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Some notes on proxy wallets (#306)
Contribution inspired by: https://twitter.com/RoboSats/status/1584833119349182464
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src: "_pages/docs/01-best-practices/03-proxy-wallets.md"
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src: "_pages/docs/01-best-practices/03-proxy-wallets.md"
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---
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---
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Receiving on the lightning network can reveal personal information
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so it's important to keep a few things in mind.
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If your node has public channels,
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any invoices you make will reveal the UTXOs that were used to open those channels.
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If those UTXOs come from a KYC exchange,
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then anyone with access to the exchange's database
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will be able to link your lightning invoices to you identity.
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Even if you use coinjoined UTXOs to open your channels,
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or you bootstrap your node exclusively by paying for inbound channels,
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invoices are still potentially compromising
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since they allow an attacker to correlate different
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payments to know that they are going same entity (you).
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Moreover, if you close those channels,
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the resulting UTXOs will continue to be tied to those
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transactions.
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If your node only has unannounced channels
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it will be harder to find your onchain UTXOs
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but you will still have the problem of
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payment correlation.
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For small amounts, using a custodial proxy wallet is a reasonable way to
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improve your privacy when receiving on the lightning network.
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Receiving to a good custodial wallet will only reveal the custodian's UTXO's.
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To learn information about you,
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the payer of your invoices would have to collude with the wallet custodian.
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A non-custodial alternative is to use an lnproxy server
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to wrap invoices to your own node and receive to the wrapped invoices instead.
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Simply generate an invoice to your node and paste it into an lnproxy web interface.
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The lnproxy server will return a "wrapped" invoice to the lnproxy server's lightning node.
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The wrapped invoice should have the same
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description and payment hash as the one you pasted in,
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and a slightly higher amount to account for routing.
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You should verify this using an invoice decoder like https://lightningdecoder.com .
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If the payment hashes match, you can be certain that the lnproxy node
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will not be able to steal your funds.
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Then, simply use the wrapped invoice anywhere you
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would have used your original invoice.
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To learn any information about you from a wrapped invoice,
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an attacker would have to collude with the lnproxy server you used.
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{% include wip %}
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{% include wip %}
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