Hiding your identity in this digital world can be quite tricky, because several digital footprints are often left behind.
Did you know that Bitcoin transactions can be tracked and that they are not anonymous (Pseudo anonymous)?
Bitcoin transactions are not linked to a person or identity. Public addresses are used for transactions.
A person’s name, email, or physical address can’t be found anywhere in the transaction. However, it is still possible to track a person’s identity using public address info and IPs.
There’s no name attached to the public address or IP, so how is this possible then?
Well, sometimes people publish their name together with their Bitcoin address online. Identity can also be traced if you are using a private Wi-Fi connection, because here we generally give our proof of ID, through which our identities can be matched against our IP. Once the association has been made, a party with enough resources, time, and determination could analyze the blockchain and determine how many Bitcoins you have, how you spend them, and how you receive them.
If you want to use Bitcoin anonymously, you need to take precautions to prevent your true identity from being associated with your addresses and transactions.
There are some identity-hiding tricks that can help you use Bitcoin anonymously.
Top 6 Best Methods to Make Bitcoin as Anonymous as Possible
Bitcoin transactions are recorded on a public ledger, so that anyone who traces a public address can know the origin and/or destination. There is no protocol level procedure to anonymize these Bitcoins. This is the reason why a Bitcoin mixer is required to hide identity.
Bitcoin mixing is a process of taking money from one account and breaking it into thousands of smaller transactions to transfer it to another account, and in this way it tries to break the linkability or traceability.
Mixing breaks the link between Bitcoin addresses by either swapping coins with other addresses of the same value or by creating temporary addresses.
Bitcoin mixing is a paid service, and it is also referred to as Bitcoin tumbling, Bitcoin washing, or Bitcoin laundering.
There are a couple of services that provide bitcoin mixing:
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Use Logless Virtual Private Network (VPN)
A logless virtual private network (VPN) is a network that encrypts all of your Internet traffic and routes it through multiple servers of your choice at different locations before arriving at the final location. It’s important to note that this network doesn’t store the history of your activities on their servers. Some logless VPNs also maintain a shared IP address for multiple users. Thanks to this feature, it is very difficult to pinpoint and trace one person’s identity. Using lossless VPNs to connect to your Bitcoin client is another away to improve the privacy of your Bitcoin transactions, but this comes with the stipulation that you must trust the VPN provider not to log or reveal your transactions. Most VPN providers provide applications or configurations that automatically route all of your internet traffic through their service. This means that it’s not necessary to perform additional configurations on your Bitcoin client.
Here are some of the most popular Non-USA based Logless VPN Service Providers:
You should avoid USA/UK based VPN Services because of strict surveillance law.
Tor- Onion Router to stay anonymous
Tor is a volunteer community that believes in anonymity and surveillance-free internet usage, and a Tor browser can be used to connect with the Bitcoin network.
Tor nodes encrypt and route your internet traffic to random computer nodes on the Tor network before it reaches its final destination, which means that it becomes extremely difficult to pinpoint the IP address or system from which the transaction or message was broadcasted. In simple words, this means that it helps you stay anonymous because it doesn’t allow your transactions and other activities to be pointed to your I.P. However, using Tor is not so useful if you use a KYC enabled Bitcoin sites like CoinSecure, CoinBase or any other.
There are several ways to use Tor on different devices. However, if you are using a Windows PC, then you can run your Tor client and connect to the Bitcoin network using the address 127.0.0.1 (also known as localhost) via port 9050 (the standard Tor port) or port 9150 (if you installed the Tor browser bundle).
Tor is naturally slower than your direct internet connection. This means that if you want to setup a full client for use via Tor, it’s recommended to first download the blockchain without Tor, and then use Tor whenever sending a transaction.
Buy and Sell Bitcoins in Cash
Another anonymous way of dealing in Bitcoin transactions is to meet face-to-face with someone willing to sell Bitcoins for physical cash. There are a number of websites where you can find people to trade with. However, the most popular site is LocalBitcoins.
The following precautions should be taken in order to stay anonymous:
- Always use a VPN or Tor when accessing LocalBitcoins
- Register at LocalBitcoins using a burner email like guerrilla mail and a fake name generator. (Don’t provide any information that could be used to identify you, for example don’t use your email or address or phone number or real name.)
- If you must provide your phone number or use a phone to coordinate a trade meetup, use a public phone or a burner phone. They can be bought with cash and they are cheap.
- Find a trustable seller/buyer with good feedback and a high reputation on LBC for a cash trade. Don’t trade with new sellers.
- Meet in a well populated, public place where you have access to free public Wi-Fi. To avoid having your vehicle or its license plate identified, it may be useful to walk or bike to the location. If you must drive to the location, have a friend drop you off and pick you up, or park a considerable distance away.
- It’s recommended to use an anonymous internet connection, like Tor, to access LocalBitcoins and your throw-away email account.
You will maintain a high degree of anonymity by following these steps.
New Address for Transactions
Most of the popular Bitcoin wallets are HD wallets, which means that you can generate any number of receiving address and every time you receive Bitcoins from anywhere, use a new address. This sometimes confuses beginner users, because they wonder why their receiving address has changed. However, just know that you can generate as many Bitcoin receiving addresses as you want if you are using an HD wallet like Trezor, MyCelium, Ledger Nano S, or any other.
This is a good practice to ensure anonymity when using Bitcoins regularly, because in this way, it would be very difficult to link to 2 or more transactions to you.
You may think when the bitcoin’s blockchain is hack proof what’s the threat and why can’t you re-use the same address. Well, if you don’t care about your own privacy and security, you can re-use the same address.
As you probably already know, BTC blockchain is also public and transparent, so anyone who knows about your address can check how much balance you hold and can see your spending habits. Check the examples below to see how re-using same BTC address can jeopardize your financial privacy and put you in trouble.
Imagine that you are a merchant who sells electronic goods. You have recently started accepting Bitcoins as payment, and you have put a public address QR code on display in your shop for customers to see. Now imagine some robbers come on gun point to rob you, and you say that you don’t have any cash to give because you have not done enough business this month. However, the problem is that these robbers are tech-savvy. This means that it will take seconds for them to just check the displayed Bitcoin public address. When the robbers check the address on the blockchain they will find that you have 200 BTC. This means that your lie is caught and you will lose your 200 BTC.
Let suppose you use a Bitcoin Paper Wallet in order to store your wealth, and you purchased some BTC for cash from LBC and transferred it to your paper wallet. The person from whom you purchased BTC follows your address trail on the blockchain and he finds that you have accumulated $200 K in Bitcoins on your paper wallet address. He mentions this information openly in a public place. The word gets spread. The next day he raids your home and takes the Bitcoin paper wallet from you on a gun point which also contains the private keys, or maybe the next day a kidnapper kidnaps a member of your family and knows exactly how much to demand in ransom.
It is unlikely that these situations might happen, but again possibility can’t be denied. I am not trying to scare and discourage you by such examples. I am just trying to explain some unfavorable situations that might happen. So that’s why it is of paramount importance to handle your BTCs with some level of anonymity and care.
Let us give you a quick piece of advice:
- If you willingly or accidentally exposed your Bitcoin public address, you should stop using it. You should use a new public address.
- Use an HD wallet like Trezor, MyCelium, or Ledger Nano S, so that you can generate as many Bitcoin receiving addresses as you want.
- And don’t transfer funds from this new address to the previously exposed public address for which you had revealed your identity, because you can get tracked.
- Also, remember to use your new address while using VPN or a Tor browser (or both). And when you have to spend your funds from the same new public address, you should connect to VPN and/or Tor again and then to your Bitcoin network to transact, and in this way your IP will not be tracked.
Rule of Thumb: Don’t publicly disclose any address or associate any address with your true identity, because in this way, it becomes difficult to track you down.
JoinMarket is perfect for those who want to play it safe and don’t want to trust a centralized website administrator like BITMIXER to anonymize their coins.
JoinMarket is not a service or software; rather, it’s a market. Market makers and takers come together in JoinMarket to make special transactions called CoinJoin transactions. This method is based on ‘joining’ your transactions with transactions of other users, and it arranges the right amount of coins at the right time and the right place.
Takers pay a nominal fee to the makers who are ready to mix their coins. The best part is that CoinJoin enables mixing without Escrow or centralized parties, because it can be performed entirely between the participants and at no point are your coins in danger to be stolen.
It’s important to note that private keys are always under the control of the user in this type of transaction.
This method is very secure, but unfortunately not so popular and there is not much traffic on it. Also, it takes considerable knowledge and time to install the JoinMarket app. But the development process continues and the user base is slowly growing, so if you want to give it a shot, head toward this link for more information.
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How to Make Anonymous Bitcoin Transactions
Bitcoin, by design, is not anonymous. However, it can give you more than enough privacy if used safely. Bitcoin is still a rather new technology and attempts to make anonymous usage possible with good usability are even younger, so these are just workaround solutions to make Bitcoin anonymous.
The technology still has a long way to go, and cryptocurrencies mature, things like complete anonymity will become commonplace.
But for now, these workarounds are all we have so we need them.
CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com