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Advancements in On-Chain Privacy
Bitcoin was founded on the promise of permissionless electronic cash, but its transparent ledger means on-chain privacy remains an ongoing challenge. From transaction heuristics to metadata leaks, those looking to surveil financial activity have multiple avenues to track unsuspecting users. Greg Maxwell, a pioneer in Bitcoin's open-source development, captured these privacy concerns succinctly in 2013:
Traditional banking provides a fair amount of privacy by default. Your inlaws don't see that you're buying birth control that deprives them of grandchildren, your employer doesn't learn about the non-profits you support with money from your paycheck, and thieves don't see your latest purchases or how wealthy you are to help them target and scam you. Poor privacy in Bitcoin can be a major practical disadvantage for both individuals and businesses.
Ensuring that bitcoin use remains private and secure requires ongoing development, and OpenSats grantees are at the forefront of this effort. As part of our mission to foster open-source Bitcoin development, OpenSats is dedicating the next few months to highlighting the innovative work of our grantees. Today, we highlight three privacy-focused initiatives supported by our General Fund, as announced in July 2023, August 2023, and October 2024, respectively:
The developers working on these projects are making meaningful impacts, with real-world implementations in place and ongoing improvements ahead. Let's take a closer look at how these projects are advancing and reinforcing Bitcoin's privacy and thus end-user security.
Async Payjoin
One of the most powerful tools for on-chain privacy is breaking the assumptions used by blockchain surveillance, which are based on various heuristics and transaction patterns.
One such assumption is the common input ownership heuristic (CIOH), which suggests that all inputs in a transaction belong to the same entity. The CIOH is one of the most common methods to track payments and link addresses, effectively degrading the privacy—and thus security—of all users. Payjoin disrupts this heuristic, which in turn improves the privacy characteristics of the whole network. Even if only a small percentage of users use Payjoin as their default payment mechanism, the common input ownership heuristic can't be trusted anymore, making it a useless heuristic for transaction deanonymization. "The main problem is that," as Francis Pouliot, CEO of Bull Bitcoin pointed out, "to make it happen, a lot of open-source software infrastructure was missing."
Version 1 of Payjoin (Pay-to-EndPoint) disrupted the CIOH assumption by modifying how transactions are constructed. Instead of a straightforward sender-to-recipient payment, the recipient also contributes one of their inputs to the transaction. This process reduces the effectiveness of common tracking and surveillance methods in use today. However, the challenge with this version was that it required real-time, synchronous coordination, meaning both sender and receiver had to be online at the same time, which is not practical at scale.
Thanks in part to OpenSats funding, Payjoin V2 (BIP 77) launched in 2024, implementing a major improvement called Async Payjoin. Because of this, Payjoin V2 no longer requires both sender and receiver to be online simultaneously, making private and secure transactions seamless for users. This enhancement makes it easier for mobile wallets and exchanges to integrate Payjoin by default without disrupting their existing user workflows, making privacy and security protections more accessible to a wider user base.
In December 2024, Bull Bitcoin Mobile became the first mobile wallet to enable sending and receiving Async Payjoin. This milestone marks a significant shift. Not only does Payjoin preserve privacy and security, but it also allows businesses to batch multiple transactions—reducing on-chain activity, and saving fees—while maintaining a streamlined user experience. Francis Pouliot, CEO of Bull Bitcoin goes on to say:
Without the OpenSats grant awarded to Payjoin Dev Kit, Payjoin V2 may never have come to exist and would have remained an idea in the mind of cypherpunks. Now that Payjoin Dev Kit has proven that an app like Bull Bitcoin can integrate Payjoin easily, many other apps are sure to follow. [...] Not only does this benefit users by offering them opportunistic UTXO consolidation without compromising on privacy, but it benefits the entire Bitcoin network by challenging the heuristics used by nefarious blockchain observers.
Indeed, multiple Payjoin V2 integrations are already live or in progress with BitMask, Bitcoin Core, Galoy's Bria payment processor, and Boltz following Bull Bitcoin's lead. By making Payjoin transactions indistinguishable from other batch transactions, Payjoin Dev Kit reduces blockchain fingerprinting and strengthens privacy and security for all.
Coinswap
With financial surveillance becoming more prevalent and intrusive, tools that protect privacy have become increasingly important for preserving financial sovereignty. Coinswap has been actively developing a solution to address this challenge—a decentralized atomic swap protocol that enables users to swap bitcoin UTXOs, breaking direct ownership links on-chain and disrupting chain-analysis heuristics.
Originally proposed by Greg Maxwell in 2013 and later developed into a proof-of-concept by Chris Belcher, the protocol is now actively advancing through independent contributors, including developers from Citadel-Tech, with funding from OpenSats.
Using a maker-taker model, swap service providers (makers) facilitate swaps, while swap users (takers) rely on applications to automatically coordinate multi-hop transactions for enhanced privacy. By passing bitcoin through multiple addresses, these transactions add uncertainty for trackers by obscuring the true sender and recipient. This blending of privacy-enhanced transactions with standard bitcoin transactions makes it significantly harder for nefarious actors to exploit financial surveillance, construct misleading transaction narratives, or leverage data for unjust financial profiling.
Since receiving a grant from OpenSats in October last year, development has focused on refining the smart-client (taker's application), dumb-server (maker's server) model, and integrating fidelity bonds to resist Sybil attacks. Despite the protocol's complexity, Coinswap prioritizes user-friendly workflows to make financial privacy accessible.
The recent beta release of v0.1.0 marks a major milestone towards making Coinswap use more prevalent. This testnet release aims to demonstrate how swaps can function in real-world conditions without revealing which participants exchanged UTXOs.
Looking ahead, the project plans to implement Taproot outputs, MuSig2 signatures for smaller and more private transactions, and decentralized DNS discovery to enable permissionless access to swap servers. The project is also exploring cross-chain swaps with UTXO-based sidechains like Liquid.
By evolving alongside Bitcoin's broader ecosystem, Coinswap ensures that financial privacy remains practical and widely available, empowering individuals and businesses to transact freely without fear of surveillance.
Silent Payments
Developed by OpenSats LTS grantee Josie Baker, Silent Payments (BIP 352) is an improvement proposal that enables users to receive bitcoin without revealing their on-chain addresses. Without Silent Payments, users have to manually manage new addresses, a task that quickly becomes cumbersome. History has shown that address reuse continues to be widespread because many users prioritize convenience over security, while others remain unaware that reusing addresses compromises their privacy. By automatically generating a unique address for each transaction, Silent Payments eliminates manual address management while ensuring greater privacy and security by default.
Silent Payments has been under active development throughout 2024, focusing on integration into Bitcoin Core, third-party wallets, and developer libraries. Multiple pull requests have been opened to implement essential features like address generation and transaction handling, alongside ongoing work on the libsecp256k1 module to optimize cryptographic operations.
Beyond Bitcoin Core, Silent Payments is being integrated into the rust-bitcoin library to streamline adoption in Rust-based applications. Developers have also introduced SilentPay, a TypeScript library designed to facilitate easy cross-platform implementation, ensuring broader access to the protocol.
Frequent Bitcoin users look forward to Silent Payments for its potential to simplify and strengthen on-chain privacy. Although still in active development, its integration across multiple platforms marks a significant step forward for Bitcoin, reinforcing privacy, security, and financial sovereignty for individuals and businesses alike.
Looking Ahead
The advancements achieved by OpenSats grantees in Payjoin, Coinswap, and Silent Payments mark significant progress with on-chain privacy, disrupting transaction surveillance, while promoting greater financial sovereignty.
These scalable innovations are making robust, user-friendly privacy solutions a reality for individuals and businesses, ensuring that Bitcoin remains a truly permissionless and resilient digital cash system. And while these projects represent major steps forward, they are just one part of a broader effort to make Bitcoin even more efficient and secure. Across the ecosystem, developers are continuously working on new solutions, many of which are supported by OpenSats.
Bitcoin's advancement depends on active, collaborative development, with open-source software as the core driver of Bitcoin as a neutral monetary network. OpenSats remains committed to funding open-source developers and projects that push Bitcoin's technology forward.
If you believe in building and maintaining a more private and secure Bitcoin ecosystem, consider supporting OpenSats. Every donation directly fuels the development of open-source projects that empower users and secure our financial future.
If you are a developer working on open-source software that makes Bitcoin even better than it is today, don't hesitate to apply for funding.