Silent Payments: A New Era of Bitcoin Privacy

Author: Area Bitcoin

Compiled by: Felix, PANews

Abstract: Silent payment can reduce address reuse and improve overall privacy.

Privacy is receiving increasing attention in Bitcoin transactions. As the demand for more secure and 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 is silent payment?

Silent payments are a way to receive Bitcoin that does not reveal your private information, such as your balance or transaction history, to anyone who can see your public address.

This idea originated from a proposal called BIP 352, which suggested using reusable addresses in Bitcoin.

Imagine if you wanted to receive Bitcoin donations, or needed to receive payments multiple times a year. What would you do? 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 transactions to that address via a blockchain explorer.

However, with silent payments, you only need to provide a public key address that can be reused without worrying about privacy leaks.

The concept of silent payments was first proposed in March 2022. Recently, this BIP was integrated into the official codebase, marking a significant milestone in the development of this technology.

This integration demonstrates that the technology has passed thorough review and wallet developers can begin implementation, although some minor adjustments may still be required.

Why is this important?

Bitcoin addresses are currently similar to bank account numbers. However, because the blockchain is completely transparent, anyone can view all transactions associated with a given address through a block explorer.

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

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

"Silent payment" is not a new concept; it evolved from the concept of "hidden address" proposed in 2012.

However, this concept has not yet been effectively implemented in Bitcoin.

We've mentioned hidden addresses, but what exactly are they?

Stealth addresses and BIP 47: Challenges and limitations in the pursuit of privacy

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

The following section discusses the limitations and challenges these methods face in pursuing greater anonymity and transaction efficiency.

Hidden address

Stealth addresses were one of the earliest attempts to improve the privacy of Bitcoin transactions.

The idea is simple: to generate a unique and private address for the recipient, which can only be accessed by the recipient through encryption technology.

However, there is a major obstacle: in order for the system to run, an additional key needs to be added to the blockchain, usually using the OP_RETURN field.

This leads to two serious drawbacks:

• Loss of anonymity: Adding extra data to the blockchain makes it obvious that a transaction used a stealth address, and any observer can identify this technique, thus compromising anonymity.

• Inefficiency and high cost: Increasing the amount of blockchain data makes transactions more bloated, less efficient, and more expensive, which contradicts Bitcoin's principle of keeping it lightweight and easy to access.

An alternative solution emerged at the time: utilizing an existing key in the transaction to avoid adding extra data.

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

BIP 47

Over time, another proposal emerged that aimed to address these issues: BIP 47.

BIP 47 introduces the concept of a notification system, instead of adding data to the blockchain with each payment. In this approach, the sender only needs to upload the data to the blockchain once, and the recipient can identify the data and use this "key" to streamline future payment processes.

Advantages of BIP 47:

• Clear recipient identification: Recipients can easily determine which part of the data on the blockchain belongs to them, making the verification process simpler.

• Reduce extra data: Adding notification data only the first time saves more space and resources than adding data every time the address is hidden.

Disadvantages of BIP 47:

• It is more complicated for the sender: each payment requires the sender to send an on-chain notification first, which is equivalent to adding an extra transaction, making it very cumbersome when used on a large scale.

• Blockchain is inefficient in its use: data added for notifications is irrelevant to the actual payment and is considered inefficient.

• Payment correlation: If multiple payments are made to the same person, the recipient may discover that the funds came from the same source, compromising anonymity (while the sender remains completely anonymous in silent payments).

• Identity Exposure: In notification transactions, the sender's payment code is exposed to the recipient, which can be problematic in situations requiring a high degree of anonymity (such as donations to sensitive causes).

While BIP 47 has its advantages (such as clear payment processing), its major drawbacks, such as 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. The only drawback of silent payments compared to BIP 47 is the need to scan the blockchain, but this may be a worthwhile trade-off for the significant improvement in privacy.

In summary, both stealth addresses and BIP 47 contribute to Bitcoin privacy, but their respective limitations hinder widespread adoption.

Silent payment is now emerging as a promising solution that attempts to combine the advantages of both approaches:

• Strong privacy

• High efficiency

• Simplified user experience

How does silent payment work?

For users, the operation is very simple.

Let's say you have a Bitcoin wallet connected to your own node. You generate an SP (Silent Payment) code, which can be shared as 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 full nodes, the optimizations make the process efficient and the cost is almost zero.

However, the recipient needs to do more work. The recipient must inspect every new Taproot transaction on the network to determine if it contains payments to their silent payment address, which requires additional processing from 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 prefix "bc" to indicate a Bitcoin address, followed by "1" and the version number, with the rest encoded in bech32m.

Silent payments also use bech32m encoding, but are prefixed with "sp1" (indicating a silent payment address), and this address contains two public keys. These two public keys do not directly reveal where the Bitcoin went; instead, they provide instructions for generating a Taproot public key script.

In practical use, users can generate, share, and securely reuse silent payment addresses just like reusing ordinary Bitcoin addresses, without sacrificing privacy, which is its core advantage.

Which wallets support this type of address?

Currently, the wallets that support silent payment addresses are Cake Wallet and BitBox.

Since silent payment functionality is still under development and not yet widely adopted, Cake Wallet is one of the first wallets to implement silent Bitcoin payments. The wallet is available in public beta on Android and iOS.

Here's how to use silent payments in Cake Wallet :

Click the "Silent Payments" button on the card/box on the wallet 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 the block to search for transactions.

After the scan is complete, silent payment verification will automatically shut down when the latest block is reached.

If you want your wallet to continue automatically checking for new blocks for silent payments, go to Menu -> Silent Payment Settings and enable the "Always Scan 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.

Silent payments allow senders to generate a unique address from the recipient's fixed public key. This is particularly useful for activists, NGOs, and charities: they can share a reusable address to receive donations without revealing their identity, the donor's name, or the amount received.

This integration allows BitBox users to support various businesses and make payments while avoiding exposing their financial activities to unnecessary third parties.

Tag function

One of the initial challenges of silent payments was identifying who sent the payment. The solution was to introduce labels.

So, what are tags?

Tags allow you to distinguish different senders when 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 sacrificing user privacy. It works by deterministically fine-tuning the spending key.

Simply put, a spending key acts like a digital signature, authorizing the use of funds in an address. By fine-tuning this key, different payment sources can be identified.

For example, suppose you have two silent payment addresses:

• An activity for X

• Another activity used on Nostr

With the label, the first half of the two addresses are the same (indicating they both belong to you), but the second half is slightly different, helping you identify the source of the payment.

When you view your funds this way, you can see that some payments came from user X and some came from Nostr.

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

Of course, if you want complete anonymity, you can simply use a standard silent payment address without tags, ensuring that the sender has no identifiable information. However, if you need to trace the source of the payment, tags provide an efficient way.

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

Example of silent payment on exchanges

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

Let's say you're depositing money into an exchange. With silent payments, the exchange no longer gives you a reusable deposit address; instead, it generates a silent payment address for you.

Every time you send a payment to this address, the exchange can automatically identify you (through a tagging mechanism), eliminating the need for you to manage multiple addresses. Furthermore, this technology is also extremely useful for automated withdrawals.

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

in conclusion

Silent payments have the potential to revolutionize the way we use Bitcoin, offering a simpler, more intuitive experience while significantly enhancing privacy.

If this technology is widely adopted, the reuse rate of on-chain addresses could decrease significantly, thereby creating a safer and more private environment for everyone.

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

Related reading: Over 1.7 million BTC potentially facing direct attacks? Bitcoin embroiled in quantum controversy again, public blockchains launch defensive battles.