Essential basic Bitcoin Privacy Precautions for Self-Custody

Start doing self-custody correctly from the beginning

An outline of the most important and basic privacy precautions for keeping Bitcoin in self-custody. Self-custody is nowadays the only way to keep safe and secure Bitcoin. Centralized agencies, government and authorities are collecting information and preventing you to use your funds as you would need to. Using self-custody is the only way to protect yourself. Here some basic recap:

1. Never Reuse Addresses

• What: Use each Bitcoin address only once to receive funds

• Why: Address reuse is the single biggest privacy leak. It links multiple transactions together and reveals your balance

• How: Use wallets with built-in address generation (HD wallets). Generate a new address for every transaction

2. Run Your Own Full Node

• What: Download and verify the entire Bitcoin blockchain yourself

• Why: Third-party servers can track all your addresses and transactions. Your ISP can see you’re using Bitcoin

• How: Install Bitcoin Core or similar full node software

• Alternative: Use client-side block filtering (BIP 157/158) if full node isn’t feasible

3. Use Tor for All Bitcoin Network Activity

• What: Route all Bitcoin traffic through the Tor network

• Why: Hides your IP address from peers, ISPs, and transaction surveillance companies

• How: Configure your wallet/node to run over Tor, or use Tails OS for maximum privacy

• Always Broadcast on-chain transactions over Tor this is very important for preventing IP address correlation with transactions

4. Avoid KYC/AML

• What: Obtain Bitcoin without providing personal identification, documents and related information

• Why: KYC exchanges link your real identity to all your Bitcoin addresses and transactions and share these details to government agencies

• How: Use cash trades, Peer2Peer purchases, Bitcoin ATMs without KYC, earn Bitcoin, or mining

• Avoiding AML/KYC is the number 1 and most basic rule for an individual to improve their privacy”

5. Practice Coin Control

• What: Manually select which UTXOs (coins) to spend in each transaction

• Why: Prevents accidentally linking separate income sources or revealing your total balance

• How: Use wallets with coin control features

• Coin control as essential for preventing privacy leaks from transaction inputs

6. Avoid Change Outputs When Possible

• What: Structure transactions to spend entire UTXOs without creating change

• Why: Change addresses can be detected and linked to future transactions

• How: Use exact amounts, consolidate UTXOs, or accept slightly higher fees

• Try to avoid creating change addresses, for example when funding a lightning channel spend an entire UTXO into it without any change

7. Use Lightning Network for Payments

• What: Make off-chain Bitcoin payments through payment channels

• Why: Lightning transactions don’t appear on the blockchain and have much better privacy properties

• How: Set up a Lightning wallet connected to your full node

• Use Lightning Network as much as possible, it provides near-instant, private, cheap transactions. Better is using it with your own Lightning Node, where keys and channels are under your control.

8. Implement CoinJoin for On-Chain Privacy

• What: Collaborative transactions that mix your coins with others

• Why: Breaks the common-input-ownership heuristic that surveillance companies rely on

• How: Use JoinMarket, other solutions are nowadays less affordable

9. Minimize Information Disclosure

• What: Be cautious about sharing any Bitcoin-related information

• Why: Data fusion can combine small leaks into major privacy breaches

• How:

  • Don’t publish donation addresses publicly

  • Use email aliases

  • Avoid posting transaction IDs or addresses online

  • Be careful with delivery addresses when purchasing goods

• Be careful to reveal as little information as possible about yourself when transacting;

10. Secure Your Devices

• What: Protect your wallet files and transaction history from physical access

• Why: Digital forensics can extract all your Bitcoin activity from hard drives

• How:

  • Use encrypted wallets

  • Consider Tails OS or a debian with full OS encryption

  • Securely wipe old devices

  • Use hardware wallets for cold storage

• Never forget devices with clear data on it

11. Understand Your Threat Model

• What: Define who you’re protecting your privacy from

• Why: Privacy measures should match your specific risks and adversaries

• How: Consider whether you’re protecting against:

  • Casual observers

  • Transaction surveillance companies

  • Hackers and criminals

  • Government agencies

  • Family members or employers

• Think about what you’re hiding from, what is your threat model and what is your adversary. This is necessary to understand how to modulate trade off in your configuration.

12. Never Use Web Wallets or Custodial Services

• What: Avoid wallets where someone else controls your keys

• Why: These services see every transaction you make and can link your identity to your Bitcoin activity

• How: Use self-custody wallets like Electrum (with your own server) with keys managed with hardware wallets

• Never should not use web wallets, they are evil for privacy

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Priority Ranking for Beginners

Must do immediately:

1. Never reuse addresses

2. Avoid KYC exchanges

3. Use Tor for transactions

Should implement soon: 4. Run your own full node 5. Use Lightning Network 6. Practice coin control, 7. Create your own Lightning node

Advanced but important: 8. Use CoinJoin 9. Avoid change outputs 10. Secure your devices properly. 11 Use Swap techniques for enhancing privacy.

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