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How to Un-KYC your Bitcoin with Wasabi Wallet

Posted 12-01-2022, 03:57 PM
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=-=-=-=-=-= Bitcoin: Upgraded Money =-=-=-=-=-=

Money is a technology that allows two parties to trade with each other in the (extremely likely) event that each party doesn’t have any goods or services that the other party wants to accept for trade directly. There are different kinds of money that have different properties: Some people use pieces of paper with dead politicians on them called dollars, some people use heavy yellow metal called gold, and other people use a digital ledger of addresses and amounts that protects the integrity of its transaction history with a worldwide energy shield, called Bitcoin.

Since most people earn paper money from their jobs, they need to find a trusted middleman to exchange that paper for Bitcoin. Unlike other businesses who accept any customer who offers them money, these exchanges are coerced by governments to transact on a whitelist-only basis by requiring customers to provide a government issued ID. By creating a choke point where users enter or exit the ledger, it allows these businesses and governments to spy on the origin or destination of these users’ other Bitcoin transactions.

Wasabi is an open source, non custodial Bitcoin wallet that passively anonymizes your coins, making it impossible for those exchanges that collect your government ID to track where the coins you deposited came from, or where the coins you withdraw are sent to. This anonymity is guaranteed by using coinjoin transactions, client side block filters, and Tor. The guide below walks through the installation and operation of the software, and explains what each important feature does to protect your privacy.

=-=-=-=-= Wasabi: All-in-one privacy tool =-=-=-=-=-=
** Please be aware of phishing sites in search engine results.  Wasabi’s official website is https://wasabiwallet.io/  – Wasabi is a desktop only wallet, any Wasabi wallet you see in a mobile app store is malware **

1. Download & Install

The first important feature of Wasabi is that all of the software is open source. Open source software allows anyone to inspect the code for themselves to verify it will not do anything malicious such as steal their coins, leak their financial information, or infect their entire device. You can view and download the source code directly here: https://github.com/zkSNACKs/WalletWasabi

For this guide, I am using the Windows installer from the official website: https://wasabiwallet.io/#download

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2. Wallet Creation and Backup Recovery

When you launch the application, you will be given a brief introduction. The first thing it asks is if you want to create, connect, import, or recover a wallet. Click “create a new wallet” and pick a name:

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The second important feature of Wasabi is that coin ownership is non-custodial. Since you are the one creating the keys to the wallet, no one else can steal your money from you. However, your desktop may break, get stolen, or destroyed in a natural disaster. This means you inherit the responsibility of creating and handling the physical backup for the money in the wallet.

/!\ When you reach this screen, write down the random 12 words that appear in order on a PHYSICAL PIECE OF PAPER and store the paper somewhere safe where you will not lose it. This 12 word phrase is used to recover all of the funds in the wallet, so DO NOT SHARE IT with anyone. /!\

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When you click continue, it will pick 3 random words from the 12 word phrase you wrote down and force you to repeat them to make absolutely sure you kept a backup. The wallet will not let you receive any coins until you prove that you can recover those coins!

3. Password

Next, you are prompted to choose a password. Your password is required every time you send a transaction. If you do not trust yourself to remember a password, write it down somewhere you will not lose it, or you can simply leave it blank.

/!\ YOU CANNOT RESET YOUR PASSWORD IF YOU FORGET IT. DO NOT FORGET YOUR PASSWORD OR YOU WILL LOSE YOUR MONEY /!\

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4. Saving/Speed/Privacy Strategy

The third important feature of Wasabi is that it creates coinjoins to mask your transaction history. A coinjoin is a bulk transaction that combines coins from many different Wasabi users and rebuilds those coins as identical clones of one another. However, there is a cost tradeoff for using the optional coinjoin feature. Participating in a coinjoin transaction will always cost a miner transaction fee, so the wallet asks you what your highest priority is: Savings, Speed, or Privacy. You can change this setting at any time.

• Minimize costs – Your wallet will wait until transaction fees are lowest to coinjoin.
• Maximize speed – Your wallet will always try to submit all of your unmixed coins to the next available coinjoin.
• Maximize privacy – Your wallet will only coinjoin one unmixed input at a time (Red coin isolation), and will remix the coinjoin outputs again for an even higher “anonymity score”. This option costs the most in transaction fees.

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5. Network Sync

The fourth and fifth important features of Wasabi, Tor and client side block filters, have been running in the background this whole time while you were setting up. If you see a map of Earth, your wallet is syncing with the Bitcoin blockchain in a way that preserves your privacy:

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Tor is used to hide your IP address when broadcasting transactions and all other communications:

https://en.wikipedia.org/wiki/Tor_(netwo...ng_traffic Wrote:Tor aims to conceal its users' identities and their online activity from surveillance and traffic analysis by separating identification and routing. It is an implementation of onion routing, which encrypts and then randomly bounces communications through a network of relays run by volunteers around the globe. These onion routers employ encryption in a multi-layered manner (hence the onion metaphor) to ensure perfect forward secrecy between relays, thereby providing users with anonymity in a network location.
...
Because the IP address of the sender and the recipient are not both in cleartext at any hop along the way, anyone eavesdropping at any point along the communication channel cannot directly identify both ends. Furthermore, to the recipient, it appears that the last Tor node (called the exit node), rather than the sender, is the originator of the communication.

Compact block filters are a lightweight way to find out how many Bitcoins are in your addresses without needing to download every single block, and without telling anyone else which addresses belong to you:

https://docs.wasabiwallet.io/FAQ/FAQ-Use...ck-filters Wrote:A BIP-158 block filter is a data structure that contains a hash of all the addresses referenced in a block. It is much smaller than the whole block itself. The Wasabi coordinator generates these block filters, and sends them out to any wallet that requests them. A wallet client checks locally if the block filter matches any of the addresses in the wallet. If not, then the filter is stored for later reference and for syncing new wallets. If yes, then the wallet connects to a random Bitcoin peer-to-peer full node over Tor to request this entire block.

6. Basic Sending and Receiving Privacy

After your wallet is done syncing, click the “Receive” button in the top right corner to generate an address. The most important rule for Bitcoin privacy is that you should always generate a new address for each transaction you receive. Unlike most Bitcoin wallets, Wasabi asks you to make a note for yourself whenever you send or receive coins in order to keep track of the information that other people know from transacting with your addresses.

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In this tutorial, I am going to receive 0.0045 BTC from "Alice" using address bc1qa2umqqup0pphrrgqcafz3u56su3fjkjnn2zryz and receive 0.0055 BTC from "Bob" using address bc1qt3l69gn2qehyrgm89ex6g4mncpp5n7q25jtxxq. I am going to pay 0.01 BTC to "Carol", whose address is bc1qezet9ecqxnlxztuppveqcvyrg8m5pps6f7u30m.

By creating a normal transaction, here is the information that would revealed:

-Both Alice and Carol find out that I received 0.0055 BTC from Bob at bc1q...jtxxq
-Both Bob and Carol find out that I received 0.0045 BTC from Alice at bc1q...2zryz
-Both Alice and Bob find out I sent 0.01 BTC to Carol at bc1q…7u30m

If you attempt to spend coins in this way that leaks your privacy, the wallet will issue you a warning and tell you which previous senders/recipients would be able to link your transactions to each other:

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By coinjoining the 0.0055 BTC and 0.0045 BTC inputs from Alice and Bob before the 0.01 BTC is sent to Carol, none of the parties will be able to find out any information about each others’ payments.

7. Coinjoining Privacy

You need at least 0.00005000 BTC plus a transaction mining fee to coinjoin, but Wasabi will not start coinjoining by default until you have 0.01 BTC or more worth of non-private inputs in order to save you money on transaction fees. If your non-private balance is less than 0.01 BTC, you can still register for coinjoins manually by clicking the play button:

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All you have to do now is sit back and wait patiently while the coordinator bundles your coins with other Wasabi users. The box in the bottom of the screen tells you what stage the coinjoin process is at, and how long until it advances to the next one:

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Eventually, the coinjoin will complete and you will see your privacy progress increase, changing the bar from grey to green. A new transaction will appear in your list that shows the fee you paid to coinjoin in the “outgoing BTC” column:

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But what exactly happened in this transaction? The wallet included my 2 inputs in along with 197 inputs from other Wasabi users:
Tx id: f7e2fbf3adc55b961b4849087138bee01ff4944025e6ff7b3e0bc858a3c84e30

I received 7 of the 226 outputs from the coinjoin transaction. The unique property that makes these coins private is that other participants in the transaction also received outputs of the exact same amounts:

0.00531441 BTC (19 matches)
0.00200000 BTC (19 matches)*
0.00200000 BTC (19 matches)*
0.00032768 BTC (11 matches)
0.00020000 BTC (15 matches)
0.00010000 BTC (9 matches)
0.00005000 BTC (16 matches)

The “anonymity score” of each coin is a conservative estimate of the pool of other people that the output can belong to:

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*since I own two outputs for 0.00200000 BTC, the anonymity score for these outputs is half of the total number of matches.

In addition to the miner fee, coinjoins may also cost a one-time 0.3% coordinator fee, depending on the value and origin of the input you are registering. The following inputs do not pay any coordinator fees:

- Any input with a value of of 0.01 BTC or lower
- Any outputs from a coinjoin that you remix for additional privacy
- Any change from inputs you spent that were already coinjoined
- Any coins sent to you by other Wasabi Wallet users that were already coinjoined

8. Conclusion

- Write your 12 word seed on a physical sheet of paper and keep it safe
- Do not forget your password, there is no way to reset it
- Always generate a new address for each transaction you receive