4

Talking about the privacy-implications of Bitcoin address reuse.

Let's say A has to pay the rent to B. Each month, A sends 1/12 BTC to the same public address of which B has the private key.

a) What is the privacy-risk for A and what is the privacy-risk for B in doing so? Note that B is not spending any bitcoin from the address.

b) Let's consider only the first transaction from A to B. What information becomes publicly available?

c) And what extra information from the subsequent transactions will hidden if A and B choose to use a new address for each transaction?

d) What happens if A can transfer 1 BTC to B as private as possible, and B goes to an exchange and changes his 1 BTC to fiat-money? His balance will be visible on the blockchain! So why bother to choose new addresses for each transaction, privacy-wise?

1 Answer 1

5

a) In this scenario, where B does not spend from the address except to send to the exchange, and A already knows how much B is receiving in rent, there is no privacy benefit strictly between A and B of using a new address for each transaction before A and B. However, it would be easily noticeable on chain to a third party that one address receives payments regularly, even more so if A pays from the same address each time.

b) A, and everyone watching the chain will know the address and every transaction involving that address.

c) No information will be hidden with regards to A and B. To a third-party watching the chain, they would not be able to know that is the same person receiving the payment every month, like they would if the same address was reused.

d) Overall, this is less applicable when involving just sending to an exchange. The benefit of using different addresses occurs when B sends the bitcoin to a new person. If B has all their bitcoin on the same address, then they will expose their entire stack to anyone they want to pay, even if they are only sending a small amount. For example, you wouldn't want someone to see your total bank account balance when sending them $20. The other benefit is not having activity that is indefinable by third parties. Making payments every month to the same address would be noticeable.

2
  • So when B only receives and never spends, B can use the same address?
    – Birdy
    Jan 23 at 13:39
  • If B only receives from A for that address and never sends to anyone that they would not want to reveal their whole balance to, then reusing the same address would be fine.
    – luke
    Jan 23 at 16:30

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.