|See CoinJoin Overview & other CoinJoin work on the project page|
There is a huge effort underway to discourage bitcoiners from using bitcoin privately, specifically discourage use of CoinJoin software.
This is a coordinated effort which involves many large exchanges, analytics companies and no doubt sell out bitcoiners.
Don’t be coerced into giving up your privacy - KEEP USING COINJOIN.
Bitcoin transactions are public. Used naïvely this makes bitcoin transactions very easy to follow, meaning that bitcoin is not private by default. Used carefully (with the correct tools) bitcoin can be used quite privately and much work is being done to improve both the ease of using bitcoin privately & the cutting edge of bitcoin privacy.
One key tool used by those looking to use bitcoin more privately is CoinJoin. I have written an overview for those who are unfamiliar, but put simply it is a process of mixing your coins with those of other strangers in such a way that it is not possible to determine with certainty the links between the bitcoin that goes into the CoinJoin transaction, and those which emerge from the other side.
A frequent concern of users learning to improve their bitcoin privacy is whether their bitcoin will be more difficult to sell / exchange after mixing. They wonder whether mixed ‘tainted’ coins are less valuable than ‘untainted’ coins, i.e. whether bitcoin is fungible. Almost all merchants & individuals who accept bitcoin treat bitcoin as fungible, they don’t care what the history of the coins are. For some, CoinJoin outputs are preferred, because the history is ambiguous. Exchanges and lending platforms are the exception to the rule, many of these services are becoming increasingly hostile to users who CoinJoin.
Typically people describe coins as either having no Taint (A freshly mined coin which has no ‘history’ to speak of) to being Tainted (A coin which for which the pubkey is widely known to be a scammer’s repeatedly re-used address.)
The ‘Tainted’ coin is only such because the address of the scammer is known to the analyst. Suppose that the analyst doesn’t know this vital piece of information, would the coin still be tainted? It should be clear that the degree to which coins can be classified as tainted depends on the level of information available to the person doing the classifying.
As such, taint is not an intrinsic property of the coin (unlike, for example, the value of the coin in satoshis), it is an extrinsic property imposed ON the coin BY the analyst.
CoinJoining before depositing / after withdrawing?
Both of these have caused issues - don’t assume that performing a CoinJoin after withdrawing will be permitted. At any time exchanges can evict you from their platform, and you need to prepare for that by never leaving bitcoin on the exchange, and ideally by deleting your accounts at these centralized exchanges.
A growing trend.
Prior to late 2019 I am not aware of there having been any reported issues selling / exchanging bitcoins which have been mixed. Since late 2019 there have been a growing number of exchanges contacting users following their use of CoinJoin tools pre/post withdrawal. These are tracked below:
Which companies flag users who CoinJoin?
|Cash App (Square)|
* Some evidence provided privately to me (6102bitcoin)
** Strong evidence provided privately to me (6102bitcoin)
Possible Options for Users
- CoinJoin & Opt-Out of Exchanges
This is the best option. Exchanges which require KYC documentation are security holes and have been hacked time and time again. Vote with your feet and stop using exchanges which do this. A number of non KYC Options exist (most notably BISQ & hodlhodl allow P2P exchange)
- CoinJoin & Continue using Exchanges
This is an option which many will take due to the convenience of KYC exchanges (particularly if you have already been ‘verified’). Users attempting this risk having their accounts locked for breaking (potentially unwritten) rules. Typically users doing this attempt to put distance between the exchange and their mixed coins by sending through multiple intermediate addresses.
- Stop CoinJoining
This is the worst option. It’s not normal for companies to undergo pervasive and indefinite surveillance on paying customers. Push back.
Pay With CoinJoin
Regardless of your decision above, consider paying with mixed coins when spending your bitcoin. If people pay with mixed coins for normal ‘legitimate’ goods and services the heuristic that mixed coins are suspicious is broken. Even better, the merchant you shop at has coins 1 step removed from a CoinJoin tx, analytics companies / exchanges won’t be able to ban these users who have no way to selectively accept payments.
What should I do?
Obviously ideally you should withdraw everything from an exchange and use P2P tools. If that is not an option you should switch to an exchange that has not appeared on this list.