In darknet markets, privacy is of high importance. Sellers and buyers want to protect their privacy in order to guarantee their safety when transacting. Law enforcement is not too kind to these types of markets and constantly monitors the websites and merchants for privacy leaks.

By default, bitcoin has weak privacy, and therefore is not fungible. Data and metadata from the Bitcoin timechain can be linked together with off-chain data to form solid evidence against a defendant in court. There have been cases that relied on bitcoin's lack of privacy as conclusive evidence of what the government sees as “wrong-doing.” Naturally, darknet markets were looking for solutions.

Still, there are many attempts at enhancing bitcoin’s privacy,

Custodial tumblers were an early solution to bitcoin's lack of privacy. [...] A CoinJoin is a collaborative transaction that combines users' coins in order to create a large anonymity set for them. This increases the privacy of all participants.

This is by far the most effective method for privacy on Bitcoin and has been used heavily on darknet markets as well as outside of them. [...] Unfortunately, Lightning has privacy flaws when it comes to receiving money. For instance, the receiver needs to provide his “channel point” when creating an invoice. A channel point is the UTXO on the blockchain that is used to back the channel with on-chain bitcoin; that means that the sender can view the receiver’s on-chain transaction history.

When transacting, make sure it’s peer-to-peer and not through an exchange or other intermediary. Never use a custodial wallet — you can not ensure your privacy if you count on a third party to take care of it for you. Also, when acquiring bitcoin make sure to use a non-KYC (know-your-customer) exchange. Otherwise, your data and privacy could be at risk.

The more people that use bitcoin privately, the better privacy everyone gets, and the more likely it is that bitcoin will emerge again as the prominent currency of the darknet markets, and consequently of other markets too.