change output which could be used (in theory) by outsiders to track payments and undo UTXO management efforts even after taking part in a CoinJoin transaction. It’s important for users looking for absolute anonymity when using Bitcoin not just rely on CoinJoin alone but also use other measures such as masking their IP address or using multiple addresses when sending/receiving funds in order minimize privacy issues associated with using cryptocurrency networks like Bitcoin..
Bitcoin offers great potential for financial freedom and autonomy due its decentralised nature; however, it also has its limitations when it comes down user-privacy due its pseudonymous network model where all users are identified by addresses they use when transacting funds between each other on-chain or off-chain (via sidechains). Change outputs and coinjoins are two concepts often mentioned whenever discussing how best protect user data according personal information safe from unwanted third parties; however both still generate certain levels risk depending how much security measures taken by users themselves beyond these tools available at disposal within cryptocurrency space today .
• Bitcoin mining is becoming increasingly centralized, with two pools accounting for over 50% of the global hash rate.
• Mining pools emerged as a way to combine smaller miners’ resources to increase their chances of winning the proof-of-work competition and receiving rewards more frequently.
• Solutions such as ASICBoost, if implemented correctly, could help decentralize mining and make it more accessible to all.
The Problem of Centralizing Mining
Bitcoin mining is increasingly becoming centralized with two pools coordinating 34% and 18.2% respectively of the global hash rate. This means that they have a disproportionate share of control over what happens in the network, leading experts like Peter Todd to warn that this could lead to censorship or regulation in Bitcoin’s future.
What are Mining Pools?
Mining pools are server run by companies which unite miners located in different areas, pooling their computing resources together into one team which can then compete in the proof-of-work competition more frequently than an individual miner would be able to do alone. Originally created as a way for smaller miners to get rewarded more frequently from their efforts, today these pools are responsible for a majority of Bitcoin’s global hash rate – indicating just how much power they have over mining operations.
ASICBoost: A Possible Solution
One possible solution which has been suggested by many experts is ASICBoost — a specialized hardware acceleration technique which allows miners to use less electricity when performing proof-of-work calculations. If correctly implemented, this could help decentralize mining and make it accessible to all – regardless of whether or not they have access to expensive equipment or large amounts of capital investment needed for modern day bitcoin mining farms.
What Does the Future Hold?
Today we are still at the genesis chapter with regards to Bitcoin and its potential uses, so predicting what will happen is impossible right now – but what we do know is that centralization needs to be addressed properly if we want a secure future for cryptocurrency networks such as Bitcoin. Solutions such as ASICBoost could help achieve this goal but only time will tell if they will become widely adopted or not within the industry.
Mining centralization poses several risks for both present day bitcoin users and those who might join us down the line; however solutions such as ASICBoost offer an interesting way forward towards a decentralized future where everyone can benefit from participating in cryptocurrency networks without needing access to expensive equipment or large amounts of capital investment needed for modern day bitcoin mining farms..
• Bitcoin multisig wallets provide a secure and private way to store digital funds by protecting against online threats like malware, hacks, and phishing attacks.
• There are two types of multisig wallets: collaborative custody wallets and self-custody wallets.
• Popular collaborative multisig wallets include Casa, which is free and has no KYC policy.
What is a Multisig Wallet?
A multisig wallet is a type of Bitcoin wallet that requires multiple signatures in order to authorize a transaction. This type of wallet provides an extra layer of security as it requires multiple parties to sign off on any transactions before they are processed. It also provides better protection against hackers, malware programs, and other malicious actors who may be trying to steal or manipulate your digital funds.
Benefits of Using a Multisig Wallet
Multisig wallets offer several advantages over traditional forms of Bitcoin storage such as hot (online) wallets and cold (offline) wallets. They provide an extra layer of security since multiple signatures are needed in order to authorize transactions; this means that if one private key is compromised, the funds can still be protected by the other keys held by the different parties involved. Additionally, multisig wallets can help users avoid custodial risk by allowing for more control over their own private keys without relying on third-party services or exchanges.
Types of Multisig Wallets
There are two main types of multisig wallets: collaborative custody wallets and self-custody wallets. Collaborative custody wallets involve using a third party to manage one or more private keys while self-custody refers to managing all private keys yourself through DIY devices or physical hardware like USB sticks and paper backups. Both approaches have their benefits depending on your particular situation; however, self-custody offers greater privacy since you do not need to rely on any third parties for verification or authorization purposes.
Popular Multisig Wallets
The most popular collaborative multisig wallet is Casa, which is free and does not require customers to undergo KYC procedures in order to use its services. Other popular options include BitGo, Armory Multsigs, Electrum Multsigs and Blockstream Green for those looking for self-custody solutions with DIY devices available such as Ledger Nano S or Trezor One/Trezor Model T hardware wallet models among others.
Multisig wallets provide an extra layer of security when compared with other methods used for storing Bitcoin such as hot (online) or cold (offline) storage solutions due to their ability to require multiple signatures from different parties before authorizing any transactions involving your digital funds – thus providing better protection against malicious actors who may be trying to steal your money or manipulate the market prices with large orders placed at once using stolen coins from hacked accounts etc.. Additionally you have the choice between collaborative custody solutions where you rely on third party companies for part of the key management process versus self-custody solutions where you take full responsibility over your own key distribution without relying on outside help – giving you greater privacy but also greater risk should something happen due to human error or natural disasters etc..
What Is Financial Sovereignty?
Financial sovereignty is the ability to hold and manage one’s own wealth without relying on third-party custodians. It is the key to financial independence and autonomy.
The Resistance To Change A Habit
People who are used to custodial services often don’t see a need to change this habit. There is a big resistance to change habits, as it requires effort and education about self custody and its benefits.
Lightning Wallet Test in Zimbabwe
To find out if it was possible for people in Zimbabwe to use non-custodial Lightning wallets, even with low and erratic internet connection, I did a test there.
Educate People On Self Custody
As a Bitcoin educator, my first priority is teaching people about self custody and why it is important. They need to understand the difference between custodial and non-custodial services so they can make an informed decision when deciding which route they want to go down.
It is essential that people understand the importance of self custody before using Bitcoin tools such as Lightning wallets, as this will help them become financially sovereign and protect their funds from getting rug pulled at any time by third parties. Educating newbies on how to properly use Bitcoin tools securely will ensure that everyone can benefit from its potential for financial freedom.
• The article discusses the new ways of tracking sats (fractions of Bitcoin) across transactions, known as Ordinals and Inscriptions.
• It explains how they work, the potential benefits of using them and the concerns that have been raised regarding their usage.
• Lastly, it provides an opinion on the matter from the author’s perspective.
What Are Ordinals and Inscriptions?
Ordinals are a made up way of tracking sats (a fraction of a Bitcoin) across transactions. They are numbered in order to represent when sats were mined into existence, and tracked through a first in, first out (FIFO) method. An inscription is another made-up convention where sats can be inscribed with arbitrary content, a kind of Bitcoin-native digital artifact or NFT. They are written into transaction witnesses so they never enter the UTXO set.
The Bull Case for Ordinals and Inscriptions
The pro case for Ordinals and inscriptions is that it could be argued as “Come for the fun, rich art, stay for the decentralized digital money.” Additionally, it could be seen as a way to argue that “Bitcoin does it better” in comparison to shitcoin NFTs because Bitcoin inscriptions are immutable, always on chain, simpler and more secure than shitcoin NFTs.
Concerns Raised With Inscriptions
The main concerns raised about using these conventions include reduced accessibility to transact on Bitcoin due to degens creating transaction backlogs; reduced ability to run full nodes because of increased storage requirements; and the possibility of illegal material being recorded onto Bitcoin’s blockchain which may discourage some users from using it.
From this author’s perspective while there may be fun aspects associated with using ordinals or inscriptions one must consider all factors before engaging with them due to potential impacts on fees per real byte as well as other risks outlined above.
In conclusion, while there may be some benefits associated with using ordinals or inscriptions one must carefully weigh all pros and cons before deciding whether or not to use them given their impact on fees per real byte as well as other risks associated with their usage such as recording of illegal material onto bitcoin’s blockchain which may discourage some users from utilizing Bitcoin itself .