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7. Using VPNs & Tor

Once you're running Bitcoin, you should consider your privacy. Bitcoin is an open and public blockchain, but that doesn't mean you should broadcast your presence on it from your home IP address. Two popular methods for protecting your privacy are using a Virtual Private Network (VPN) and the Tor Network. Each offers distinct advantages and trade-offs, and choosing the right one depends on your specific needs and priorities.

Understanding VPNs and Tor

VPN (Virtual Private Network):

  • Functionality: A VPN creates a secure, encrypted connection between your device and a server, masking your IP address and protecting your online activities from prying eyes.
  • Benefits: Easy to use, offers a balance between privacy and performance, and there are now many options available to choose from.
  • Drawbacks: If you use a VPN, the websites you visit can't see your IP address but your VPN provider can, so you should choose carefully. Some VPNs keep logs of user activity and others say they don't keep logs, either way you have to "trust" them on this. It is also worth considering which country your VPN is based, as different countries have different laws around privacy.

Which VPN do I use?

After lots of reading and research I landed on Mullvad VPN, and have been using it for several years on all my devices. They're based in Sweden, which has good privacy laws, and you can create an account without providing any KYC information and pay anonymously with Bitcoin. They know my IP address but have no personal details about me, so for my use case it's a good trade off.

Learn more about Mullvad VPN here

Tor Network (The Onion Router):

Imagine you're sending a letter wrapped in multiple envelopes, where each envelope is addressed to a different person. Each person only opens one layer, sees where to send it next, but never knows the contents of the letter, the final address or the original sender. This how the TOR network relays data across it's network of nodes.

  • Functionality: Tor routes your internet traffic through multiple nodes, each with its own layer of encryption, making it extremely difficult to trace the origin of the traffic.
  • Benefits: Offers a high level of anonymity, ideal for users prioritizing privacy.
  • Drawbacks: Can introduce latency, potentially slowing down your node's performance. Setting up Tor might require more technical expertise.

Do I use TOR?

Yes. My Bitcoin node only operates on the TOR Network, it's an extra layer of privacy so my ISP doesn't have direct knowledge I'm running a Bitcoin node. If you don't use TOR and open port 8333 on your router, it's pretty obvious sign that you're running Bitcoin.

Guides for setting up a VPN and TOR for your Bitcoin Node

Privacy and Security for Bitcoin Nodes

Consider your use case, if you're running a Bitcoin node at home for your own transactions and just want to protect your privacy a little more, using a VPN and TOR is probably enough. This is a very different use case to an activist operating in an authoritarian regime, so pick your privacy based on your threat model.

  • If privacy is your top concern, Tor provides a higher level of anonymity. However, it may introduce some latency and require more technical setup.
  • For a balance between privacy and ease of use, a reputable VPN could be a good choice, though you should verify that the provider does not keep logs.

Summary of VPNs and TOR:

  • VPNs generally offer better performance and are easier to set up, making them suitable for those less technically inclined.
  • Tor, while more secure, may require more technical know-how and could affect your node's performance due to latency.

Important Considerations

Remember that privacy tools are only as good as your operational security (OpSec). Consider your threat model and choose the privacy solution that best fits your specific needs and technical capabilities.