Although Bitcoin has a reputation as a haven for criminals who wish to transact online in an anonymous manner, it doesn’t appear the currently available wallet options are very helpful for this potential use case of the digital cash system. In their second edition of the Bitcoin Wallet Privacy Rating Report, released Sunday, the Open Bitcoin Privacy Project (OBPP) has painted a rather dismal picture of privacy in Bitcoin wallets.
The OBPP report says that many privacy-focused initiatives for Bitcoin “stalled out” in 2015. In the introduction to the report, OBPP contributor Kristov Atlas writes, “Improvements are desperately needed to keep Bitcoin independent and safe.”
Ledger Takes the Top Spot
Although Ledger can rejoice in the fact that it has created the most private Bitcoin wallet on the market, the fact that it scored only 50 out of 100 possible points should give every Bitcoin user pause. Ledger has released a variety of hardware devices, which have been integrated into multiple third-party wallets, but the OBPP’s report focused on the Ledger Nano and the company’s own wallet solution.
In the report, it is noted that Ledger’s Chrome extension-based Bitcoin wallet does not contain advanced privacy features. In fact, it doesn’t even store a local copy of the blockchain. Ledger’s positive marks appear to have come from its ability to assist users in avoiding address reuse and managing multiple accounts within the same wallet.
Coinbase Places Last Again
Coinbase is the service that placed last in the OBPP’s original review of Bitcoin wallets in the spring of last year, and the a16z-backed company has taken the bottom spot again in 2016. Of course, it should be noted that Coinbase offers a variety of services that make it difficult for them to provide high-levels of privacy to its users. In fact, Coinbase CEO Brian Armstrong recently wrote a Medium post titled "Coinbase is not a wallet" about how the company is more of a retail exchange than a wallet provider.
In the OBPP’s report, the custodial nature of Coinbase’s consumer wallet is pointed out as a major flaw. Although Coinbase is required to follow Know-Your-Customer (KYC) guidelines because it also handles fiat money, the report claims some privacy improvements, such as discouraging address reuse, can be made without disrupting the company’s KYC responsibilities.
Coinbase is able to offer mainstream users unique features, such as USD balances, which make it easier for some individuals to interact with Bitcoin as a payment system. Some will say it doesn’t make sense to include Coinbase, which is essentially a Bitcoin bank, in a report about wallets, but it’s important for users to be aware of the privacy-related consequences of using this type of custodial wallet.
Is Privacy in Bitcoin Dead?
This report from the Open Bitcoin Privacy Project will definitely be an eye-opener for individuals who believe they can use Bitcoin privately with a variety of wallets. Perhaps the most troubling aspect of the report is that the world’s two most popular Bitcoin wallets, Blockchain and Coinbase, both scored in the bottom four of all wallet providers.
One of the only bright spots of the report is Samourai, which is ranked sixth in Bitcoin wallet privacy. The report notes a number of promised features that will eventually be integrated into the relatively new wallet option and adds, “The wallet is off to a strong start in 2015, and threatens to usurp Darkwallet for the spotlight in 2016 as the defacto choice for privacy-minded users.”
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Report and many other media outlets. You can follow @kyletorpey on Twitter.