Bitcoin's pseudonymous nature provides limited anonymity but as it continues to grow in importance more eyes will be placed on the network and privacy may start to become an issue especially as governments may want to crack down on capital flowing to initiatives they do not agree with or want to marginalise.
To introduce changes to Bitcoin on the protocal level is not something that can be done with a simple hard fork as getting consensus on anything bitcoin related is tough. So alternatives have been created off-chain, or on second layer solutions, I've spoken before on how you can achieve privacy with coin mixers, but now I'd like to speak about another method called "PayJoin".
Image source: - Coindesk.com
So what exactly is PayJoin?
PayJoin, which is also called P2EP since, in Bitcoin, we like to give complicated names for complex solutions, is a privacy option for Bitcoin users. Payjoin is a relatively new way to send private transactions in bitcoin and may offer better privacy than current popular alternatives such as coin mixers since you don't have to bring in 3rd parties.
How does PayJoin work?
Currently, if I send you Bitcoin, you can see from the block explorer how much Bitcoin left my wallet to move into another wallet, you know the free, you know the transaction time, and you know the two address involved.
A PayJoin transaction hides transactions use the BTC pay server to connect two wallets together and change the input and output data of a transaction, making it harder to understand what is going on. It could be understood as a simple transaction paying to somewhere with leftover change.
Using the P2EP or pay 2 endpoint method, it effectively combines two transactions. Let's say I want to buy something of 1 BTC I'll broadcast the transaction between the two wallets and the receiving wallet will send a payment to say 1 BTC for example and the receiver gets 1 BTC instead of 1 so you don't actually know what is going on, from the outside looking in on the block explorer.
If you would like a simpler explanation check out this video below
What is PayJoin by Andreas Antonopoulos - Source: Youtube
Where did PayJoin start?
PayJoin has been around since 2018 but is not well known since very few wallets and service provides have added support for the service. Since the service takes two to tango both the sender and receiver, need to support the standard, making it even harder since you need to find someone compatible to use the service. PayJoin transactions can be used on standard Bitcoin and Bech32 addresses as well as Lightning Network transactions.
If PayJoin transactions became even moderately used then, it would make the common-input-ownership heuristic be completely unreadable in practice. As Transaction surveillance companies like chain analysis mostly depend on that heuristic, it would help provide additional piracy to the chain.
Have your say
So what do you think of PayJoin? Would it be a better option than coin mixing? Do you think Bitcoin still needs confidential transactions?
Written by @chekohler
Previous ADSactly Crypto posts
- ADSactly Crypto: What Is a Blockchain Oracle?
- ADSactly Crypto: What Are SegWit Bech32 Bitcoin Addresses?
- ADSactly Crypto: What Are Coin Mixers?
- ADSactly Crypto: What Does Wash Trading Mean In Cryptocurrency?