Silent Payments: The New Era of Bitcoin Privacy

Author: Area Bitcoin

Translation: Felix, PANews

Summary: Silent payments can reduce address reuse and enhance overall privacy.

The privacy of Bitcoin transactions is receiving increasing attention. As the demand for safer and more 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 are silent payments?

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

This concept originates from a proposal called BIP 352, which suggests using reusable addresses in Bitcoin.

Imagine you want to accept Bitcoin donations or need to receive multiple payments throughout the year. What should 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 income and expenses associated with that address via blockchain explorers.

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

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

This integration indicates that the technology has passed thorough review, and wallet developers can begin implementing it, though some fine-tuning may still be needed.

Why is this important?

Currently, Bitcoin addresses are similar to bank accounts. However, because the blockchain is fully transparent, anyone can view all transactions associated with a particular address via blockchain explorers.

If you reuse the same address, every payment you receive becomes publicly visible.

Silent payments change this: you only need to share a public address, and transaction details are only visible to the sender and receiver. This is achieved through cryptographic techniques that allow the receiver to receive funds into a completely different, unique address each time, which only they can recognize and access.

“Silent payments” is not a brand-new concept; it evolved from the 2012 idea of “Stealth Addresses.”

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

Earlier, stealth addresses were mentioned, but what exactly are they?

Stealth Addresses and BIP 47: Challenges and Limitations in Pursuit of Privacy

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

Below, we explore the limitations and challenges these methods face in achieving higher anonymity and transaction efficiency.

Stealth Addresses

Stealth addresses are among the earliest attempts to improve Bitcoin transaction privacy.

Their concept is simple: the recipient generates a unique and private address, which only they can access via encryption.

But there is a major obstacle: to operate the system, an additional key must be added to the blockchain, typically using the OP_RETURN field.

This introduces two serious drawbacks:

• Loss of anonymity: adding extra data to the blockchain makes it obvious that the transaction used a stealth address, and any observer can recognize this technique, undermining anonymity.
• Inefficiency and high cost: increasing blockchain data makes transactions bulkier, less efficient, and more expensive, contrary to Bitcoin’s lightweight and accessible principles.

At that time, an alternative approach was proposed: using an existing key within the transaction to avoid adding extra data.

But due to technical complexity and the lack of efficient tools at the time (such as the Lipsack P library that simplifies these calculations today), this idea was shelved.

BIP 47

Over time, another proposal aimed at solving these issues emerged: BIP 47.

BIP 47 introduced the concept of a notification system, rather than adding data to the blockchain for each payment. In this approach, the sender only uploads data once to the blockchain, and the receiver can recognize this data and use the “key” to streamline future payments.

Advantages of BIP 47:

• Clear identification for the recipient: the recipient can easily determine which part of the on-chain data is meant for them, simplifying verification.
• Reduced extra data: only the initial notification data is added, saving space and resources compared to stealth addresses that add data for each transaction.

Disadvantages of BIP 47:

• Complexity for the sender: each payment requires the sender to first send a notification on-chain, effectively adding an extra transaction, which becomes cumbersome at scale.
• Inefficient blockchain usage: data added solely for notifications is unrelated to actual payments, considered inefficient.
• Payment linkability: if multiple payments are made to the same person, the recipient might deduce that the funds come from the same source, harming anonymity (whereas in silent payments, the sender remains fully anonymous).
• Identity exposure: in notification transactions, the sender’s payment code is exposed to the recipient, which could be problematic in scenarios requiring high anonymity (e.g., donations to sensitive causes).

While BIP 47 has advantages (such as clear recipient recognition), its major drawbacks—additional transactions and incomplete anonymity—limit widespread adoption.

Silent payments aim to address these issues, offering a more intuitive and privacy-preserving user experience. Compared to BIP 47, the only downside of silent payments is the need to scan the blockchain, but this trade-off may be worthwhile for significantly improved privacy.

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

Silent payments now present a promising solution, attempting to combine the best of both:

• Strong privacy
• High efficiency
• Simplified user experience

How do silent payments work?

For users, operation is very simple.

Suppose you have a Bitcoin wallet connected to your node. You generate an SP (Silent Payment) code, which can be shared as a QR code. Anyone supporting silent payments can scan the QR code or input the code to make a payment… it’s that straightforward.

For recipients running a full node, the process is optimized for efficiency, with nearly zero cost.

However, recipients need to do some additional work. They must scan the network for each new Taproot transaction to determine if it contains a payment to their silent payment address, which requires more processing in the wallet software.

What does a silent payment address look like?

Silent payment addresses have the same structure as Taproot addresses. Taproot addresses use the “bc” prefix, indicating a Bitcoin address, followed by “1” and a version number, with the rest encoded in bech32m.

Silent payments also use bech32m encoding, but with the prefix “sp1” (indicating a silent payment address). This address contains two public keys. These keys do not directly reveal Bitcoin’s destination but provide instructions for generating a Taproot script.

In practical use, users can generate, share, and reuse silent payment addresses just like regular Bitcoin addresses, without sacrificing privacy—this is their core advantage.

Which wallets support these addresses?

Currently, wallets supporting silent payment addresses include Cake Wallet and BitBox.

Since silent payments are still under development and not yet widely adopted, Cake Wallet was among the first to implement Bitcoin silent payments. It has released beta versions on Android and iOS.

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

Tap the “Silent Payments” button on the wallet’s main screen or card to start scanning the blockchain for these transactions.

Note that because silent payment transactions are anonymous, the wallet must actively scan the blockchain for transactions.

Once scanning is complete, silent payment verification will automatically turn off when reaching the latest block.

If you want the wallet to continue automatically scanning for new silent payment blocks, go to “Menu” -> “Silent Payment Settings” and enable “Always Scan Silent Payments.”

BitBox

Like the hot wallet Cake Wallet, BitBox is one of the first hardware wallets to support silent payments, greatly enhancing user privacy.

Through silent payments, the sender can generate a unique address from the recipient’s fixed public key. This is especially useful for activists, NGOs, and charities: they can share a reusable address to receive donations without exposing identities, donors, or amounts.

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

Tag Function

One initial challenge of silent payments was how to identify who sent the payment. The solution is to introduce labels.

So, what is a label?

Labels allow you to distinguish different senders when using a single silent payment address, without sacrificing privacy or significantly increasing scanning costs.

This technology enables adding extra information to silent payment addresses without compromising user privacy. It works by deterministically fine-tuning the spending key.

Simply put, the spending key acts like a digital signature, authorizing the use of funds in the address. By micro-adjusting this key, you can identify different payment sources.

For example, suppose you have two silent payment addresses:

• One for activities on X
• Another for activities on Nostr

With labels, these two addresses share the same first half (indicating they belong to you), but have slightly different second halves, helping you recognize the payment source.

This way, when viewing funds, you can see some payments coming from X users and others from Nostr.

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

Of course, if you want complete anonymity, you can simply use unlabeled standard silent payment addresses, ensuring senders have no identifiable information. But if you need to track payment sources, labels offer an efficient solution.

This technology can be applied in exchanges, social media platforms, personal use, and more, allowing you to manage multiple online identities without obvious links, or to obtain more payment information only when needed.

Exchange Silent Payment Example

If exchanges adopt this technology, interesting use cases will emerge.

Suppose you top up your account at an exchange. With silent payments, the exchange no longer provides you with a reused deposit address but generates a silent payment address for you.

Each time you pay to this address, the exchange can automatically recognize it as yours (via the label mechanism), eliminating the need for you to manage multiple addresses. This technology is also very useful for automated withdrawals.

You can reuse the same silent payment address across platforms without managing different extended public keys (xPub), greatly simplifying the process.

Conclusion

Silent payments are poised to revolutionize how Bitcoin is used, offering a simpler, more intuitive experience while significantly enhancing privacy.

If widely adopted, the on-chain address reuse rate could drop dramatically, creating a safer, more private environment for everyone.

Silent payments present 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 face potential attacks? Bitcoin faces renewed quantum controversy, public chains initiate defense battles