Address Reuse issue

Question

I dont understand how security works with multiple address using. I am trying to guess how security works here but need some feedback, so here are a few questions, and my own guesses.

If I have total of 100 bitcoins and lets say I transfer 10 to a seller, how do I secure the remaining 90, by creating a new Key-Pair for me and transferring the remaining 90 to new address?

Well, how is privacy kept here then, my addresses are still linked?

So when I make another payment again I transfer the remaining funds to a new account, and this means generating and or storing new keys, how do wallets provide security then?

I guess wallet keys are never used on bitcoin transactions then, probably used to generate some key pairs and to store their private keys safely in a wallet, I guess if you transfer wallet details online to some other storage, you are still risking exposing your keys.

And lets say, you collected 10 bitcoins in 10 different transactions, should I transfer them to another account to have all them together, so I can use them in a single transaction, or when I have to transfer 10 bitcoins, shall I use them all together and execute 10 different transactions, (well makes sense that if the receiver is using a new address for this action, then s/he would know that I transferred this amount.)

Answer 1

You are right in noticing that the change from a transaction is linked to the previous input.

Address reuse is more for receiving payments than spending them - if you have two clients paying you, giving them separate addresses for the payments creates two completely unlinkable outputs on the chain.

Naturally, if you make a future transaction that requires the combination of both outputs, you will end up linking them. Wallets employ a variety of heuristics to minimize such linkage, including:

1. Use all outputs for a given address before resorting to selecting outputs from other addresses when sending coins, even if this results in higher fees
2. Only use addresses for inputs to a transaction that have been previously used together in other transactions to avoid creating additional, new links between wallet addresses
3. Select a possibly non-optimal larger input that comes from a single address vs. selecting smaller inputs from multiple addresses

Whether you would like to consolidate your existing BTC from many addresses to a single one is up to you - I personally would not do that, and prefer to maintain as many separate addresses as possible. However, some services, such as exchanges, find it advantageous to consolidate coins for security and fee reasons, and find the loss of privacy an acceptable price for that.