This article is featured in Bitcoin Magazine's "The Privacy Issue". Subscribe to receive your copy.

When Craig Raw talks, you listen.

His deep voice has a gravity to it, bolstering the urgency of the points he makes.

It’s like that voice in the back of your head that you hear when you’ve left too much bitcoin on an exchange for too long. Or that voice that persists when your bitcoin stash isn’t quite as secure as you know it could be.

It’s an uncompromised voice, constantly reminding you to follow best practices when it comes to storing and using your bitcoin.

Weeks after interviewing Raw — creator of let Sparrow Wallet, a free and open-source Bitcoin desktop wallet beloved by Bitcoin enthusiasts worldwide — for this piece, both the tone of his voice as well as what he shared with me in our interview are still fresh in my mind.

He’s concerned that the rhetoric around the importance of privacy and self-sovereignty as it pertains to Bitcoin is eroding and wants to remind you that both of these concepts are of the utmost importance as we move into an era where more and more bitcoin is KYC’d and/or held custodied within walled gardens (e.g., spot bitcoin ETFs).

So, if privacy and self-sovereignty mean something to you, please heed Raw’s words. Learn from the tips he shares, highlighted in this piece, as well from simply using and (carefully) experimenting with Sparrow Wallet.

If you choose not to, you may end up experiencing a certain pain, which, while it may be a good teacher, would otherwise have been avoidable.

When it comes to storing and using your bitcoin privately, it’s important to start with the basics, according to Raw.

“The first thing is to try and understand what Bitcoin is — to try and understand the UTXO model,” Raw told Bitcoin Magazine.

“Try and understand the ways in which you can be more private without using any particular kinds of privacy tools,” he added.

He went on to provide two examples of how to do this:

Example 1: Don’t Reuse Addresses

“Address reuse is unnecessary and generally is [a] very, very poor [practice],” warned Raw. “It leads to transactions being correlated on-chain.”

Example 2: Don’t Use Rounded Amounts

“If you create a transaction and your amount is a round number, then there’s a change output and it’s very easy to see which is which,” he explained.

To expand on what Raw means in this second example, when you spend an uneven amount of bitcoin (e.g., 0.0010126 BTC), it’s more difficult for someone watching the blockchain to decipher which UTXO is the payment and which is the change. This makes it more challenging for the observer to follow your UTXO into the future.

The inverse is true if you spend an even amount of bitcoin (e.g., 0.001 BTC). The observer can more easily intuit which UTXO is the payment and which is the change.

Both reusing addresses and using rounded amounts are “common pitfalls that people don’t necessarily consider,” said Raw.

In addition to employing these two practices, you can use Sparrow Wallet to further increase their privacy.

“Sparrow offers two forms of transactions,” explained Raw. “You can either use the efficiency form, which minimizes fees, or you can use the privacy form, which constructs what we call a ‘fake two person coinjoin.’”

Raw on Sparrow Wallet’s privacy form transactions:

“The privacy form is a more complex transaction where it looks like you could have two people bringing funds into a transaction and then two outputs of the same amount. Anyone looking at that is looking at a transaction with more entropy, with more confusion in it. Even if you know that it's a fake two-person coinjoin, you still have to follow both of those two outputs if you're trying to follow a change of ownership flow in that transaction graph. So, that's more expensive, but it's a useful way to be able to create a more private transaction.”

But what about those who don’t want to bother with UTXO management? Isn’t it just easier to use hardware wallet interfaces like Ledger Live or Trezor Suite that handle UTXO management for you?

Raw seemed unaffected as I played the role of devil’s advocate in posing these two questions. He made the case in his gravelly voice that users sacrifice privacy, or their funds, when they neglect UTXO management.

“You can't really abstract yourself away from the complexity of what Bitcoin is,” posited Raw. “If you want to transact on Bitcoin, you’re going to need to, at some stage, be aware of what you're doing. Otherwise, you’re likely to lose your funds or destroy whatever privacy you have.”

He went on to share that wallets with simplistic interfaces that display your Bitcoin balance as if it were a bank account balance are doing a disservice to the user.

“The wallet is handling a lot of the detail for you underneath,” shared Raw. “And it simply doesn’t know — it cannot know — the right decisions to make.”

Raw then contextualized this statement, highlighting the fact that certain wallets don’t know the right decisions to make IF you’re looking to preserve privacy in your transactions.

“If you received some funds from somewhere and then you spent those funds somewhere else, you are creating a cryptographic link on the chain which anyone can see,” he explained. “If somebody knows the identity of either of those two sides, they can start to link things up. That is a dangerous thing that I don't think people are aware of.”

He likened this scenario to all of your text messages suddenly becoming public — with your name linked to them.

“It’s like if we all had our chat apps and everybody could see everything everyone said and associate an identity to it,” Raw explained. “What we're talking about is the same thing, but on a financial level.”

Raw doesn’t think most Bitcoin users are ready for this level of transparency.

He believes people should consider whether or not they’re comfortable with publicly broadcasting information that can lead others inferring what they earn or with whom they transact. If they’re not, then they might consider taking UTXO management more seriously with the help of Sparrow Wallet, which displays users’ UTXOs by default instead of hiding them.

“Sparrow is trying to give users an ability to understand what it is that they are doing, to be more safe in their transactions from a security and privacy point of view by giving them the information that they need in order to be able to manage that kind of thing.”

One of the most refreshing things about Raw is that he doesn’t underestimate Bitcoin users. He seems to think of them as both capable and willing to learn, which is, in part, driven by the fact that we all value our privacy — whether we’re conscious of it or not.

“Even those who say, ‘I don't need to be private’ [might change their mind] if they just spent a moment considering that they wouldn’t like their bank accounts or their email inbox and so forth to be open to everyone in the world. And that is effectively what we have with an open blockchain,” explained Raw.

“I don't think it is nearly well understood enough, even amongst Bitcoiners, exactly how open and transparent the blockchain is,” he added.

“They may not have privacy from their bank or their government today, but they certainly have privacy from other individuals.”

While neglecting UTXO management is a threat to privacy, it’s not the threat to privacy, according to Raw. The threat, said Raw, is the ability — and desire — of Bitcoin users to self-custody their bitcoin.

To illustrate how dangerous giving up custody of your bitcoin is, Raw provided a theoretical example of what relinquishing self-custody would look like if taken to the extreme:

“Let’s say we have one bank in the world and that bank says, ‘Give me your bitcoin and I will give you an IOU.’ In that situation where everyone transfers their bitcoin over to that bank and the bank issues IOUs, the bank effectively has carte blanche to issue as many IOUs as they want. We’re effectively then back in the fiat world, even if we have bitcoin. I think that that's the biggest risk that Bitcoin faces today — the desire for people to self-custody the funds that they have.”

Does this mean that if you use a custodial bitcoin platform for even a second, you’ve betrayed a core Bitcoin tenet and should be excommunicated from the Church of Bitcoin Maximalism?

No.

At least not in Raw’s estimation.

“I think we just need to be very careful about relinquishing too many of those original ideals,” said Raw about ideals like oft-cited ‘not your keys, not your coins.’”

At the same time, Raw believes that “Bitcoin doesn’t exist in a vacuum” and that it’s the “product of the environment in which we live today.”

He shared that Wallet of Satoshi, a custodial Bitcoin Lightning wallet, has been a useful tool for the Bitcoin Ekasi project — a circular Bitcoin economy based in Raw’s home country of South Africa.

While Raw admitted that Wallet of Satoshi is “obviously not ideal from a self-custody point of view,” he also shared that “it does nevertheless get people used to [using bitcoin], and there’s something powerful about that.”

Raw seemed less concerned with the idea that people would use Wallet of Satoshi for small, everyday transactions and more concerned with the idea that many stop after downloading and using a custodial app like Wallet of Satoshi and don’t get around to learning about self-custody.

Like many of us who’ve tried to onboard friends and loved ones to Bitcoin, stressing to them the importance of holding one’s own keys, Raw gets that many unfortunately still don’t get it, partially because many have yet to feel the pronounced sting of currency debasement.

“We clearly get the pushback of ‘Why should I care? Why should this matter to me?,’” said Raw.

The idea of having to exit the traditional monetary or financial system in efforts to preserve your wealth “doesn't seem very real” to many around the world, he argued.

But for those who’ve lived in highly inflationary environments, learning how to properly use bitcoin isn’t a cognitive exercise — it’s something they resort to instinctively.

“If your currency gets devalued by 25% overnight, then it really does become quite material to you to think ‘How do I protect myself against this?,’ Raw added.

This is why Raw advises people to learn best practices when it comes to using Bitcoin before they’re thrown into a scenario in which they have to start using it. He makes this case despite the fact that he understands quite well that the greatest Bitcoin teacher is not a person or a certain class, but a feeling that we all often do our best to avoid: pain.

“Maybe they start with the Wallet of Satoshi, and maybe, if the worst comes to worst, that particular service goes away,” theorized Raw.

“They lose their funds, they have a painful lesson, and then they look for something better in future. I'm sure you are familiar with that journey. [Author’s note: Of course I am.] Many of the people I'm sure you have spoken to have lost funds and have learned painful lessons along the way [Author’s note: Of course they are. Many have told me this directly.],” he added.

“What’s interesting, I find, is they often don't walk away for good. They come back; they try again. They try with those learnings that they've managed to gain.”

So, does Raw wish this pain on people? I didn’t get that impression.

He’s not cruel; he’s concerned.

He also comes off as more of a realist than an idealist.

And he thinks that pain will not only compel people to be more careful about how they store the private keys but about how private they keep their transactions, as well.

“We don't have nearly enough focus on public opinion behind privacy, and I think the only way we're going to get there is, as is often said in the space, from people touching the stove,” said Raw.

“We need that collective pain — unfortunately. I wish it weren't so, but unfortunately, I think it is necessary in order for people to take the idea of privacy seriously,” he added.

Raw went on to share that he believes that collective pain is coming and that it’s likely necessary for us as a society to truly recognize just how much we value privacy — a cornerstone of civil society.

“Without the ability to be private, we cannot have a free society. It is simply not possible,” deadpanned Raw. “So, if people want to be free, and I believe that, in general, that is true, then they will need to realize at some point that they need this concept of privacy and the ability to have it in their own lives in order to achieve that goal.”

The good news is that while this wave of collective pain may wash over society, you can do something to insulate yourself from it. You can download Sparrow Wallet after you finish reading this article and begin to work through some of the discomfort that comes with learning to use new technology — which will likely be less painful than having your financial information doxxed.

Luckily for us, Raw designed Sparrow to be intuitive, leading more curious users down a path that educates them if they’re willing to spend some time tinkering with the software.

“Sparrow was always designed to be not just a Bitcoin wallet but an educator, as well,” explained Raw.

“That's why I've tried to put as much detail as I can into it. I designed it in a way, and I hope I've got this right, that gradually reveals information to people who want to dig deeper into things,” he added.

“You can use Sparrow in a fairly light way, and you should when you're just getting into it. But, as time goes on, there's no harm in clicking or hovering over things, reading the tool tips, and trying to understand more about what you're doing.”

What’s perhaps most remarkable about what Raw has built is that he’s created it and given it to the world for free. Raw doesn’t monetize Sparrow Wallet. As mentioned earlier, it’s free and open-source software that he continues to iterate upon for no reason other than he “believe[s] that it has some value.”

For someone who realizes just how much is at stake in a world where the powers that be are trying their best to trap us in a panopticon, Raw’s work keeps him optimistic.

“Ultimately it comes down to, for me, the simple idea that Bitcoin is hope,” Raw concluded, with his stern voice softened for just a moment.

“What is hope? Hope is the idea that tomorrow can be better than today, that one can look forward to something. Bitcoin represents that. That's why it’s the key driving force above everything else to me.”

Download Sparrow Wallet: https://sparrowwallet.com/download/

The following questions were crowdsourced from X.

The desktop computer is the most capable device that many people have when they are looking to do self-custody of their funds. That's really what Sparrow is for.

When it comes to the real important self-custody operations, you want to use the most capable device that you own. It gives you the most screen real estate to display the full context of what you're trying to do.

There's a limitation on mobile devices, which is natural just due to the size of the screen. You can see the obvious difference if you are using a mobile app versus using something like Sparrow. There's a big difference in terms of the amount of information that you can show. So, for me, it was natural to want to focus on the desktop.

I think that there are pros and cons in terms of security on both. Personally, I believe that the desktop can be made a more secure device than the phone. Again, I recognize that there are certain times when that isn't true, but in general, I think it's true. That's the most important thing.

The decisions you make at the start of a project echo throughout its life. It's really important to make good architectural decisions at the very start because that will inform everything further down the road.

It's too early to say. If you're talking about a project that hasn't really even reached a meaningful production level yet, it's just really too early to say. They haven't been put to the test.

They’re certainly interesting. I think really from a technological point of view, there's a lot of positive things to be said, but from an actual implementation and a regulatory point of view, they haven't been put to the test yet. We'll just have to see.

I will obviously keep an eye on all of those things, but I think people should treat any new technology with a great deal of caution before they trust any significant amount of funds to it.

The best I can say is not at this time. I'm really focused on the ideal of financial self-sovereignty and that's really, at this stage anyway, on the sort of on-chain level.

Now, there might be a time in the future where, for example, fees are too high and it's not practical to do that anymore. We simply don't know the way that things are going to play out.

Right now, Sparrow is a desktop app. It's a client app. It's not designed to be a server. It's not designed to be run all the time.

If you’re trying to design something for Lightning, you very quickly run into this idea of needing to be online to receive funds. As soon as you start to work with that requirement, you get into a lot of complexity around “Am I online? What happens if I’m not online? Do I then need a third party involved?”

As I said, the decisions you make at the start of a project echo through its life. Sparrow is good at what it does. It's an app that is designed for self-custody, for cold storage, and the important thing about cold storage is that it should be cold. You shouldn't be necessarily running your cold storage wallet open on Sparrow all the time. That wallet should be closed, and you should be able to close Sparrow, as well.

So, as soon as you start to move away from those key goals, you're trying to find some kind of compromise, and that needs to be treated with a lot of caution because it's a different thing than what I'm building today.

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