This article is a part of Bitcoin Magazine’s “The Privacy Issue”. Subscribe to get your copy.
When Craig Raw speaks, you pay attention.
His rich voice carries a weight that emphasizes the importance of his messages.
It’s akin to that nagging thought you have when you’ve left too much bitcoin on an exchange longer than you should have, or when your bitcoin stash feels less secure than it ought to be.
It’s a steadfast reminder, urging you to adopt best practices for storing and using your bitcoin.
Weeks after our interview with Raw — the mind behind Sparrow Wallet, a favorite open-source Bitcoin desktop wallet among enthusiasts globally — the resonance of his voice and the insights he shared remain vivid.
He’s worried that the dialogue surrounding privacy and self-sovereignty in the Bitcoin space is weakening and feels compelled to stress that both principles are crucial as we enter an age where an increasing amount of bitcoin is tied to KYC requirements and/or held in managed environments (e.g., spot bitcoin ETFs).
Thus, if privacy and self-sovereignty matter to you, take heed of Raw’s insights. Learn from the advice he offers in this piece, and enhance your experience by actively using and (carefully) experimenting with Sparrow Wallet.
Neglecting this could lead to a painful lesson, which, albeit a powerful teacher, could have been prevented.
PRIVACY
Raw insists that understanding the fundamentals is essential when it comes to storing and using bitcoin privately.
“The first step is to comprehend what Bitcoin truly is — particularly the UTXO model,” Raw told Bitcoin Magazine.
“Seek ways to enhance your privacy without relying on specific privacy tools,” he advised.
He provided two illustrative examples of this approach:
Example 1: Avoid Address Reuse
“Reusing addresses is unnecessary and is generally a very poor practice,” Raw cautioned. “It results in transactions being linked on-chain.”
Example 2: Avoid Rounded Transaction Amounts
“When you make a transaction with a round number, it becomes easy to identify which is the payment and which is the change output,” he clarified.
To elaborate on Raw’s second example, spending an uneven amount of bitcoin (e.g., 0.0010126 BTC) makes it harder for observers to distinguish between the payment and change outputs in the blockchain. This obscures the future tracking of your UTXOs.
If you spend an even amount (e.g., 0.001 BTC), it’s much clearer which is which to those observing the transaction.
Both habits—address reuse and using rounded amounts—are “frequent missteps that users often overlook,” noted Raw.
In addition to practicing these two strategies, you can utilize Sparrow Wallet to augment your privacy.
“Sparrow provides two types of transactions,” elaborated Raw. “You can opt for the efficiency form to minimize fees, or the privacy form, which creates what we term a ‘fake two-person coinjoin.’”
Raw described Sparrow Wallet’s privacy form transactions:
“The privacy form constitutes a more intricate transaction, appearing as though two individuals are contributing funds to a single transaction that results in two outputs of equal value. Observers are presented with a transaction that contains increased entropy and ambiguity. Even if they recognize it as a fake two-person coinjoin, they must track both outputs to follow the ownership changes within that transaction graph. While this incurs a higher cost, it significantly enhances transaction privacy.”
But what about those who find UTXO management tedious? Isn’t it simpler to use hardware wallet interfaces like Ledger Live or Trezor Suite that automate UTXO management?
Raw remained unfazed as I presented these concerns. He argued that users compromise their privacy, or their bitcoin, by neglecting UTXO management.
“You cannot entirely detach yourself from the intricacies of Bitcoin,” asserted Raw. “If you wish to conduct transactions on Bitcoin, you must eventually grasp what you’re doing. Otherwise, you risk losing your funds or jeopardizing your privacy.”
He further noted that wallets with simplistic interfaces masquerading as bank account balances do a disservice to users.
“Those wallets handle numerous details on your behalf,” explained Raw. “And they simply don’t grasp — nor can they — the correct choices to make.”
He contextualized this notion, emphasizing that certain wallets fail to navigate decisions correctly IF one’s goal is to maintain transaction privacy.
“If you receive funds from one source and spend them elsewhere, you create a cryptographic link on the blockchain visible to anyone,” he elaborated. “If an observer recognizes either party involved, they can begin to make connections. This peril is often overlooked.”
He analogized this scenario to having all your text messages made public with your name attached.
“It’s akin to a situation where everyone has access to our chat applications and can track every message exchanged, associating it with a specific identity,” Raw explained. “What we’re facing is a parallel situation, just with financial implications.”
Raw believes many bitcoin users aren’t prepared for such transparency.
He encourages individuals to reflect on whether they are comfortable publicly sharing information that could reveal their earnings or transaction partners. For those who aren’t, they might reconsider their approach to UTXO management with tools like Sparrow Wallet, which displays UTXOs by default rather than concealing them.
“Sparrow empowers users to understand their actions, enhancing their safety in transactions regarding both security and privacy by providing them with essential information needed for effective management.”
One particularly refreshing aspect of Raw is his refusal to underestimate Bitcoin users. He perceives them as both capable and motivated learners, driven largely by our intrinsic value of privacy—whether acknowledged or not.
“Even those who claim, ‘I don’t need privacy’ might reconsider if they took a moment to ponder their reluctance to have their bank details or personal emails exposed for all to see. That’s essentially what we’re contending with on an open blockchain,” Raw articulated.
“Many Bitcoiners don’t fully grasp how public and transparent the blockchain truly is,” he added.
“Although they might not face privacy invasions from banks or governments at present, they can keep their financial activities private from other individuals.”
THE THREAT TO PRIVACY
While poor UTXO management poses one risk to privacy, it isn’t the primary threat, according to Raw. The true threat lies in the willingness—and inclination—of Bitcoin users to give up self-custody of their bitcoin.
To illustrate the dangers of relinquishing custody over bitcoin, Raw provided a hypothetical scenario: If there were a single bank in existence that demanded, “Give me your bitcoin, and I’ll issue you an IOU,” and everyone complied, the bank would have unchecked power to issue as many IOUs as it desired. This scenario would effectively revert us to a fiat system, even with bitcoin in existence. Raw identifies this as the foremost risk currently facing the Bitcoin community — the inclination to surrender their self-custody.
Does this imply that utilizing a custodial bitcoin service for any length of time equates to a breach of core Bitcoin values, warranting exclusion from the Bitcoin maximalist circle?
Not according to Raw.
“We must tread carefully to avoid abandoning too many foundational principles,” he cautioned, referencing the often-quoted mantra of ‘not your keys, not your coins.’
Concurrently, Raw believes that “Bitcoin does not exist in isolation” and is shaped by the “environment we inhabit today.”
He shared a perspective on Wallet of Satoshi, a custodial Bitcoin Lightning wallet, recognizing its utility within the Bitcoin Ekasi project — a circular Bitcoin economy based in his native South Africa.
Though Raw acknowledged that Wallet of Satoshi is “not the best option for self-custody,” he asserted that “it does provide valuable exposure to bitcoin usage, which has its own significance.”
Raw appeared less troubled by the potential frequent use of Wallet of Satoshi for minor transactions and more concerned that many users may stop at merely trialing custodial apps without progressing to self-custody education.
He understands, much like many of us who’ve attempted to onboard friends and family into the Bitcoin space, the significant pushback regarding the importance of holding one’s own keys. This remains problematic because many haven’t yet grasped the harsh realities of currency depreciation.
“We undoubtedly encounter resistance, with many questioning, ‘Why should I care? What difference does this make?’” Raw noted.
Overall, the need to exit conventional monetary systems to safeguard wealth “doesn’t seem tangible enough” for many globally, he argued.
However, those who have lived through severe inflation understand that acquiring bitcoin is a matter of instinct, not just theoretical inquiry.
“If a currency devalues by 25% overnight, the need to think critically about ‘How do I protect myself from this?’ becomes immediate,” Raw emphasized.
This is why Raw encourages individuals to familiarize themselves with Bitcoin best practices before they find themselves in a situation necessitating its use. Despite understanding that the most powerful lesson often comes from real-life experiences of pain, Raw believes preparation can help ease that transition.
PAIN
“Perhaps users will start with Wallet of Satoshi, and if things take a turn for the worse, that service may disappear,” mused Raw.
“They might lose their funds, learn a hard lesson, and then they’ll seek out a better path in the future. I suspect you’re familiar with that journey. [Author’s note: Undoubtedly.] Many people I’m sure you’ve spoken to have experienced losses and painful lessons along the way [Author’s note: Indeed, many have expressed this to me directly.],” he added.
“Interestingly, these individuals rarely abandon pursuit entirely. They return and attempt again, applying their newfound knowledge.”
So, does Raw desire this pain for people? That wasn’t my impression.
He doesn’t exhibit cruelty; rather, he appears genuinely concerned.
He seems to embody a practical outlook rather than an idealistic one.
He believes that pain will not only motivate individuals to store private keys more securely but also to keep their transactions more private.
“We lack sufficient emphasis on public sentiment regarding privacy; I believe the only path forward is, as often stated in this space, through experiencing the consequences of their actions,” Raw said.
“We need this collective pain — sadly. I wish it weren’t the case, but it may be necessary for society to genuinely appreciate the value of privacy — a fundamental element of civil society.”
Raw foresees this wave of collective pain on the horizon, believing it’s vital for society to recognize the significance of privacy—an integral aspect required for freedom.
“Without privacy, a free society cannot exist. It is utterly untenable,” Raw asserted. “Therefore, if individuals wish to preserve their freedom — which I believe to be a universal desire — they must ultimately acknowledge the necessity of privacy and the means to attain it.”
Fortunately, as this potential wave of collective pain approaches, you have an opportunity to shield yourself from it. Consider downloading Sparrow Wallet after perusing this article and confront the learning curve that comes with adopting new technologies — undoubtedly less daunting than the repercussions of financial exposure.
The Less Painful Path
Fortunately for us, Raw designed Sparrow to be user-friendly, guiding inquisitive individuals down a path of self-education, provided they are open to exploring the software.
“Sparrow was crafted to be more than just a Bitcoin wallet; it serves as a learning tool, as well,” explained Raw.
“That’s why I’ve strived to incorporate as much detail as possible. I structured it to gradually reveal information to those willing to delve deeper,” he added.
“Users can engage with Sparrow at a basic level initially, which is advisable. However, as they grow more comfortable, there’s no harm in clicking around, hovering over features, and exploring the tooltips to grasp more about their actions.”
What’s truly commendable about Raw’s creation is he offers Sparrow to the community free of charge. As previously mentioned, it’s an open-source project that he continually improves, driven solely by the belief in its value.
For someone acutely aware of the stakes in a world seeking to confine us within a surveillance state, Raw’s work fuels his optimism.
“At its core, Bitcoin represents hope,” Raw concluded, his serious tone lightening momentarily.
“What is hope? It signifies the belief that tomorrow can be brighter than today — it embodies something to look forward to. Bitcoin encapsulates that vision. That’s why, above all else, it is the principal driving force for me.”
Download Sparrow Wallet: https://sparrowwallet.com/download/
Questions From The Plebs:
The following queries were gathered from X.
Will you ever create a Sparrow mobile app?
The desktop computer is the device most people use for effective self-custody of their funds, which is precisely Sparrow’s purpose.
For critical self-custody activities, utilizing the most capable device is advisable as it offers the most screen space to view the full context of your actions.
Mobile devices inherently impose limitations due to their compact screens. The contrast is evident when comparing mobile apps with something like Sparrow, as the information presented differs markedly. Hence, focusing on desktop was a natural decision.
I recognize security pros and cons on both platforms. Personally, I believe that desktops can generally be more secure than phones. While exceptions may exist, I believe this to be true overall. Security remains paramount.
Decisions made at the outset of a project resonate throughout its lifecycle, making initial architectural choices vital, as they inform subsequent developments.
Is using ecash created from protocols like Cashu and Fedimint a good way to preserve transaction privacy?
It’s too soon to determine that. With projects that haven’t yet reached a meaningful production level, making a judgment is premature.
They certainly have intriguing potential. From a technological standpoint, there are positive aspects worth noting, but in terms of real-world application and regulatory scrutiny, they remain untested. Time will tell.
I will keep abreast of developments, but it’s prudent for individuals to approach any emerging technology cautiously before committing significant funds.
Will you ever integrate Lightning into Sparrow Wallet?
At this moment, I can say no. My focus remains on the essence of financial self-sovereignty, currently concerning primarily on-chain operations.
In the future, if fee structures render on-chain transactions impractical, this stance might change. The evolving landscape remains uncertain.
Currently, Sparrow functions as a desktop client app, not intended to operate as a server or be perpetually online.
Designing for Lightning quickly leads to challenges surrounding the need to stay online for fund reception. Once this requirement emerges, one confronts complexities: “Am I online? What occurs if I’m offline? Does that necessitate a third-party involvement?”
As I mentioned, initial project decisions reverberate throughout its timeline. Sparrow excels in its function: it’s crafted for self-custody and cold storage, with the premise that cold storage must remain ‘cold.’ It’s advisable to avoid keeping a cold storage wallet operational in Sparrow constantly, allowing users to close it and the application as needed.
As one strays from these core objectives, compromises arise, and this necessitates careful consideration, as it differs significantly from what I aim to build today.
