Paynym: Enhancing Privacy In Bitcoin Transactions

By Author: Independent Crypto Coaching
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Introduction: The Closure of Samourai Wallet and the Continuing Impact of PayNym

The cryptocurrency world recently witnessed the closure of Samourai Wallet, known for its robust privacy features, with PayNym being one of its standout offerings. PayNym was designed to enhance user anonymity in Bitcoin transactions, a feature that continues to be relevant and is adopted by platforms like Stack Wallet and Sparrow Wallet, ensuring the legacy of privacy-centric solutions in the crypto space.

What is PayNym?

PayNym is a feature born from Bitcoin Improvement Proposal 47 (BIP47), aimed at preserving the privacy of Bitcoin transactions. It replaces traditional Bitcoin addresses with payment codes, which serve as permanent, reusable identifiers that keep the actual addresses hidden. PayNym enables users to share their Bitcoin receiving information publicly without exposing their actual Bitcoin addresses. This system cleverly maintains privacy by ensuring that while the addresses used in transactions are known to both the sender and receiver, there is no public link between the publicly displayed receiving information ...
... (PayNym) and the transaction details recorded on the blockchain. This setup allows for both transparency in sharing payment information and privacy in conducting transactions, as observers cannot trace the transaction back to the payer's or payee's publicly shared information.

How PayNym Works

- Payment Code Creation: Users generate a unique payment code, which acts as a persistent pseudonym for their wallet.

- Sharing and Storing Codes: Users share their payment codes instead of Bitcoin addresses. These codes are stored in the sender's wallet once added.

- Transaction Initiation: When a sender wishes to transfer bitcoins, their wallet uses the recipient's payment code to quietly derive a new, unique Bitcoin address. This derivation is based on the sender's and recipient's payment codes, ensuring that each transaction uses a different address without revealing it publicly.

- Sending Bitcoins: The sender’s wallet sends bitcoins to the newly derived address, keeping the recipient’s main Bitcoin address private and secure.

Example for Clarity

Suppose Alice wants to send Bitcoin to Bob securely. Bob provides Alice with his payment code, not his Bitcoin address. Alice's wallet uses this code to generate a unique address for the transaction. This address is not known to anyone else but Alice's and Bob's wallets, ensuring that no third party can link the transaction to Bob's primary wallet.

Avatars and Pseudonyms

Each PayNym also comes with a user-friendly avatar and a short name, acting as a pseudonym that makes the payment code easier to recognize and use. These pseudonyms help users manage their contacts more visually and intuitively, without compromising security or privacy.

PayNym Directory

For those interested in exploring or using PayNyms, the website https://paynym.is serves as a directory. It lists all registered PayNyms, allowing users to find and connect with others within the PayNym network.

Example for a Public Bitcoin Donation Page

Displays the PayNym avatar and payment information as a QR code for easy access: https://yawaia.com/donation.html (choose tab PayNym).

How to Enable PayNym in Sparrow and Stack Wallet

Sparrow Wallet:

- Linking PayNyms: First, you need to link a PayNym to your wallet. In Sparrow, go to the 'Send' tab and click the down arrow next to the 'Pay To' field. Select 'PayNym' from the drop-down menu. This opens a dialog where you can manage PayNyms associated with your wallet.

- Add Contact: If the PayNym you want to pay is not already listed in your contacts, you can add it by entering the PayNym ID in the 'Find Contact' field and then clicking 'Add Contact'. Once the PayNym appears, click 'Link Contact'. This process involves sending a notification transaction to the address being watched by the PayNym wallet you're linking to, which will cost 546 sats plus the mining fee. This transaction is only required once to establish the link.

- Send Payment: After linking, you can send payments directly to this PayNym. Unique send and receive addresses are generated in both your Sparrow and the PayNym wallet, enabling private transactions.

Stack Wallet:

- Linking PayNyms: First, you need to link a PayNym to your wallet. Click on "More" in the bottom right corner and then on the appearing PayNym logo. Now confirm that you want to claim your PayNym address. If it fails, just repeat a few times until it is successfully created. You will now see your avatar, the PayNym name, and the PayNym code. Use the various buttons to share.

- Add Contact: If the PayNym you want to pay is not already listed in your contacts, you can add it by clicking on the "+" in the top right corner and entering the PayNym ID in the 'Add new' field and then clicking 'Search'. Once the PayNym appears, click 'Follow'. To connect with the other party, it involves sending a notification transaction to the address being watched by the PayNym wallet you're linking to, which will cost 546 sats plus the mining fee. This transaction is only required once to establish the link. To do so, click on the avatar, click connect, and send the linking transaction.

- Send Payment: After linking, you can send payments directly to this PayNym. Unique send and receive addresses are generated in both your Stack Wallet and the PayNym wallet, enabling private transactions.

Summary: Embracing PayNym for Enhanced Privacy and Security in Bitcoin Transactions

Pros of PayNym:

- Enhanced Privacy: PayNym allows users to share their Bitcoin receiving information without revealing their actual Bitcoin addresses, ensuring that personal financial activities remain private.

- No Public Traceability: The addresses used in the transactions are only known to the sender and receiver, with no public link to the transaction details on the blockchain. This prevents observers from tracing transactions back to the individuals involved.

- User-Friendly: PayNym simplifies the process of sharing Bitcoin payment information through user-friendly identifiers (PayNym names) and avatars, making it easier to manage and remember contacts.

Cons of PayNym:

- Initial Setup Cost: The system requires an initial connection between two wallets, facilitated by a blockchain transaction that incurs a fee. This setup cost is a necessary part of ensuring future transaction privacy.

- Wallet Compatibility: While not all wallets support the BIP47 protocol required for PayNym, the options for users are expanding with platforms like Sparrow and Stack Wallet embracing this technology.

- Complexity for New Users: The concept of payment codes and hidden addresses can be complex for new users to grasp, potentially deterring adoption among those less familiar with advanced cryptocurrency features.

In conclusion, PayNym offers a robust solution for those prioritizing privacy in their Bitcoin transactions, effectively balancing transparency in sharing payment information with the need for discretion in financial exchanges. While there are drawbacks, such as the initial setup cost and the need for compatible wallet software, the benefits of enhanced security and privacy are significant for users who navigate these challenges.

Passionate about onboarding new people to Bitcoin and cryptocurrency with a focus on privacy and self-custody. You can contact me at Yawaia - Independent Crypto Coaching