Ensuring your Bitcoin transactions is anonymous is important and here are some tips on how to achieve it.
- Bitcoin Mixing
A public ledger is used to record bitcoin transactions. Anyone who can trace a public address will know the destination and/or origin. No protocol level procedure is available for anonymizing bitcoins, and that is why a Bitcoin mixer is needed for hiding identity. The process of bitcoin mixes attempts to break the traceability or linkability. The link in between Bitcoin addresses is broken by mixing either through swapping coins that have the same value with other addresses or through creating temporary addresses. That makes it difficult for the trail to be followed on the blockchain. Other names for bitcoin mixing, which is a paid service, are bitcoin tumbling, bitcoin washing, bitcoin laundering.
A few services that offer bitcoin mixing are:
- Tor- User a Router to remain anonymous
A Tor browser can be used to connect to the Bitcoin network. This is a volunteer community that believes in surveillance-free and anonymity when it comes to using the internet. Tor nodes route and encrypt your internet traffic onto random computer nodes that are part of the Tor network before reaching their final destination. Therefore, it is very hard to point the system or IP address from where the transaction or message was sent. Simply put, your activities such as your transactions cannot be pointed to the IP and that helps you remain anonymous. However, if a KYC enable Bitcoin site is used like CoinSecure or CoinBase, then it isn’t as useful to use Tor. I personally highly recommend that when you use a P2P-based site like BitSquare or LocalBitcoins, that you use a VPN or Tor.
There are several different ways that Tor can be used on different devices. However, if you use a Windows PC, your Tor client can be run and connected to the Bitcoin network via the standard Tor port 9050 utilizing the localhost address of 127.0.0.1.
- Use Logless VPN
Logless VPNs (virtual private network) are networks where your activity history is not stored on their servers. Your internet traffic is encrypted and is routed through your choice of multiple servers in different locations prior to arriving at your final location. There are some logless VPNs where a shared IP address is maintained for multiple users, which makes it very hard to trace and pinpoint one individual’s identity. Connecting to a Bitcoin client using a logless VPN is another way that the privacy of Bitcoin transactions can be improved. However, in this situation, you need to trust that your VPN service provider is not logging your activities.
The following are some of the most popular Logless VPN Service Providers based outside of the USA:
USA- and UK-based VPN Services should be avoided due to the strict surveillance laws in those countries. If you’re worried about your connection then switch your broadband provider.
- New Address for Bitcoin Transactions
HD wallets are among the most popular Bitcoin wallets. They allow you to generate however many receiving addresses you want to and each time you receive bitcoins from anyplace, a new address can be used. Sometimes this does confuse new users since they wonder why the receiving address is different. However, just be aware that when an HD wallet is used like the Trezor, MyCellium, or Ledger Nano S, that it is possible to generate however many Bitcoin receiving addresses that you want. It is good practice to do this since it helps to ensure anonymity whenever Bitcoins are used regularly. That way, it can be difficult to link several transactions to you.
Maybe you think the blockchain of the bitcoin is hack proof, so why can’t the same address be re-used and what is the threat exactly? It is true that the same address can be re-used if you don’t care about your security and privacy. BTC blockchain is transparent and public. So anyone who knows what your address is can see what your spending habits are and check your balance. Those are examples of how re-using the same BTC address may put your financial privacy in jeopardy and can cause you problems.
What if you are using a Bitcoin Paper Wallet for storing your wealth. You paid in cash for some BTC from LBC and then transferred it to your paper wallet. The individual from who you purchased the BTC trails your address on the blockchain. He discovers that your paper wallet address has $100K bitcoins stored in it.
He mentions it in public and the word is spread. (There is a very low chance of this, but you can’t deny that it is a possibility. The very next day your child is kidnapped by a kidnapper and he knows exactly how much of a random to demand. Or perhaps he raids your house the next takes and holds you at gunpoint and takes your Bitcoin paper wallet which holds the private keys as well.
Assume you are a merchant selling electronic products. You have started to accept Bitcoins as a form of payment. Your public QR code address is displayed in your store for customers to see. Imagine that you are robbed by robbers at gunpoint. Maybe you don’t have much cash on hand. If the burglars are tech-savvy, it will only take them a few seconds to see that your Bitcoin address is public. The robbers check the your blockchain address and discover there is 100 BTC in your wallet. You would end up losing your month’s earned BTCs.
You may think by using these examples that I am trying to discourage and scare you, but really I’m not. I just want to explain what some of the potential unfavorable scenarios could be. That is why it is so important to handle your BTCs using some degree of anonymity and is extremely important to be very careful.
So here is some advice for you:
If you have willingly or accidentally exposed the public address for your Bitcoins, then don’t use it anymore and get a new public address to use instead. Use HD wallets such as Trezor, MyCelium, Ledger Nano S or others, to generate as many different Bitcoin receiving addresses that you want. Don’t transfer any funds that have been stored in a public address that has been previously exposed and where your identity was revealed by this new address (That makes it possible for you to be tracked!). Make sure to use a VPN or Tor browser (or both) any time you are using your new public address. And anytime you are needing to spend funds from this new address, make sure to connect to your VPN and/or Tor before connecting to your Bitcoin network for making your transaction. That way our IP isn’t tracked.
As a general rule of thumb, you should never associate or publicly disclose an address that contains your true identity. That makes it harder to track you.
- Buy and Sell Bitcoins Using Cash
Another anonymous way that Bitcoin transactions can be dealt with is doing cash transactions in person. This type of service is provided by companies like LocalBitcoins.
How are face-to-face interactions made via an Escrow service anonymous?
To remain anonymous at LocalBitcoins, adhere to the following recommendations:
- Always Use Tor or a VPN to Access LocalBitcoins.
- Use a burner email such as guerrilla mail and a fake name generate to register at LocalBitcoins. (Don’t use your real name or email address.
- Find a reputable buyer or seller on LBC to do a cash trade with. Sellers and buyers who have a high reputation and good feedback should be safe.
- Use a burner phone or public phone for coordinating the meeting.
- Select a public place to meet in where there is free public wi-fi access. At the venue, conduct your transaction and then wait for 2 to 3 confirmation.
- Don’t drive your personal vehicle to the meeting spot since the license plate can expose your real identity.
If you follow the above steps. you will be able to maintain a high level of anonymity.
Maybe you would prefer playing it safe and not have to true BITMIXER or another centralized website administrator with anonymizing your coins.
If so, you can try out JoinMarket.
This isn’t a service or software; instead, it is a market. At JoinMarket, market takers and makers connect and make CoinJoin transactions, which are a type of special transaction. The market arranges for the proper amount of coins to be available at the right place and at the right time. Market takers pay the makers a nominal fee to mix their coins. Mixing is allowed by the CoinJoin mechanism without the need for centralized parties or Escrow. With this kind of transaction, the user always controls the private keys.
However, currently the market isn’t very popular and there isn’t a lot of traffic there. After you get the JointMarket app installed it takes a lot of time and knowledge. However, you might want to check it out.