CoinJoins as a Percentage of All Bitcoin Payments Have Tripled to 4.09% Over the Past YearBy Kyle Torpey
Although Bitcoin is still sometimes referred to as the anonymous digital currency of the deep web, privacy is one of the digital bearer ecash’s weak points. That said, there have been a variety of attempts to improve the level of privacy offered by the Bitcoin network over the years. Yet while altcoins like Monero and Zcash have the benefit of reimagining how a cryptocurrency network should be designed from scratch, Bitcoin’s privacy improvements are mostly tacked on as afterthoughts.
One of the most well-known privacy-focused projects in Bitcoin today is Wasabi Wallet. This wallet is designed for users who wish to achieve greater levels of anonymity than what is provided by a traditional Bitcoin wallet. Wasabi Wallet contains an implementation of CoinJoin, which is likely the most well-known privacy enhancement for Bitcoin. According to blockchain data provided to Longhash by Adam Fiscor, who is the CTO of zkSNACKs (the company behind Wasabi Wallet), these CoinJoin-based transactions have been on the rise over the past year.
What is CoinJoin?
Many of the privacy gains that can be had with Bitcoin revolve around user activity. There are specific actions, such as avoiding address reuse, that can help users prevent leaks of data related to their financial activities.
CoinJoin is an example of one of these best practices. The basic idea is for users to mix their bitcoins with each other in a single transaction. Since Bitcoin transactions are publicly viewable on the blockchain, it’s important for privacy to obfuscate the connection between the sender and the recipient of a payment. In a normal Bitcoin transaction, it is easy to see that Alice sent some bitcoin to Bob. With CoinJoin, the data on the blockchain will only tell an observer that Alice sent a payment to Bob, Joe, Dorothy or potentially many more possible recipients. The amounts used in these CoinJoin transactions are also important, but we’ll keep things simple for now.
CoinJoins as a Percentage of Total Bitcoin Payments
Although CoinJoins make it more difficult to track funds on the blockchain, the existence of these types of transactions are relatively easy to identify. While not perfect, Fiscor’s data pulls out transactions that have characteristics of CoinJoin transactions. Specifically, the criteria used to find CoinJoin transactions are (1) the transaction has at least two outputs of equal value and (2) the value of the outputs is less than or equal to the value of the inputs.
There are a few points in Bitcoin’s history that stand out when it comes to the use of CoinJoin. The high percentage of CoinJoins sometimes seen prior to 2013 were likely due to developers testing out CoinJoin combined with the low number of total payments on the network at the time. The tremendous growth in CoinJoin transactions from late 2013 to 2014 was likely due to the release of Blockchain’s Shared Coin integration in November 2013. Shared Coin was an open-source implementation of CoinJoin available at the time.
CoinJoin usage collapsed after Blockchain’s CoinJoin feature was removed around February 1, 2014. The release of JoinMarket in 2015 led to a resurgence of CoinJoins on the Bitcoin network, and more recently, CoinJoins as a percentage of monthly bitcoin payments has grown from 1.31% to 4.09% since Wasabi Wallet’s original release in August 2018.
A higher percentage of CoinJoins may indicate more users are using Bitcoin for its originally intended purpose as a permissionless, apolitical form of digital money.