Coin Control

What is “Coin Control”? Many of you, my “young padawans”, are wondering what the hell is this guy talking about? Well, it is a very important thing for you, the user of each coin, to maintain anonymity in the use of each coin, as much as possible. And not only yours, but everyone with whom you do txs (transactions in BTC).

Well, imagine that your bitcoins are gold coins, but with the option of being able to break them into even smaller pieces. Each chunk is converted into another “coin” / coin, or UTXO as they are called in Bitcoinland.

Remember that all bitcoin movements are registered public / open in the Blockchain, anyone else can verify a tx / BTC / UTXO address of where and where they have gone. But you don’t know WHO is the real identity behind this address. Until you, the normal user, who still does not know what the coin control is, are giving with your consent and your ignorance, your data, linking some coin of your real identity.

What I’m trying to explain here is one thing that fucking governments hate. This is one of the many powers of Bitcoin, hiding the identity in the open field. And this is hated by governments very much.

Coin control is just the first step in having full privacy and anonymity at Bitcoinland. There are many more forms, functionalities, procedures, specific wallets that give you more anonymity. But as you know, we started step by step.

We talk about some specific cases, in order to “visualize” how the coin control works. Always remember one thing: Bitcoin = Be your own bank, act like a banker…

Case A: (txs) private transactions

A friend (Juan) gives you 1 BTC (what a friend!). You give him a BTC address of your wallet and he pays you. All good. It is a PRIVATE tx, that only you two know the real identity of the participants. Well, if your wallet app gives you this option to put labels on your txs, it would be better if you put one on it. You can put the name of the person or if you want the explanation of the payment and / or the word “private”. So then you can identify where you have received this money. As if it were a simple ledger.

Well, next day, you need to make a payment at a store, and the cashier doesn’t know who you are. So you take out your wallet, select the coin control option, select the “coin” / address in which you have received 1BTc from Juan, and give it “pay with this coin”. now, the wallet will “break” this coin in 2 UTXO practically (if it is configured to use “change / change addresses”). In the same tx you will see 1 input (source address) and 2 output (UTXO), these 2 UTXo would be: the address of the cashier / store and another BTC address of “change” of your same wallet, where the change moves / rest of the operation “break” the 1BTC coin.

In the case that you use the wallet with the “change” option deactivated, then the tx will not “move” the change to another address in your wallet, it will leave it in the same address, but this address becomes a new UTXO, but with the new amount. It is not a very serious problem that you re-use the same BTC address, always when it is used only in PRIVATE txs. For example, you can have an address that you use only for exchanges with your friend Juan. But remember, if Juan breaks a coin that you give him and sends it to a site where he has given his identity, then the magic of anonymity has been broken. But if he also does coin control like you, and takes care of these private “coins”, then there is nothing to worry about, keep txing each other with the same address.

Case B: (txs) public transactions (KYC / exchanges / purchases with identity)

Let’s say that now you are going to go to an exchange to get some BTC. And this exchange has KYC / AML and verifies your identity. Ok, nothing happens, it is a bad thing, but if you are smart, you can play it well in your favor.

Remember: governments only want to control the flow in exchanges to know if you exchange them for euros again and thus rob you with taxes. But if you never sell them for euros again, they can do absolutely nothing to you.

Well, you have bought 1 BTC from an exchange and you move it to your private wallet, in a new address, specify, that you have already put a label “EXCHANGE KYC”. Never leave your “purchases” of BTC in an exchange, there you will never have control and also at any time a government can order the exchange to block them. Exchanges ARE BANKS. It is not the fault of the exchanges, but the governments force them to do this in exchange for letting them have this business.

Now you want to use these 1 BTC from the exchange, but you already know that these are “registered”. You have 2 options in this case:

Before using them, pass them through a “mixer” such as the Wasabi, Samourai, or JoinMarket wallet. This is explained in the other guide on how to make CoinJoin.
Do not mix with private coins, and try to spend them first, moving them by LN, or in txs which does not need to give identity.

The first point is clear: put the coins in a CoinJoin, and the “clean” UTXOs are distributed to your private wallets (but still doing the coin control).

The second point is something more elaborate and with more description.

For example, the exchange’s 1BTC, you put 0.5BTC in an LN wallet, in several channels, not just one. You open 5 channels of 0.1BTC, for example, with 5 nodes / stores / online merchants. These channels would be like your pockets, which each of you use later to pay with BTC / LN. The txs through LN are more private, because they cannot be traced on the blockchain and neither between nodes. This way you lose track of the coins. You can still “withdraw” the coins from an LN channel in a BTC onchain address, a new private one, but this must be done with some “zig-zag” movements, not close the channel that you have opened, but move the coins through LN to another more private LN channel and from there take them out in an onchain address.

Another example, the rest of 0.5BTC that you have not put in LN, because you use it for online purchases where it is not important to give the real identity or even that you give it, because you use the coins that already have their identity linked. Nothing happens, it is your money and you have every right to spend it as you want. The government is not interested in you spending it, it is in your interest that you go back to a bank to tax yourself. But if you make coin control of these 0.5BTC and you always spend them little by little knowing where and to whom. Remember: never mix them with private coins. The moment you do this, your private coins are no longer private.

Wallets that have coin control functionalities: Electrum (desktop and mobile), Wasabi (desktop), Sparrow (desktop), BlueWallet (mobile).

If you want to know more details about Coin Control, there is a very good article, written by the creator of the Wasabi wallet, you can read it here.