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Originally posted on Substack on Oct 21, 2022

Updated here on Dec 13, 2024

How to add more privacy to your Lightning received payments as a merchant

We all know that in Lightning Network as a receiver you will have to reveal to the payer (only) your destination nodeID. So I will try to give you some examples of how to operate with more anonymity as a receiver of sats through Lightning Network.

Some will consider this aspect a “violation of privacy”. I would consider it the way around: how to set false traps for those who want to trace your funds (if they can).

Many people today are obsessed with the word “privacy” but do not take in consideration the other important word: anonymity or pseudonymous.

You can obtain more privacy by not revealing your true identity linked to a node, service, address, process etc.

As a sender through LN we all know that is very difficult or almost impossible to trace back a payment to original source. LN is operating the transactions using “onion routing”. Here is a very simple explanation of this process by Renè Pickhardt.

So let’s suppose you are a small merchant, selling some products or services online or in a shop and you want to add a certain level of anonymity of your funds received. Or at least where are you holding the majority of your bitcoins received from LN payments.

RECAP of how the LN payment process is working

1 - merchant create LN invoice (from his LN wallet, linked to his node or not)

2 - LN invoice created reveal to the payer the destination nodeID (but not the final routes)

3 - customer pays the LN invoice and can see the destination nodeID

4 - merchant could not see the original source of the payment, but can see only the last hop/peer that forward the payment to his wallet / node

A reminder about how to run a good public routing node, I wrote several guides about:

So what options do we have as a LN payment receiver ?


Anonymity options

A. Run a “decoy node”

As a merchant you will need INBOUND liquidity and good routes towards your destination node, in order to be able to receive properly the customers payments.

But in the same time, you can’t force all your customers to use Tor to be able to pay your LN invoices generated from a Tor node. Because we know that LN invoices generated from a Tor node can be read ONLY from LN wallets using Tor network.

So I would suggest to use a “decoy node” with good liquidity and routes and also for better connectivity to run in a hybrid mode (Tor + clearnet). The decoy node will have a direct private channel with your final node in the route, that will forward all payments. Use a big channel in between so you don’t have to close it many times.

Do not link these nodes in any way with any of your real identity, use nyms if is necessary to communicate with other node operators, during the process of creating your public node liquidity. Also try not to use aliases for these nodes, just use the random nodeID.

To this “public node” you can connect a simple LN node, with a private (unannounced) channel, big enough to move the funds received from customers payments.

In this scenario we can have also multiple options:

B. Use only a private mobile LN node

Yes, if you are a small merchant, that do not have time and money to spend on desktop nodes infrastructure, you can take payments directly with a mobile LN node.

Yes, there are pros and cons about this option, but depending on your business specific, you can adapt and use it. Let’s consider you are a merchant that operates in a mobile market, you do not have a big volume of sales using BTC/LN and you do not have a place or resources where to allocate for a stable desktop node.

You can use Blixt, Zeus, Phoenix, Electrum, Green or Breez for this scenario.

Some aspects of these apps to mention:
Operations

So how you should operate with these LN node apps in order to add more anonymity as receiver?

All these LN nodes will have an anonymous nodeID, not linked to your real identity. There’s no KYC or identity verification in order to use these apps.

In case you want to “refresh” your receiving merchant nodeID, I suggest some scenarios:


C. Use a “decoy” custodial Lightning wallet

Yes, many are afraid of the “infamous” custodial wallets, but in some scenarios are a good tool to be used to obscure your real identity.

There are many custodial LN wallets and services that are not KYC or do not request any identity verification process, maybe just an email address.

For this scenario you could use: CoinOS, Blink, Wallet of Satoshi, Bluewallet, Alby, see more examples and details here, a friend or provider of LNbits wallet as I described here.

Once you receive into these LN wallets, you could easily use any submarine swap service to take out the sats into your own private onchain wallet. Here is also another guide about using a “Lightning Cleaning Machine” method.

Receiving into these wallets, will not reveal any of your real identity or node, will be just the provider public node.

Swaping into onchain addresses also will not leave trace of your real identity.

Some important aspects to mention about these apps:

D. Use a LN proxy

Here is a simple web tool where you can use a proxy for your receiving LN invoice:

https://lnproxy.org/

With lnproxy, users can instead generate and give out wrapped invoices to obfuscate the identity of their lightning network nodes from their transaction counterparties.


CONCLUSION

So… as you can see, also as a merchant, you can obtain a different level of privacy through anonymity and obscure your final destination of your funds.

Is it perfect? Maybe not. But I challenge you to do your own tests: try to trace yourself, using some of these methods and see if you can find yourself the origin and final destination of the funds transacted with these methods. Will be really hard, I tried myself many times, with many methods.

These methods can be improved, no doubt, use your imagination and skills. I just wanted to offer you some tricks from where you can start.

Just don’t be discouraged by those haters saying that Lightning Network is not providing any privacy and you should not use it. For more your dig into LN, more you will find how fascinating is and how many things you can do with it.

Lightning Network, as a layer 2 over Bitcoin Network is a real game changer and a powerful tool in user’s hands.

Here some examples of amazing things you can do with LN: