Silent Payment: A New Era of Bitcoin Privacy

Compiled by: Felix, PANews

Summary: Silent payments can reduce address reuse and enhance overall privacy.

The privacy of Bitcoin transactions is receiving increasing attention. As the demand for safer and more private on-chain transactions grows, a new proposal has emerged: Silent Payments.

This article will explore what Silent Payments are, their importance to the Bitcoin network, and the structure of Silent Payment addresses.

What are Silent Payments?

Silent Payments are a way to receive Bitcoin that does not disclose your balance or transaction history to anyone who can see your public address.

This concept originates from a proposal known as BIP 352, which suggests the use of reusable addresses in Bitcoin.

Imagine if you want to accept Bitcoin donations or need to receive payments multiple times throughout the year. Currently, you either need to create a new address for each transaction or reuse the same address, sacrificing privacy and allowing anyone to track all incoming and outgoing records of that address through a blockchain explorer.

However, with Silent Payments, you only need to provide a reusable public key address without worrying about privacy leaks.

The concept of Silent Payments was first proposed in March 2022. Recently, this BIP has been integrated into the official codebase, marking an important milestone in the development of this technology.

This integration indicates that the technology has undergone thorough review, and wallet developers can begin implementation, although some fine-tuning may still be required.

Why is this important?

Currently, Bitcoin addresses are similar to bank account numbers. However, due to the complete transparency of the blockchain, anyone can view all transactions associated with a particular address through a block explorer.

If you reuse the same address, every payment you receive will be public.

Silent Payments change this: you only need to share a public address, and the transaction details are visible only to the sender and receiver. This is achieved through a cryptographic technique that allows the receiver to receive funds to a completely different unique address each time, and only the receiver can identify and access these funds.

"Silent Payments" is not a brand new idea; it has evolved from the "stealth address" concept proposed in 2012.

However, until now, this idea has not been effectively implemented in Bitcoin.

The stealth address has been mentioned earlier, but what exactly is it?

Stealth Addresses and BIP 47: Challenges and Limitations in Pursuing Privacy

The privacy of Bitcoin transactions has been a core focus since the network's inception. Over time, various proposals have emerged to enhance privacy, among which stealth addresses and BIP 47 are particularly noteworthy, initially proposed by Peter Todd.

Below, we will explore the limitations and challenges these methods face in pursuing higher anonymity and transaction efficiency.

Stealth Addresses

Stealth addresses are one of the earliest attempts to improve Bitcoin transaction privacy.

The idea is simple: allow the recipient to generate a unique and private address that only the recipient can access through cryptographic techniques.

However, there is a significant obstacle: to make the system work, an additional key needs to be added to the blockchain, typically using the OP_RETURN field.

This brings two serious drawbacks:

Loss of anonymity: Adding extra data to the blockchain makes it obvious that this is a transaction using a stealth address, and any observer can identify this technique, compromising anonymity.
Inefficiency and high costs: Increasing the amount of data on the blockchain makes transactions bulkier, less efficient, and more expensive, contradicting Bitcoin's principle of being lightweight and easily accessible.

At that time, an alternative solution emerged: using an existing key in the transaction to avoid adding extra data.

However, due to technical complexity and the lack of efficient tools at the time (such as the Lipsack P library that simplifies these calculations today), this idea was shelved.

BIP 47

Over time, another proposal aimed at addressing these issues emerged: BIP 47.

BIP 47 introduced the concept of a notification system, rather than adding data to the blockchain with each payment. In this approach, the sender only needs to upload data to the blockchain once, allowing the receiver to recognize that data and use this "key" to simplify future payment processes.

Advantages of BIP 47:

Clear identification for the receiver: The receiver can easily determine which part of the data on the chain is for them, making the verification process simpler.
Reduced extra data: Notification data is only added the first time, saving space and resources compared to stealth addresses that add data every time.

Disadvantages of BIP 47:

More complex for the sender: Each payment requires the sender to first send a notification on-chain, effectively adding another transaction, which can be cumbersome for large-scale use.
Inefficient blockchain usage: The data added for notifications is unrelated to the actual payment and is considered inefficient.
Payment traceability: If payments are made multiple times to the same person, the receiver may discover that the funds come from the same source, compromising anonymity (whereas in Silent Payments, the sender is completely anonymous).
Identity exposure: In notification transactions, the sender's payment code is exposed to the receiver, which can be problematic in situations requiring high anonymity (such as donating to sensitive causes).

While BIP 47 has its advantages (such as clarity for the receiver), significant drawbacks like additional transactions and lack of complete anonymity limit its widespread adoption.

Silent Payments aim to address these issues, providing a more intuitive and private user experience. Compared to BIP 47, the only drawback of Silent Payments is the need to scan the blockchain, but this may be a worthwhile trade-off for significantly enhancing privacy.

In summary, both stealth addresses and BIP 47 have contributed to Bitcoin privacy, but their respective limitations have hindered widespread adoption.

Silent Payments have now emerged as a promising solution, attempting to combine the advantages of both:

Strong privacy
High efficiency
Simplified user experience

How do Silent Payments work?

For users, the operation is very simple.

Assuming you have a Bitcoin wallet connected to your own node. You generate a SP (Silent Payment) code, which can be shared in the form of a QR code. Anyone who supports Silent Payments can scan the QR code or enter the code to make a payment… it's that simple.

For receivers running a full node, the process is efficient due to optimizations, and the cost is almost zero.

However, for the receiver, a bit more work is required. The receiver must check every new Taproot transaction on the network to determine if it contains a payment to their Silent Payment address, which requires more processing by the wallet software.

What does a Silent Payment address look like?

The structure of a Silent Payment address is the same as that of a Taproot address. Taproot addresses use the "bc" prefix, indicating a Bitcoin address, followed by "1" and a version number, with the rest encoded in bech32m.

Silent Payments also use bech32m encoding, but the prefix is "sp1" (indicating that this is a Silent Payment address), and this address contains two public keys. These two public keys do not directly reveal the destination of the Bitcoin but provide instructions for generating the Taproot public key script.

In practical use, users can generate, share, and securely reuse Silent Payment addresses like they would with regular Bitcoin addresses, without sacrificing privacy, which is its core advantage.

Which wallets support this address?

Currently, wallets that support Silent Payment addresses include Cake Wallet and BitBox.

As the Silent Payment feature is still under development and has not yet been widely adopted, Cake Wallet is one of the first wallets to implement Bitcoin Silent Payments. The wallet is available in a public beta version on both Android and iOS.

Here’s how to use Silent Payments in Cake Wallet:

Click the "Silent Payments" button in the card/box on the wallet's homepage to start scanning blocks for these transactions.

It is important to note that because Silent Payment transactions are anonymous, the wallet must actively scan blocks for transactions.

Once scanning is complete, Silent Payment verification will automatically turn off when the latest block is reached.

If you want the wallet to continue automatically checking for new Silent Payment blocks, go to "Menu" -> "Silent Payment Settings" and enable the "Always scan for Silent Payments" option.

BitBox

Like the hot wallet Cake Wallet, BitBox is one of the first hardware wallets to support Silent Payments, greatly enhancing user privacy protection.

With Silent Payments, the sender can generate a unique address from the receiver's fixed public key. This is especially useful for activists, NGOs, and charities: they can share a reusable address to receive donations without exposing their identity, the donor, or the amount received.

This integration allows BitBox users to support various causes and make payments while avoiding financial activities being exposed to unnecessary third parties.

The Role of Labels

One initial challenge of Silent Payments was how to identify who sent the payment. The solution is to introduce labels.

So, what are labels?

Labels allow you to distinguish different senders while using a single Silent Payment address, without sacrificing privacy or significantly increasing scanning costs.

This technology allows additional information to be added to a Silent Payment address without compromising user privacy. It works by deterministically tweaking the spending key.

In simple terms, the spending key acts like a digital signature, authorizing the use of funds in the address. By tweaking this key, different payment sources can be identified.

For example, suppose you have two Silent Payment addresses:

One for activities on X
Another for activities on Nostr

With labels, the first half of these two addresses is the same (indicating they belong to you), but the second half is slightly different, helping you identify the source of payments.

This way, when viewing funds, you can see that some payments come from X users, while others come from Nostr.

This flexibility strikes a balance between protecting privacy and collecting useful transaction information.

Of course, if you want complete anonymity, you can also use a standard Silent Payment address without labels, ensuring that the sender has no identifiable information. However, if you need to track the source of payments, labels provide an efficient way to do so.

This technology can be applied in various scenarios such as exchanges, social media platforms, and personal use, allowing you to manage multiple online identities without obvious connections, or simply obtain more payment information when needed.

Example of Silent Payments in Exchanges

If exchanges adopt this technology, interesting application scenarios will emerge.

Suppose you are depositing funds into an exchange. With Silent Payments, the exchange no longer provides you with a reused deposit address but generates a Silent Payment address for you.

Every time you make a payment to this address, the exchange can automatically recognize it as yours (through the label mechanism), without you needing to manage multiple addresses. Additionally, this technology is very useful for automatic withdrawals.

You can reuse the same Silent Payment address across platforms without needing to manage different extended public keys (xPub) for each platform, greatly simplifying the process.

Conclusion

Silent Payments have the potential to completely change the way Bitcoin is used, providing a simpler and more intuitive experience while significantly enhancing privacy.

If this technology is widely adopted, the rate of address reuse on-chain may decrease dramatically, creating a safer and more private environment for everyone.

Silent Payments offer an excellent opportunity to combine user incentive mechanisms with best privacy practices, making future Bitcoin payments more discreet and secure than ever before.

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