Earlier this week, we looked at the best bitcoin wallets for beginners and how to buy bitcoin anonymously, but if you want to keep your bitcoin finances private (and here’s why you might want to), you need to know how to send it without leaking your personal information.

Why Bitcoin Isn’t Private

From 2009 to 2013, many people thought Bitcoin offered full anonymity.

In fact, many people perceived bitcoin as an anonymous, darkweb, digital currency for purchasing drugs and funding illicit activities.

The reality is that bitcoin lacks anonymity and offers little utility for criminals, but you can use it privately if you’re careful.

How Bitcoin Transactions Work

To understand why privacy is difficult, let’s break down the way Bitcoin transactions work. The Bitcoin network has all its transactions on an open ledger, which you can view on a ‘blockchain explorer’ like mempool.space.

So you can buy bitcoin anonymously, hold it privately in your wallet, but bitcoin itself isn’t anonymous? What gives?

When you buy bitcoin anonymously, it is attached to your public bitcoin address, which does not necessarily link to your name.

However, if you buy Bitcoin through a KYC exchange like Coinbase, your name is linked to your address permanently.

Privacy Risks In Action

Here’s how this can go wrong in real life. So if you send some bitcoin to buy a coldcard, for example, anyone who has access to your Conbase history, such as Coinbase, the IRS, and hackers, can see how much Bitcoin you sent.

Here’s another example of how bitcoin can ruin your privacy:

You buy a laptop from someone off of Craigslist, and you pay with bitcoin. You send it to them from an address where you have $50,000 worth of bitcoin. If you do this, they can see that you have $50,000 minus the cost of the laptop. How is this the case?

When you send money to buy the laptop, you also pay a small transaction fee to the bitcoin network, and the rest of your money is returned to you in a change address.

If you send $500 in Bitcoin for a laptop from a wallet with $50,000, the seller can see your remaining $45,000 and track your past and future transactions on a blockchain explorer by looking up your bitcoin transaction ID.

Protecting Your Privacy

Understand that you can never achieve permanent privacy on bitcoin, but you can stay anonymous with a few steps. There are many ways to send and receive bitcoin privately, but let’s start with some beginner-friendly tips. (A quick note: a UTXO, or unspent transaction output, is just a chunk of bitcoin in your wallet from a past transaction, like a $1000 piece from a previous purchase. Think of it as cash in your wallet—you choose which bills to spend. Here’s how to keep things private:

1. Use a new bitcoin receiving address for every transaction.
2. Avoid KYC exchanges like Coinbase. If you need to use a KYC exchange, choose more trustworthy companies like Bull Bitcoin or River.
3. Keep KYC and non-KYC UTXOs separate. If you mix them together by mistake, you eliminate the benefit of buying bitcoin without KYC.
4. Use small UTXOs for payments and keep your larger holdings separate and private. For example, if you’re buying a $500 laptop, send from a UTXO with just enough bitcoin (like $600), not one tied to $50,000. Wallets like Nunchuk and Sparrow let you view all the UTXOs in your possession with a tool called “coin control”.
5. Don’t talk about bitcoin with people you don’t trust — especially details like your wallet balance or recent transactions. This can make you a target.
6. Use a VPN or Tor when using your Bitcoin wallet.

For more privacy solutions, read here, and check out this video.

Up next, we’ll look at some alternative tools for sending bitcoin anonymously — specifically using the lightning network.

Tools For Sending Bitcoin Anonymously

We’ve determined that bitcoin isn’t private by default but it’s still possible to send and receive transactions anonymously if you’re careful.

Let’s look at an alternative tool for sending bitcoin in a way that’s more private, and much cheaper.

What Is The Lightning Network?

The lightning network is a payment protocol built on bitcoin to enable faster, cheaper and more private transactions. It’s a very cost effective way to send and receive btc (including micro-payments) when bitcoin transaction fees are high.

Bitcoin is completely transparent on the blockchain, but lightning obfuscates your transactions. So when you buy a $500 laptop from a stranger on Craigslist, they can’t access your balance and entire transaction history. It’s a very effective way to send bitcoin anonymously.

Lightning transactions are also instant, whereas bitcoin takes ~10 minutes to confirm on the blockchain.

I like Bitcoin for saving and lightning for spending. Here’s why:

1. Bitcoin is more expensive to transact than lightning.
2. Bitcoin isn’t private, and if you’re not careful, you can leak your financial information. Lightning is way more private.
3. Bitcoin takes time to confirm. Lightning is instant.

You can keep a small amount of money on your mobile lightning wallet, and whenever you run out, you can reload it from any bitcoin wallet.

Best Lightning Wallets

There are a few factors to consider when choosing a lightning wallet. It needs to have an excellent user interface, it needs to be self-custodial, and it needs to be easy to convert between bitcoin and lightning.

I’ve used two wallets that meet these criteria, and they’ve been a pleasure to use — Phoenix Wallet and Bull Bitcoin Wallet.

Phoenix Wallet is lightning-only, it’s self-custodial and it’s very simple to use. All you have to do is send bitcoin to a deposit address and it automatically swaps it to lightning.

Bull Bitcoin offers a more fully-featured wallet. You can hold and transact in both bitcoin and lightning, and you can swap between them in-app.

Either of these wallets would serve you well if you want to get started with Bitcoin Lightning.

How To Buy Bitcoin on the Lightning Network

You can swap your Bitcoin to Lightning on Phoenix or Bull Bitcoin Wallet, buy it on Robosats, or use an exchange called Boltz.

Another option is to purchase Lightning Bitcoin directly on the Bull Bitcoin exchange. When you buy Lightning from a KYC exchange like Bull Bitcoin, they still get your full name, address, and the amount of your transaction, but you keep your Bitcoin receiving address to yourself. When you can avoid tying your name to your bitcoin addresses, It’s a big win for privacy preservation.

Summary

Bitcoin is not private, but you can still send Bitcoin anonymously if you follow these important guidelines and use the right tools.

1. Avoid KYC whenever possible
2. Practice UTXO management
3. Use VPNs
4. Use Lightning Bitcoin

If you’re ready to buy Bitcoin, check out your nearest ATM or sign up for Bull Bitcoin (Canada, Europe and Mexico only). If you’re not yet convinced of bitcoin’s value proposition, read this.

Bull Bitcoin requires KYC, but they respect their customers’ privacy and they only hold customer data as required by law (unlike some exchanges that over-regulate so that the government gives them a pat on the head or something).

Use my referral link to Bull Bitcoin for a 0.25% discount on all Bitcoin purchases (I will receive a small commission).