When the average person hears the term "cryptocurrency," they may assume that every aspect of the protocol is encrypted and thus completely private, allowing users to safely remain anonymous. This is most certainly not the case, and privacy-conscious users will need to take additional steps to protect themselves. One particular threat vector that Bitcoin and Lightning users should consider is that of the network observer. By sending data in the clear via default IPV4 and IPV6 networks, sophisticated entities can look for patterns to correlate your financial activity and they can use the IP address of your machine to probe it for weaknesses and attempt to learn your location and identity.
How are we to protect ourselves?By sharing as little data with third parties as possible. By ensuring that all of the data our nodes send and receive is routed over a privacy preserving network.
Full nodes offer the best privacy model when it comes to preventing data leaks. With a full node, you download all the blockchain data and only query for addresses / transactions locally — network observers can’t see what you’re interested in.
But if we run our own nodes, we still have to share data (such as for sending transactions) with peers on the network - how do we protect ourselves from them? Enter Tor. Tor Project maintainers say that you can think of what Tor does as "using a twisty, hard-to-follow route in order to throw off somebody who is tailing you — and then periodically erasing your footprints." Your traffic gets intermingled with the traffic of other Tor users. As the global Tor userbase grows, the path gets twistier.
In order for you to make networked services (anything from a web server to a peer to peer node) work on Tor, you need to create a hidden service that acts as a bridge from the Tor network to the specific software running on your machine.Bitcoin Core
As of Bitcoin Core 0.12, a node will automatically run a...