Using Bitcoin Anonymously

Use Bitcoin anonymously

As you may know, all Bitcoin transactions are stored in a public ledger that is called a block chain. All data that is stored in the ledger consist of payments including the sum of bitcoins and addresses of senders and receivers. As long as every transaction uses bitcoins from the previous transaction and the block chain is open to the public, every Bitcoin payment has a history that can be reviewed by anyone.

Addressed bitcoins are not connected to people or entity. This is why Bitcoin is sometimes called pseudonymous or pseudo-anonymous. However, the ID of a person can be connected to the address of bitcoin with the help of other sources. As soon as it happens, it will be possible to define all transaction made by the person with the history of the block chain. A single anonymity breach can reveal the whole history of Bitcoin payments.

How is it connected to a person? Often the association occurs when people post their name with the address of Bitcoin on the Internet. However, there are a lot of other ways to reveal information. After the association is created, a party with enough determination, time, and resources can analyze a block chain and define who many bitcoins one person has, how he or she receives them and how he or she spends them.

To use Bitcoin anonymously, you have to follow precautions to prevent your true ID from connection with your addresses and transactions. Bitcoin is not anonymous and it can not be anonymously enough if you do not follow certain rules.

New addresses for new payments

One of the first rules that will help you to prevent yourself from someone finding out your information is to use a new address for every incoming transaction. When you do this, you will hide your balance information on your Bitcoin wallet. If every new payment is sent to a new address, bitcoins will be spread over a few addresses and will not be stored at one address. This makes it difficult for someone to find out how many bitcoins you have got as long as the majority of Bitcoin customer does not reveal what addresses they have when receiving payments.

However, all those addressed can be publicly associated with each other when sending a payment. If the whole sum of transaction that you send is more than the sum that you have at one address then balances of your few addresses have to be combined as the inputs to reach the total amount of the transaction. After this transaction is stored in a block chain, it can show but not prove that all these addresses are owned by one certain person. If your ID was not connected with any of your addresses, then your anonymity will be safe.

If you already have some transactions that are linked to your name, then you better create a new wallet and send your bitcoins to a new address. Run them through the mixer. Keep your anonymous wallet and a regular wallet separately and do not send coins between them two.

Also, we need to mention that all Bitcoin payments always spend the whole amount that is stored in one address. This means that is you send one bitcoin from the address that stores 2 bitcoins, the second bitcoin will also be included in a transaction, however, after that will be sent to one of your addresses. This is why a lot of Bitcoin users create a few addresses to receive the leftovers. Those addresses can help to hide a person who is the receiver of a transaction.

So, do not forget to create a new wallet for every payment that you are about to receive because it helps to hide the whole balance of bitcoins.
Do not cooperate with thin clients and hosted wallets

The second rule that will help you to remain anonymous is to avoid thin clients and hosted wallets. All thin clients leak what addresses you own because they are connected to Simple Payment Verification services. Thin clients do not store a block chain locally. Instead, they ask for one SPV server for payments that is connected to all addressed in your wallet. So, each of your addresses will be sent to SPV server.

One of the thin clients Multibit has the ability to use bloom filters and conceal what addresses you have by requesting extra payments that do not include your wallet. However, Multibit is working on increasing the effectiveness over privacy and does not use bloom filters for address anonymization. Another thin client Electrum does not use bloom filters at all, so any server you connect to knows every address that you have.

Hosted wallets are even worse when it comes to anonymization. All your private and public keys are stored on third party servers, therefore, the operator knows what bitcoins are yours. Also, any information that you have sent to the service that is connected to your Bitcoin addresses can be open to service’s operators.

Such types of wallets simplify the SPV server operator’s or administrator’s work to know how many bitcoins you have and connect them to your IP address. The operator can place information, that can be hacked and stolen and then provided to law enforcement or government agencies.

One of the main aspects when using Bitcoin is to not trust any single party. It is best to use a full Bitcoin client like Bitcoin QT or Armony and store a block chain locally. Thin clients and hosted wallets are not safe to use. It is smarted to use a full client.

Bitcoin and your IP address

When you initiate the payment on your computer, the client of Bitcoin sends all necessary data other clients, effectively broadcasting the Bitcoin transfer to the network. Bitcoin does not encrypt its traffic, which means that your internet provider the owner of a public WiFi spot that you are using or NSA can read all your transactions and define your balances with making as less efforts as possible. For the third party, it is easy to collect a lot of information about done payments to reveal the ID of Bitcoin user.

It is necessary to connect to Bitcoin network via an anonymous level such as Tor or VPN. Let’s review both of them here.

You can get Tor from the official website. Install Tor client and make sure that it runs. Then go to network settings of Bitcoin client and set the connection to SOCKS proxy address 127.0.0.1 it is also called localhost via the port 9050 or port 9150. Tor is obviously slower than your internet connection, therefore, if you want to set a full client via Tor, you will have to download a block chain without Tor and then use Tor when making transactions.

Also, you can use VPN to hide your IP address. However, you will have to trust the VPN provider because it also can register your data and reveal your payments. The majority of VPN providers are configurations or applications automatically route all of your internet traffic through their services, so it is not necessary to perform additional configurations on your Bitcoin client.

Public WiFi for increasing the level of anonymity

Apart from using Tor or VPN, it will be useful to use a public WiFi as long as it will increase the level of your anonymity. The providers of home internet service collect the names of customers, addressed, and other data when you subscribe to their services. Your ID is directly connected to your IP address and any internet traffic that you generate, using their internet connection.

Public WiFi does not require you to provide your data for connection with the Internet. Therefore, this complicates them tracking you and what you do. However, there is something else you need to keep in mind. Your MAC address will be registered by the public WiFi operator that will be used for identification of your computer. The majority of the operating system allows cheating the true MAC address if your network card generating and using a random MAC address. You have to do this every time before connecting to public WiFi. Also, you should review other ways that will help you to stay connected to your connection:

• security cameras in the area where you are using WiFi
• if you use the same public WiFi
• if you use your credit card for buying good in the same area
• if you review unencrypted websites where you left your personal data

Remember that you have to store all your WiFi traffic with the help of Tor or VPN. Hide your Bitcoin internet traffic and use public WiFi – these two methods will definitely increase your anonymity.

How to buy bitcoins anonymously?

The best way to remain anonymous is to avoid providing your credentials linked to a Bitcoin transaction. Another way is to break the identity block chain that connects you with coins. However, the first way is better.

If you purchase bitcoins from the exchange, they will be definitely connected to your name. The majority of exchanges require you to provide your ID and give them the scan of it. You will also need the scan of bills or bank statements to ensure your physical address. A lot of exchanges accept only transfers in national currency via a bank transfer or credit card which again proves your ID and leaves a confirmation that can be tracked. After you provide the exchange with a withdrawal Bitcoin address for sending your recently purchased bitcoins, this address will be linked to your name in the exchange records. These records can be skipped, posted, or requested by law enforcement officials.

So, remember that Bitcoin exchanges require documents and bank accounts that prove who you are. You need to do your best to avoid this procedure.

Purchase bitcoins in person

The best way to buy bitcoins is to meet with a seller in the person who wants to sell coins for physical cash. There are several websites where you can find people who can trade. The best website for this is LocalBitcoins. But to remain anonymous here you need to follow the next steps:

1. Do not provide any information that can identify you. Do not give your real name, email address, phone number or physical address.
2. If you need to mention your phone number or use it to arrange a meeting, get a burner phone. It is cheap and can be bought with cash.
3. Use anonymous internet connection for example Tor to use LocalBitcoins or your email account.
4. Find a seller who can provide your coins for cash.
5. Discover the history of the seller and find reviews about him from other buyers. It is best to avoid new sellers on the service.
6. Meet a seller in a public place. It will be useful to walk to the arranged place or drive your bike to the place to avoid identification. Do not come by car. Even if you have to drive, park your car further from the arranged place.

So, when you buy bitcoins in person for cash this increases your anonymity for sure.

Purchase bitcoins for cash in mail

Anonymous money transfers can also be done via sending physical cash in the mail or with certain payment providers. One of such providers is MoneyPak. The seller can provide a mailing address, so you will have to send them a payment. Depending on the agreement, the seller can ask you to send a payment first or they may agree to place to bitcoins in escrow. To increase your anonymity, you also can send a package as a registered mail, insure it and ask for a signature when it will be delivered. If you insure the package, you also can take a photo of it to prove its value it gets lost or stolen.

If you do not mention a return address, it will probably be flagged by the postal service for further inspection. It is also best to not use a return address that does not exist because the package will be flagged. Also, if the package is not delivered and cannot be returned, the money will be lost.

A lot of sellers prefer to use PGP/GPG encrypted communications so their mailing address can be viewed by you only. They also do it for not storing their mailing address on the service’s servers in plain text. They pay to setup PGP/GPG on your computer, advertise that you support it, and provide your public key.

So, to mail bitcoins for cash is quite anonymous, however, if you provide a return address, it will be known to the seller.

Purchase bitcoins from ATM

We can see more and more Bitcoin ATMs. In some jurisdictions they ask for a lot of ID information before you can buy coins, however, some of them are completely anonymous and just create a paper wallet and send bitcoin to the address that you have chosen after feeding them some cash. If you can find such Bitcoin ATM this is a good choice, therefore, you will be able to buy and receive bitcoins anonymously even if you have to pay a market price.

Online Work

Another way to receive bitcoins anonymously is to work online. There are a lot of job offers, however, you need to be careful and see whether they ask for your real name, etc. Even when you apply for such job, never tell your real name.

Reddit’s Jobs4Bitcoins subreddit is a good place to search for job offers that pay with bitcoins. The job offers must be flagged HIRING. You also can advertise your marketable skills with a post that have to be flagged FORHIRE.

Coinality is another decent service to find a company that pays with bitcoins. There are a lot of jobs offers that you can filter by type of employment, category, payment, and location. Most job offers on the service are technology and internet related and many can be done online from anywhere in the world. You can also post your CV to attract potential employers.

In general, there are dozens of such services that pay a little amount of money for watching advertisements, however, they are not worth the time and efforts.

So, consider this way of earning bitcoins by working online.The benefit of such way is that you can do it from anywhere and anytime. However, remember to avoid job offers that pay you for watching videos or clicking links. Such companies do not provide a decent payment.

Bitcoin mining

Another way to stay anonymous is to mine new coins that were not used before. The only one disadvantage when mining is a high cost of special equipment for mining. Such hardware is called ASIC. It is not easy to find the miners especially if you want to get a big profit. Usually, the price of a special hardware exceeds what you can earn. The difficulty to mine bitcoins constantly grows because of the network’s self-regulation mechanism and often special hardware for mining can be bought if you pre-order it. This is a big disappointment for mining enthusiasts. The chances to get more bitcoins when mining is low unless you invest in a high-quality and costly equipment.

If you are still interested to get bitcoins anonymously by mining, please discover more what you will have to do if you want to mine, how much money you will have to spend, and what your income will be. Discover how Bitcoin’s difficulty rises and related ROI calculations for a certain mining equipment. Also, pay attention to the reputation of equipment manufacturers.

Mining is a great way to get bitcoins anonymously, however, you will have to invest a lot and there is no guarantee that you will make your money back as long as a decent and high-quality equipment cost a lot.

How to clean stained bitcoins?

If you have got bitcoins that were tainted with a link that could identify you, you can actually break this link and effectively anonymize your bitcoins again. If you do everything correctly, your further transactions will not be connected to your name.

To do so, there are mixers. They are also called tumblers. The whole point is to send coins that you want to clean in the mixer, which in turn sends back the same amount minus a fee to a new address you provide. The coins that you receive back are taken from a big pool that is supported by the mixing service and ideally, should not have any connection with your original coins.

The main shortcoming of this method is its centralization. You have to trust the mixing service that you choose for cleaning your coins. Also, you have to believe that the service does not save all records about done transactions. You cannot know for sure what the service you have chosen will do with your data. If the mixing service does not store payment information, they cannot prove it.

Bitmixer is another centralized service that allows mentioning one or two addressed where you can receive your mixed coins at. You also can specify a delay or the percentage distribution among the addresses to further customize the process. When you finish the setup, you will be provided the input address and a special code. The code will allow you to receive your own coins from previous mixes when you use the service more than one time. The service’s fee is 0,5% plus additional 0, 0005 BTC per each forward address used.
One more centralized mixer is Bitcoin Fog. It exists as a hidden Tor service. To enter it you need a special browser that supports Tor. First, you have to create an account where you have to send coins that you want to mix. After you can request a withdrawal and the site will automatically randomize a series of payouts with varying amounts and delays. The fee is randomized too, between 1% and 3% per deposit.

Another a much better way compared with centralized mixing services are CoinJoin transactions. The service joins the row of payments from several users so it is not possible to say who send coins to what address. CoinJoin does not request trusting the third party because it can be performed entirely between the participants and at no point are your coins in danger to be stolen.

So, such services as mixers will also help you to remain anonymous through disconnecting your name with certain bitcoin, by replacing them with other coins.

DarkWallet

Bitcoin is still considered as a new technology and the effort to make it completely anonymous are still in the process. DarkWallet is a promising project that comes as a wallet for storing bitcoins. The wallet will be completely anonymous. Recently, DarkWallet was released as alpha software and is not recommended yet for being used. The process of testing the wallet is still not finished. The whole point of the project is to create a wallet that will be based on CoinJoin transactions, hidden addressed, and the access to the proxy network like Tor. DarkWallet will be a new application for Chrome and Firefox.