The goal of this post is to give an insight to blockchain privacy problems and reveal viable solutions to that particular privacy issue. To see the complete chart check conclusion section.

Author: Chris Slane

“Arguing that you don’t care about the right to privacy because you have nothing to hide is no different than saying you don’t care about free speech because you have nothing to say.” – Edward Snowden

Politically speaking, the biggest issue with blockchains is privacy. Blockchains are public data structures, meaning everyone can see what is inside the data structures. We can achieve privacy by using a set of technologies.

Table of Contents

Deterministic Wallets

A deterministic wallet is a system of deriving keys from a single starting point known as a seed. The seed allows a user to easily back up and restore a wallet without needing any other information and can in some cases allow the creation of public addresses without the knowledge of the private key.

Deterministic wallets can generate an unlimited number of addresses on the fly. As the addresses are generated in a replicable way, some clients can be used on multiple devices without the risk of losing funds. Users can conveniently create a single backup of the seed in a human-readable format without the worry of this backup becoming stale.

The problem with deterministic wallets is that although they allow the creation of different public keys, their connection can be deduced. If a user has

10 BTC in address A and 5 BTC in address B, but needs to send 13 BTC,

the wallet will combine the two addresses, sending

10 BTC from address A, 3 BTC from address B, and 2 BTC as change to a new address C (which is again deterministically created).

This problem allows anyone looking carefully to find out that addresses A, B and C belong to the same user.