During a recent interview with Naomi Brockwell at a Bitcoin Cash Conference in Australia, Josh Ellithorpe, Senior Software Engineer at Coinbase, discussed different kinds of non-custodial wallets and how these crypto-wallets could leak the user’s financial information.
Ellithorpe claimed that crypto-wallet users were ‘unaware’ that non-custodial wallets under a third party could leak financial information. He stated that the information would get released when the wallet would query a third party about the user’s address data.
“Once you open up your wallet and it goes to some server and it sends every address in your wallet to that server, and asks about the balance of all these addresses. Now that third party knows everything about your finance.”
He added that some non-custodial wallets would often have low bandwidths of operation, excluding any form of privacy protection. The absence of privacy protocols would make these wallets extremely easy to censor.
According to him, the best kind of crypto-wallets in the industry are the ones which are connected directly to the nodes on the virtual asset network. These kind of wallets allow users to access their individual address data, without telling the third party what addresses they were looking out for. However, he cautioned,
“The problem with full nodes is that they don’t work very well on a mobile phone. They have very high resource requirements and because of those high resource requirements, we need to look at better solutions for mobile wallets.”
Additionally, Ellithorpe added that in such cases, SPV [Simple Payment Verification] and Neutrino-based wallets were the best options available since these wallets had enhanced security features, which made all the addresses in a user’s wallet disclosure-resistant.