Last Updated on15 min read
Hiding your identity in this digital world is quite tricky, as you often leave behind several digital footprints.
Since Bitcoin is part of the digital world, it’s also quite tricky to be completely anonymous when using this cryptocurrency.
Did you know that Bitcoin transactions are not anonymous (Pseudo anonymous) and can be tracked?
Bitcoin transactions, by design, are not linked to a person or identity. Public addresses are used for transactions- alphanumeric strings publically recorded on the blockchain.
A person’s name, physical address, or email is found nowhere in the transaction. But a person’s identity can still be tracked down using public address info and IPs.
That’s why Bitcoin transactions are called pseudo-anonymous.
But how is this possible when there’s no name attached to the public address or IP?
Well, sometimes the user of the Bitcoin public address declares their name along with the public address. Identity can also be traced if you are using a private wifi connection. Here we generally give our proof of ID, through which our identities can be matched against our IP.
There are several other ways to track you down digitally, but cutting a long story short, there are some tricks that can help you use Bitcoin anonymously.
In this article, we will talk about 6 ways to guarantee anonymity in Bitcoin transactions
Bitcoin transactions are recorded in a public ledger. Anyone who traces a public address can know the origin and/or destination. There is no protocol-level procedure to anonymize these bitcoins, which is why a Bitcoin mixer is required to hide identity.
Bitcoin mixing is a process that tries to break the linkability or traceability.
Mixing breaks the link between Bitcoin addresses by either creating temporary addresses or by swapping coins with other addresses of the same value. This makes the trail hard to follow on the blockchain.
Bitcoin mixing is also referred to as Bitcoin laundering, Bitcoin washing, or Bitcoin tumbling, and it is a paid service
When mixing bitcoins, you send your money to an anonymous service and, if they are well-intentioned, they will send you someone else’s tainted coins. So, now, whatever those coins were used for may now be traceable back to you. Additionally, mixing large amounts of money may be illegal, being in violation of anti-structuring laws.
Tor Onion Router to stay Anonymous
You can use a Tor Browser to connect with the Bitcoin network. Tor is a volunteer community that believes in anonymity and surveillance-free internet usage. If you are looking for something fancy, the Brave browser should be your go-to browser. It’s free, faster than Chrome and has Tor feature in-built. In fact, this is the browser I use personally.
Tor nodes encrypt and route your internet traffic to random computer nodes on the Tor network before it reaches its final destination. Hence, it becomes extremely difficult to pinpoint the IP address or system from which the message or transaction was broadcasted.
In simple words, your transactions & other activities couldn’t be pointed to your I.P & thus helps you stay anonymous. However, if you use a KYC enabled Bitcoin sites like CEX, Coinmama or any other, then using TOr is not so useful.
There are several ways to use Tor on different devices, but if you are using a Windows PC, then you can run your Tor client and connect to the Bitcoin network using the localhost address 127.0.0.1 via standard Tor port 9050.
Use Logless VPN
A legless virtual private network (VPN) is a network that doesn’t store the history of your activities on their servers. It encrypts all of your Internet traffic and routes it through multiple servers of your choice at different locations before arriving at the final location.
Some “logless” VPNs also maintain a shared IP address for multiple users, hence making it 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 in this case, you have to trust the VPN service provider not to log your activities.
Here are a few popular Non-USA based Logless VPN Service Providers:
NordVPN is undoubtedly a very fully-featured service. The fact that it is based in Panama and keeps no logs at all is also a big draw for those who care about privacy. Its software looks good and works well. Speed performance is now very impressive.
And a three-day free trial, plus a 30-day money-back guarantee give you plenty of opportunities to ensure that everything works for you as it should.
ExpressVPN offers fast connections and a wide server network. Server locations are important if you want to get into streaming services that run regional restrictions. These services block access from locations overseas. However, when you access them through the VPN, you’ll appear to be in the country of the VPN server.
You can install the ExpressVPN app on Windows, Mac OS X, iOS, and Kindle devices. You can also install the system manually on Ubuntu, Debian, Fedora, and CentOS Linux and a range of set-top boxes. An ExpressVPN browser extension for Chrome, Firefox, and Safari enables you to protect just the traffic that our browser generates. Another option with this VPN service is to install it on your home router to cover all of the devices in your house. You can install the VPN on Sabai, DD-WRT, Tomato, and Asus routers.
Security measures include a private Domain Name System (DNS), a kill switch to prevent unprotected internet connections, and automatic WiFi protection. The company is based in the British Virgin Islands and does not keep activity logs.
SurfShark‘s software is easy-to-use while also being very fully featured. It uses very strong encryption, and 5 simultaneous connections are generous. Being based in Romania and keeping no meaningful logs is also a big draw, and compliments the fact that it accepts payment in Bitcoin.
SurfShark’s excellent logging policy, fantastic speeds, and fully featured software are a winning combination. And with a 30-day no-quibble money-back guarantee, there are zero reasons not to give it a whirl.
CyberGhost‘s software is easy-to-use while also being very fully featured. It uses very strong encryption, and 5 simultaneous connections are generous. Being based in Romania and keeping no meaningful logs is also a big draw, and compliments the fact that it accepts payment in Bitcoin.
CyberGhost’s excellent logging policy, fantastic speeds, and fully featured software are a winning combination. And with a 30-day no-quibble money-back guarantee, there are zero reasons not to give it a whirl.
TunnelBear provides strong security and almost total anonymity. This service includes encrypted DNS resolution, so your Internet Service Provider (ISP) won’t be involved in the process of translating a web address to an internet address. Other privacy features include a kill switch, which prevents apps on your device from connecting to the internet if the link to the VPN server gets interrupted. The strength of TunnelBear’s privacy features is proven by its ability to dodge controls imposed by the Chinese government.
You have to set up an account before you can pay for the service. This step requires a username and a valid email address. You can set up a burner email account with a webmail service for this necessity – you don’t need to give your real name.
Learn more about with VPN Protocol Should you Use. If you don’t know what is a VPN check our ultimate guide for VPN beginners
Always use New Address for Transactions
Most of the popular Bitcoin wallets are HD wallets. That means you can generate any number of receiving addresses & every time you receive bitcoins from anywhere, use a new address. This at times also confuses new users, as they wonder why their receiving address has changed.
This is a good practice to ensure anonymity when using Bitcoins on a regular basis. This way, it would be hard to link to 2 or more transactions to you.
You may think when bitcoin’s blockchain is hack-proof why can’t you re-use the same address and what’s the threat.
Yes! it’s true that you can re-use the same address unless you don’t care about your own privacy and security.
As you might know, the BTC blockchain is also public and transparent. Anyone who knows about your address can see your spending habits and can check how much balance you hold. Consider these examples of how re-using the same BTC address can put you in trouble and jeopardize your financial privacy.
- Let say you use a Bitcoin Paper Wallet to store your wealth.
- You bought some BTC for cash from LBC and transferred it to your paper wallet.
- The person from whom you bought BTC follows your address trail on the blockchain.
- And he finds that you have accumulated $ 100 K in bitcoins on your paper wallet address.
- He mentions this openly in a public place and this word gets spread. (Chances of this is low but again possibility can’t be denied)
- The next day a kidnapper kidnaps your child/family member and knows exactly how much to demand in ransom.
- Or maybe the next day he raids your home and takes the Bitcoin paper wallet from you on a gunpoint which also contains the private keys.
- Let suppose you are a merchant who sells electronic items.
- You have started accepting Bitcoins as payment.
- And have put a public address QR code on display in your shop for customers to see.
- Now imagine some robbers come on gunpoint to rob you.
- And you say you have not done enough business this month and don’t have any cash to give.
- If they are tech-savvy robbers, it will take seconds for them to just check the displayed Bitcoin public address.
- The robbers check the address on the blockchain and found that you have 100 BTC.
- Your lie is caught and you lose your earned BTCs of the month.
You might think I am scaring and discouraging you by such examples, but I am not. I am just trying to explain some unfavorable scenarios which can come up. So that’s why handling your BTCs with some level of anonymity and care is of paramount importance.
So quick piece of advice from us:-
- If you accidentally or willingly exposed your Bitcoin public address, then stop using it and use a new public address.
- Use HD wallets like Ledger Nano X, Trezor or any other, so that you can generate as many Bitcoin receiving addresses as you want.
- And don’t transfer funds to the previously exposed public address for which you had revealed your identity from this new address. (You can get tracked !)
- Remember to use your new public address while using a Tor browser or VPN (or both). And when you have to spend your funds from the same new address, connect to Tor and/or VPN again and then to your Bitcoin network to transact. 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. This way, it becomes difficult to track you down.
Buy/Sell Bitcoins in Cash
Another anonymous way of dealing in Bitcoin transactions is doing face-to-face cash transactions. Services like LocalBitcoins provide this service.
How is a face-to-face interaction through an Escrow service anonymous?
Follow the recommended do’s and don’ts to stay anonymous on LocalBitcoins:
- Always Access LocalBitcoins using a VPN or Tor.
- Register at LocalBitcoins using a fake name generator and burner email like guerrilla mail. (Don’t use your email or address or real name.)
- Find a trustable seller/buyer on LBC for cash trade. Sellers/buyers with good feedback and a high reputation are safe.
- Use a public phone or a burner phone to coordinate the meeting.
- Choose a public place for a meeting where you have access to free public wi-fi.
- Reach the venue, transact, and wait for 2-3 confirmations.
- Don’t use your personal vehicle to commute as your vehicle number can expose your identity.
Following these steps, you will maintain a high degree of anonymity.
Let’s say you want to play it safe and don’t want to trust a centralized website administrator like BITMIXER to anonymize your coins.
Then you can try JoinMarket.
This is not a software or a service; rather, it’s a market. In JoinMarket, market makers and takers come together to make special transactions called CoinJoin transactions. This market arranges the right amount of coins at the right time and the right place.
Takers of this market pay a nominal fee to the makers who are ready to mix their coins. The CoinJoin mechanism enables mixing without Escrow or centralized parties.
In this type of transaction, private keys are always under the control of the user.
However, at present, the market is not so popular and there is not much traffic on it. Also, installing the JoinMarket app takes considerable knowledge and time. But if you want to give it a shot, head toward this link for more information.
How To Make Anonymous Bitcoin Transactions
Bitcoin, by design, is not anonymous, but if used safely, it can give you more than enough privacy. These are just workaround solutions to make Bitcoin anonymous. The technology still has a long way to go as it is still fresh.
On the other hand, Bitcoin is already facing competition from its peer currencies like (Dash and Monero) which offer anonymity as core features at the protocol level.
As cryptocurrencies mature, things like complete anonymity will become commonplace.
But for now, we need these workarounds.
So which method of anonymity are you using? Let me hear your comments and thoughts!
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The Problem with Paying for Digital Services in the EU...
Paying for digital services when you’re in Europe can present a problem. EU requirements specify that all charges for online services have to include Value Added Tax (VAT). The VAT is levied at the rate of the European country in which the customer is making the purchase. It is not levied at the rate of the service provider’s location.
The VAT rule applies to companies that are based outside of the EU as well. That means that if you subscribe to a VPN service that is based in the US, such as IPVanish, that company has to identify your location and apply the VAT rate for the EU country that you’re in at the moment you pay. Vendors are required to seek two forms of location confirmation. Just about all of these include factors that will identify you. These can include the address of your bank account or your home address.
These requirements make matters complicated if you’re traveling in Europe and not in your home country. That’s because online service companies have to provide the address of your bank account. This applies even if the payment is processed by a third party company. Thus having a PayPal account, or paying through Bitcoin, doesn’t protect you. The Bitcoin payment processor has to return details of your address to the service provider along with confirmation of payment. If the two identifying pieces of information don’t match the location of your IP address, the service cannot be provided.
…and the Solution
A simple solution to this problem is to make sure that you don’t appear to be in an EU country when you sign up for a VPN (or another service). That way, all of the location identification requirements disappear. You can perform this trick when signing up for a VPN by employing another VPN at the point of paying. This sounds a bit mad, but some free VPNs can help you out with that. AirVPN offers a three-day trial subscription for €1. You can take out that subscription using your real bank account, then turn the VPN on with a non-EU server location engaged. You can then sign up for another VPN service, such as IPVanish, or ExpressVPN. As a non-EU customer, the VPN company will not have to collect your location details. You can thus proceed with the purchase via Bitcoin anonymously.
So long as the VPN you use during your purchase doesn’t keep logs, there will be no way for anyone to connect you to the VPN account you set up with a Bitcoin payment.
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