Evaluating usage of the Whirlpool Bitcoin privacy protocol

The privacy problem in Bitcoin

One downside of using a cryptocurrency like Bitcoin is that all transactions are publicly visible -- anyone in the world can see amounts, spending and receiving addresses, and the transaction graph of all Bitcoin transactions. Though addresses need not contain personally identifying information, a blockchain observer might have access to off-chain information that lets them identify which addresses belong to which users. Users can generate new addresses for every payment, but many don’t, and this doesn’t obscure how funds are further spent.

It is a common misconception that this level of transparency is only an issue for criminals who want to hide how they are moving their money. This is not true. To illustrate why this is a problem even for regular consumers, imagine that a user gets paid by their employer on-chain in bitcoin. The employer can directly observe how the user further spends that money on-chain, and might be able to see, for example, if a user pays to a well-known charity address (donation addresses are typically reused) or to a medical professional. By default, using vanilla Bitcoin can leak sensitive personal information about a user to their employer that we would normally expect to be private.