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The whole truth about the anonymity of Bitcoin. Beginner’s Guide
Bitcoin anonymity in reality turns out to be slightly different from ordinary users’ thoughts about it. Most people have questions: why even with the declared anonymity of Bitcoin it is still possible to track operations and how to protect against such a scenario?
How do Bitcoin transactions work?
All operations are carried out using a digital signature: it helps to provide security in the network. “Blockchain” is the whole chain of blocks with records of transactions. Each network participant has access to the entire chain of operations, which allows to trace the history for each specific user and even more, it enables you to track the moment of the first digital coins appearance. Basically, every operation in the blockchain is a data block with an Input and an Output.
An Input is an address from which digital coins were sent, an Output is a wallet, to the balance of which they come. If you use multiple addresses there may be several Input and Output in a single operation. Or an operation can have only one input and output, but it’s a rare case because the number of bitcoins in the input and output has to remain the same.
In practice, one transaction has several inputs. For example, a person has three Bitcoins, two of which should be sent to the details of an online store. The system assigns three inputs to this transaction. The opposite situation when there are several outputs within one operation is more likely to occur. This is possible because the system can use addresses for a change if the user needs to return excess bitcoins after the operation.
In the described conditions it looks like this: 2 Bitcoins to the online store address will go to one output; the remaining user’s Bitcoin goes to another output.
What makes Bitcoin “anonymous”?
- An address of the wallet is not connected to the person’s identity. At any time a user can generate a new address and a key for it, simply by not using the old one. There is no need to provide personal and passport data, as when you get a new bank card.
- Transactions are not related to users’ identities. Bitcoins can be transferred between any addresses and there can be several operations. In any case, you do not need to disclose personal data.
- Information about transactions in the Bitcoin network is transmitted over randomly selected P2P nodes. These nodes are connected to one another by IP addresses. Therefore, it is not clear at any stage which node created the information and which one only redirected it.
At the same time, Bitcoins do not exist by themselves, and they do not have any material form. A cryptocurrency owner only has the address with the digital coins, and new entries are made in the blockchain while the user is making transactions with these coins between different addresses.
How does de-anonymization happen?
- Data transfer over a P2P network is not perfect. If the fraudster is able to connect several nodes to the network, he can get enough information to figure out where the digital coins came from and who the owner is.
- It is not hard to find out the identity of the user who has already used his personal data on the network while indicating the Bitcoin address. For example, a person bought a cryptocurrency through a stock exchange using a bank card to pay. Or he exchanged cryptocurrency for fiat with the subsequent payment in online stores; traces of all these operations remain in the network.
Anyone can see the chain of transactions in the network. If you do not use special mixers, it is easy to link several addresses together and track the user they belong to. When the owner’s identity of one of these addresses has already been disclosed, the anonymity of other addresses is a big question.
What can be done to preserve the anonymity?
So far, the Bitcoin anonymity remains the key issue among all the problems discussed in the cryptocurrency community. In theory cryptocurrency is completely anonymous, but in practice anyone who has the necessary knowledge can easily disclose information about the participants in the system with a minimal effort.
There is every chance that the creators of cryptocurrencies will improve the blockchain technology and will place greater emphasis on the confidentiality in the future. So far, users have to protect themselves and their personal data from the third parties. There are several ways to do it.
A simple and ready-made solution that does not require using special skills is to hide your real IP address. For this purpose, you must install a TOR browser on your PC, use a VPN or proxy server. Data transfer (user’s city, IP address, provider, browser, and much more) in this case is done via secure channels, and switching to a new IP address will not allow anyone to link transaction in the blockchain to a specific user. Using the TOR browser will prevent defining the source of this transaction.
The next method to increase personal security is to generate new addresses for each operation. A similar feature was implemented in the functionality of modern software and hardware wallets a long time ago. To get a new key you just need to make one click with the mouse and wait for a few seconds. The method is simple, but it guarantees to complicate the process of searching for related addresses. It will take much more time and effort to search.
Using a bitcoin mixer is the most reliable method. There are a lot of such sites, but their functionality always remains the same: users “dump” cryptocurrency onto the balance of the mixer, after that, coins are mixed using special algorithms. Upon that, Bitcoins are again sent to the addresses, but it is no longer possible to trace their source. Mixing should be of a high quality, then, even the analysis of the spread will not allow to find related addresses and to find out the path of the coins. The problem is that not all mixer sites provide quality services to their customers. Some of them simply charge and do not mix at all.
An example of a good mixer is BitMix.Biz. Using this resource you receive completely anonymous coins that have no connection to you. Thus, it is impossible to prove by tracking transactions that the funds in your wallet are related to your business.
Bitcoin security is partly a problem of the program code imperfection, but every user can improve the level of protection by following simple recommendations. Do not think that no one is interested in transactions in the network. On the one hand, analysts track them to change the network algorithm for the better. On the other hand, cybercriminals are interested in operations because they are trying in every way to hunt down a victim, hack into his PC and steal digital coins.
Both fraudsters and law enforcement agencies use various methods of analysis in their work, but they have different goals. Depending on how often you have to use Bitcoin and what kind of operation you perform (for example, one can make transfers every couple of months and the other makes purchases in online stores almost every week), you can use one or several methods of protection at once. This will allow you to achieve the desired level of anonymity.
How To Use Bitcoin Anonymously
Owner, Editor, and lead writer for Cryptorials.
Cryptocurrency writer and trader since 2020.
- Your Guide to the Tax Rules Around Day Trading Crypto – March 23, 2020
- MyFX Markets Crypto Margin Trading – February 28, 2020
- Estonian Company ITEZ Enables BTC Trading Via Visa/MasterCard Credit Cards – January 24, 2020
Bitcoin has a reputation in the public imagination for being an anonymous digital currency, like an internet equivalent of physical cash, but that is not entirely correct. When used normally, Bitcoin is more of a pseudonymous currency and not an anonymous one.
Anybody can download a simple piece of software and install it on their computer to use Bitcoin. Because it is a decentralized, peer-to-peer system, you do not need to register an account with any particular company or hand over any of your personal details (unless you choose to do so, for example with a web wallet provider). Once you have a wallet you can create addresses which effectively become your identity within the network. This already gives an enhanced level of privacy compared to other digital payment systems, because you can begin using the network anonymously.
There is also another side to Bitcoin, however. Because transactions must be confirmed by the network, and transaction history shared between all participants, there is a public record of all transactions which anybody can access. In fact, this is really what the ‘blockchain’ is – a shared public record of everything which happens on the Bitcoin network.
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So, even though your personal identity as the owner of a wallet may not be public knowledge, all of the transactions you are involved in are public knowledge. This can be a problem for the privacy conscious user, not least because there may be other ways that an observer can link the wallets you use to your personal identity.
For example, most exchanges for buying and selling digital currency are centralized service providers who require at least some identity information from their customers before they can use the service. This is just one example of a service which uses Bitcoin but also requires identity information; there are many others, from casinos to online shopping sites.
By analyzing the activity which is visible to anybody on the public blockchain an observer may well be able to link your personal identity with all of the wallets you use and therefore your entire transaction history. In a way, this makes Bitcoin even less private than a bank account.
Fortunately there are things you can do to improve this situation.
A Beginner’s Guide to Using Bitcoin Anonymously
Basic Protection: Disposable Addresses
Many beginner’s will download their wallet software, create one or two address, and then keep using those addresses for an extended period of time. If you want privacy, then that is not the best way to use your wallet. The more you use an address the easier it is for an observer to build up a profile of your activity, whether for advertising or more sinister purposes, and even to link that activity to your personal identity.
Bitcoin addresses are not meant to be permanent locations for everything you do. Instead, it will enhance your financial privacy if you view addresses as disposable invoices – each time you are going to receive a payment you should create a new address specifically for that purpose, and then never use that address again afterwards. If you have a desktop wallet on your computer then you should be able to create any number of addresses with no problem, and no matter how many you create all of your old addresses will still be able to receive payment in case somebody sends you money using an old address they have on file for you.
Most wallets today will take care of this for you, automatically creating a new address each time you want to receive a payment, but it doesn’t hurt to be aware of this issue.
For additional considerations in choosing which wallet software to use please read: Anonymous Bitcoin Wallets Explained.
(For a more detailed look at mixing, along with a complete step-by-step guide, please take a look at another of our articles: How to use a Bitcoin mixer / tumbler)
You can further enhance your privacy by using a mixing service. You can use this when you send a payment to somebody, when you are sending coins to your wallet from the site you bought them on, or you can even send money to another address you own through a mixing service in order to ‘launder’ it. This works by simply mixing up your coins with a large number of other coins from other sources before sending them out the other side. By doing this, it becomes difficult or impossible for an observer to link specific payments into the mixing service with specific payments coming out of the mixing service.
One popular and reasonably priced mixing service is offered by Best Mixer, who also have a dedicated TOR based service, but there are also many others about so if you like to shop around then a bit of Googling may be in order – just be careful to check for review though, because there are a couple of scam sites out there which claim to be mixers but actually steal your coins.
Buying and Selling Bitcoins Anonymously
If you want to make sure that your financial activities with Bitcoin cannot be connected back to your ‘real world’ identity, then you may well be wondering how to buy and sell Bitcoin anonymously.
It is when buying your coins that you are most at risk of your digital activities being associated with your personal identity, as many sites require you to verify your identity and provide ID documents in order to make a purchase. This is to help them to avoid prosecution under money laundering laws. So if you want to stay anonymous when using bitcoin this is an important part of the process.
If you cannot arrange a private deal using the methods below then you can buy using any other method and use a mixing service to transfer coins to your wallet. This will usually be enough to protect your privacy, although it isn’t quite as good as not revealing your identity anywhere in the first place and has a small cost.
Here are some instructions on how to go about arranging private deal to buy and sell coins:
#1 Using a peer-to-peer exchange where you can buy and sell with other individual users rather than a company will provide you with a better level of privacy than using a central service.
Here are some example of exchanges where you can buy and sell without providing personal details or without verifying those details (meaning you can use a false name) to the website:
Bitsquare: This is an entirely decentralized exchange, in which you trade directly with another individual without needing to go through a central service provider. You download a piece of P2P software rather than going to a website. When you open Bitsquare it creates your own ‘hidden service’ on TOR with your own .onion address, routing everything through this well established privacy service to hide your IP address – which can be used to identify you. There is no registration and no need to provide even a username. You do, however, need to provide a small security deposit of 0.01 bitcoin which you get back when you have made a trade or if you cancel your offer, so if you want to buy your first bitcoin then you will probably need to get some through one of the other options first. I personally rate this as the best method to buy and sell bitcoin anonymously, but the fixed fees mean that it is expensive for small amounts.
LocalBitcoins is one very popular peer-to-peer service for buying and sell coins, which operates in many different countries around the world. When using this site you have the option of providing identity information or not. Other users will also have the option of dealing with anonymous users or requiring identity information. Many users will require some kind of identity information, either through the site’s own ID verification system or privately over chat in order to protect themselves against both fraud and government investigation. But it is still possible to arrange anonymous trades through this method.
MultiSigna As the name implies, this exchange uses multi-sig technology for all exchanges, meaning that you do not need to trust your coins to the exchange for safe keeping, or rely on the exchange to keep their own internal books accurate – everything is on the blockchain. As the users of defunct exchanges like Mt Gox will attest, this is a big bonus in terms of security, and also makes them more decentralized and directly peer-to-peer than other options. The fees start out at the standard 0.5%, but if you are a regular trader and progress through the ‘user levels’ you can take advantage of reduced fees.
Coinffeine is not only peer-to-peer, but is also a decentralized exchange. Currently the only fiat payment method is OKPay, which has its own identification requirements, but you do not need to share personal information via Coinffeine itself and additional payment methods will be added in the future.
#2 When making a purchase on LocalBitcoins, users who are particularly concerned about their privacy should consider making payment in cash. This is particularly important if you are making a high volume of purchases because the volume alone may trigger a deeper investigation by your bank – for smaller amounts its less important but may possibly be preferable to some users. There are two ways to do this: an in-person trade where you meet up with somebody (often requires a larger purchase to make it worth their while coming to meet you), or ‘cash deposit’ where you go a branch of the sellers bank and deposit money directly into their account. Once you have signed up just click ‘buy bitcoins’, then underneath the list of the top offers you will see a link which says ‘Show More’ – this will show you a list of payment methods to choose from so that if you then click ‘cash deposit’, for example, you will see only offers from users wanting to sell you coins through this method.
#3 There is an ID verification system on the LocalBitcoins site, but its use is optional. Some sellers will require this, others will not. Some sellers may also ask you to send them a copy of your ID through a private message (although if you can make a cash trade either kind of ID requirement is less likely). Generally, providing your ID to an individual is better than uploading it to the main site, but some people may still be uncomfortable with this. Each seller should list their particular requirements within the advert, and you can also send them a message before opening a trade to get more information about their policies, so it is not difficult to ‘shop around’ for the right seller. Remember, however, that the offers listed here are constantly changing as different users go on and offline, so if none of the listings for your chosen payment method suit your needs it may be worth having a little patience and checking back later.
Stealth addresses are a reasonably new feature which allows users to generate a new public address to represent any regular Bitcoin address. This means that you can then send money to this new stealth address without anybody knowing the true destination of the funds. You do need a wallet which supports this feature in order to use it, and at the time of writing it has not been widely adopted. If you want to give it a try then Dark wallet is a great place to start – its a browser wallet which works as an extension for Google chrome and includes stealth addresses as well as other privacy features.
If you have used a coin mixer then you can check how well its privacy services are performing with a taint analysis. This shows which addresses have sent coins to your address and is a good way to see whether mixing services are performing to your expectations. There are plenty of different service out there, so if one is working well you can always choose another.
You can perform a taint analysis using the Blockchain website. Here is an example link, just replace the BTC address with your address in the url to perform your own taint analysis: https://blockchain.info/taint/1dice6GV5Rz2iaifPvX7RMjfhaNPC8SXH
This will perform a kind of forensic test to see which addresses it thinks probably did send coins to the address you are checking. You can, for example, enter the address given to you for a marketplace site to check whether any observer would be able to tell whether your personal wallet sent coins to this address. Ideally you would want your personal address not to show up in the list at all when you do this kind of search, or at the very least you would want it to come up with a low taint % – meaning an observer could not say with any high degree of confidence that there was a link between the two addresses.
Bitcoin Anonymity Guide 2020: How to use BTC like a straight up G
In the last few years, many people have realized that Bitcoin is not anonymous, and some of them have realized it with dire, life-destroying consequences.
Bitcoin is pseudonymous and some have learned this lesson on the bitter end of a long prison sentence. The Bitcoin blockchain while remarkable and revolutionary, is at it’s core, an immutable public ledger.
This means that every single transaction is unchangeably recorded and verifiable by every other participant in the network as long as electricity and the internet exist.
This is not an optimal state of affairs for those who require privacy.
I am not going to delve into who needs privacy and why because it is a commonly accepted give in that privacy is a fundamental human right that everyone needs, among civilized peoples.
This guide will show you the reality of using Bitcoin anonymously in 2020.
This post may express views you don’t agree with, I don’t care. Go read another blog if it bothers you.
Our foes are state-level attackers. That means governments, militaries, intelligence agencies, tax collectors, law enforcement, and other jackboot thugs of the world banking cartel.
Our foes will use the tired but common excuses of drug trafficking, money laundering and terror financing as the age-old boogeyman to scare you into submission allowing them to strip you of your privacy and freedom, but we know better.
So how can we tell these rent-seeking parasites to suck it, and flip them a giant middle-finger?
How can we spread financial freedom and privacy in the name of a truly free market?
How can we promote economic liberation from the yoke of a debt-based economy, ensuring a better and more prosperous future for every man, woman, and child worldwide?
I thought you’d never ask.
Step 1. Always use cash to get in and out of BTC
Never, ever use any service that requires AML/KYC. This is how law enforcement ties your real name to your Bitcoin address, exchanges are more than happy to cooperate.
Bisq is the best alternative for buying and selling Bitcoin without AML/KYC. It’s a decentralized peer to peer Bitcoin exchange that lets you buy/sell Bitcoin with a variety of payment methods.
AML/KYC or more precisely known as Anti-Money Laundering/Know Your Customer laws (Assholes Monitoring Life/Killing Your Creativity) are completely idiotic.
It doesn’t prevent any money laundering or terrorist financing and creates an onerous regulatory burden on businesses who have to comply with extortionary so-called “regulatory agencies” in order to operate.
AML/KYC regulations are designed to create an unnecessary paper trail, instead of actually stopping crime from occuring.
It’s nothing but a slightly more polished presentation of common “mob-style” racketeering with suits and ties and licenses.
Even if you believe money-laundering is a criminal act, banks are the biggest perpetrators of this crime.
If you buy or sell Bitcoin from an exchange which has all your AML/KYC information you must anonymize your coins.
The disruption and innovation that Bitcoin offers us, is to get rid of these middlemen interfering with the market, the money supply, and the economy overall.
We can now transact directly peer to peer with nobody taking a cut, or trying to interfere.
This is the actual end result of AML/KYC:
No personal freedom and total financial surveillance for everyone, while terrorists and criminals operate with impunity regardless.
In other words, AML/KYC is garbage.
This conclusion does not even consider the higher costs of these financial services for customers who manage to jump through all the hoops of providing an intrusive level of personal information in order to be approved.
This added cost is the blood that the parasites are consuming.
It is a direct consequence of the regulatory compliance costs these businesses face. After all, a tick needs to suck blood from its host.
Step 2. Never reuse Bitcoin addresses
Re-using a Bitcoin address is a massive privacy and security risk.
It makes it easier for blockchain analysis agencies to use heuristics to deanonymize you, as well as others who may have transacted with you.
Reusing addresses is the virtual version of spreading an STD.
The best practice is to use a new Bitcoin address for every single payment you receive, and never send money twice to the same exact Bitcoin address.
Luckily many of the newer wallets are Hierarchical Deterministic, which means that you can generate an unlimited number of public addresses from a single seed, as well as recover the wallet completely, from the very same seed.
Most newer wallets are still SPV wallets, however, and are vulnerable to a wide variety of security vulnerabilities.
The only wallets I can even feel comfortable recommending to others, are the wallets I really use in my day to day.
I use Wasabi on my laptop, Samourai on my phone, Electrum for my BTCPay server, and a Cold Card as my offline cold storage solution. Cold Card and Electrum allow you to sign transactions offline, for added privacy and security. Signing transactions offline also opens the door to utilizing a Bitcoin satellite node and the Gotenna mesh network, for next level privacy.
Step 3. Never use a wallet that uses Bloom Filters (BIP 37)
Bloom filters are defined as:
A filter used primarily by SPV clients to request only matching transactions and merkle blocks from full nodes.
Ok, now that we have established that, why does it matter if you use an SPV wallet that utilizes Bloom Filters? Bloom filters were introduced for security, right? Yes, but the implementation has lots of systemic flaws.
Without getting too technical and boring you to tears, I will refer to the Breaking Bitcoin SPV security PDF. In this document it states that an attacker could possibly:
- spoof full-nodes
- block SPV requests
- spoof SPV requests
- sniff out SPV requests
- block SPV answers.
These vulnerabilities come from the fact that SPV wallets do not verify the entire blockchain in all its immutable glory, they only verify headers, which leaves them open to these avenues of attack.
Electrum, a wallet I recommended above, is a thin-client SPV wallet that uses Bloom Filters, which could be risky to your privacy.
If you use Electrum with your own Bitcoin full node, or an Electrum personal server, you can mitigate a lot of these risks, especially if your node is run as a Tor hidden service.
Step 4. Use an anonymity network or VPN like Torguard
Shameless plug: Torguard Anonymous VPN works against the great firewall of China & internet crackdowns in Iran, the link is a special offer from our partners at Torguard, which supports our site, Coincache.net.
Contrary to popular belief Tor is not the only anonymity network. There are others like I2P, Bitmessage, Zeronet, and Freenet that are engineered towards privacy security and anonymity, although at varying degrees of accessibility to the non-technologically inclined.
Always connect to the internet through a privacy network like those listed above or a vpn and use a privacy optimized version of Firefox, or the Tor browser.
How do the attackers actually attack our privacy?
In this section, I will address some of the techniques an attacker might use to deanonymize you and compromise your security.
I will heavily rely my upon my layman’s understanding from firsthand experience and reading a bunch of blog posts about online anonymity and the presentation by Jonas Nick of Blockstream linked above “Bitcoin Privacy in Theory and Practice” which was given in Zurich in March of 2020.
I want to take a moment to say free Ross Ulbricht!
You can donate to his cause here: https://freeross.org/donate/
Blockchain Forensic Analysis in a nutshell
Blockchain forensic analysis has been marketed as a surefire way to stop crime and people trying to use Bitcoin for evil and nefarious reasons like buying weed from the Mujahadeen off of the dark web.
Blockchain analysis has become a billion dollar industry with blockchain forensic services charging top dollar for their analysis to law enforcement governments, banks, and major Bitcoin exchanges worldwide.
I don’t want to pick on Chainalysis (or Bitfury) but they are hands down, the most famous such firms, although many others exist. Chainalysis will give you a good idea of the services these types of firms offer: activity monitoring reports, cyber-threat intel, and enhanced due-diligence tools.
These kinds of forensic blockchain analysts use a method of guessing what is actually taking place on the blockchain, in the sense of monitoring movement of funds. They do this with a technique called heuristics.
Jonas Nick claims a 70% recall rate with his blockchain analysis, which means that with one single pubkey, (public bitcoin address) he can discover 70% of your wallet.
While this is concerning, we can use tools which attack these heuristic assumptions and make them invalid, allowing us to take back our privacy.
OK, so what are heuristics?
Heuristics are basically imprecise assumptions that are precise enough for the job at hand.
In Bitcoin, this means using software and algorithms to monitor the blockchain and movement of UTXOs to try and deanonymize users.
According to Jonas Nick, there are various heuristics utilized by blockchain forensic analysis companies like Chainalysis.
I am not qualified to speak on the specifics but the simplified summary sounds something like this:
Bitcoin Blockchain Analysis Heuristics Types
(from: Bitcoin Privacy in Theory and Practice, presented by Jonas Nick of Blockstream in Zurich 2020)
Multi input Heuristic, assumes all inputs are from the same wallet
Shadow change Heuristic, analyzes change addresses that have never before been on the blockchain, lets blockchain analysis experts know who is the sender and who is receiving funds
Consumer change Heuristic, transaction from consumer wallets have two or less outputs, identifies people using services like exchanges, webstores, etc .
Optimal Change Heuristic, uses the assumption that wallets don’t send unnecessary outputs, if there is a unique output with a smaller value than any of the inputs then this is the change
These different techniques are used by themselves or in varying combinations in an analysis technique called “clustering”.
Clustering allows analysts to follow the movement of funds from wallet to wallet, identify senders and receivers, and deanonymize and identify users themselves by linking addresses to a real-world identity.
Clustering is used on individual wallets (or pubkeys), as well as to track complete transaction chains.
Since heuristics are just assumptions about what’s actually happening, they can be attacked by making those assumptions fundamentally unreliable.
Privacy-conscious wallets like Wasabi & Samourai have incorporated such features into the wallets themselves as countermeasures to blockchain analysis.
For example, Samourai has Stonewall, Ricochet, and Paynyms, which make transactions in such a way that many of these heuristic techniques become invalid and uncertain.
Wasabi has so many privacy-protecting features, that I will cover them in its own section.
What can we do to minimize risk?
- Run and use a Bitcoin full-node, so you can broadcast and verify your own transactions.
- Run your Bitcoin full-node as a Tor hidden service.
- Use Wasabi as your desktop wallet and Samourai on your mobile. Learn to use the privacy features.
- Use a Cold Card as your cold storage hardware wallet.
- Never use any exchange or service that has your AML/KYC info. Buy and Sell Bitcoin with cash.
- Don’t tell people you own Bitcoin and never talk about our Bitcoin on social media profiles with your real identity or information.
- Practice good general computer security habits.
- Use Coinjoin or a mixing service to breaking heuristic links to ownership of UTXOs, and maintaining a sufficient anonymity set.
- There are various types of Coinjoin implementations that can’t deanonymize you or steal your funds.
- Zerolink, Joinmarket, Tumblebit, and Coinshuffle are all different types of Coinjoins which can’t steal your funds or deanonymize you.
- Practice Coin Control like a champ.
Why you should stay away from centralized online mixing services.
There are various Bitcoin mixers or tumblers that are in use by denizens of the dark web. Some are complete scams, others are legit and charge a fee, and still, others selectively scam their customers.
You cannot trust these services
Even if they don’t rip you off, you have no idea how they are actually mixing your coins, if they are providing sufficient anonymity, and you have no guarantees they are not deanonymizing everyone themselves. Using a mixing service is extremely risky.
There are now safer, more secure options called Coinjoins.
What are Coinjoins?
Coinjoins are a method of obscuring ownership of UTXOs by joining the inputs and outputs of many people into a single transaction. If the inputs are all the same size, it makes it impossibe for blockchain analysis to tell whos coins are whos. It was first proposed by Bitcoin core developer Greg Maxwell in 2020.
There have been various styles of Coinjoins which have been developed. They all follow the basic framework laid out by Maxwell, each with their unique approach and techniques.
I will take a look at a couple different implementations and give you a quick overview of each, so you can decide which one is the best for your privacy needs.
Battle tested, dark web approved.
Joinmarket is a trustless Coinjoin implementation that uses a Maker/Taker model to incentivize users and provide liquidity.
Coinjoin matches users who want to anonymize their coins, (Takers) with users who wish to provide liquidity for Coinjoins (Makers) while earning a fee.
With Joinmarket, it is impossible for your coins to be stolen (your keys are never broadcast outside your computer) and the right amount is always sent to the correct wallet.
As a maker providing liquidity, you can help Bitcoin privacy and fungibility while earning a passive income in fees for doing so. The income in fees is low, but it is also very low risk.
A single Joinmarket coinjoin will not give you very strong anonymity, however, there is a tumbler script which allows you to run many coinjoins chained together to give an exponentially higher anonymity set. This will give you the privacy you need to overcome a motivated attacker.
The Joinmarket Yield Generator is a bot that performs the market maker duties in Joinmarket. It links to the Joinmarket trading pit IRC channel and offers the coinjoin to takers for a fee.
Joinmarket is one of the most popular coinjoin implementations. It has been in use for a couple years already, although since it is written in Python it does have a substantial learning curve.
An anecdotal testament to Joinmarket’s effectiveness is this guy’s offer to reward 220 Bitcoins to anyone who could help him recover his 440 stolen Bitcoins. He was able to watch the thief send the coins to Joinmarket, and then sadly, the trail was lost forever. Nobody was able to help him or claim any reward.
Joinmarket is open source and contributions are welcome.
Tumblebit was first proposed in 2020, by a team of Bitcoin privacy researchers led by Ethan Heilman. Tumblebit is another trustless implementation of coinjoin and provides users with anonymity by obscuring the ownership of UTXOs.
It is more than just a coinjoin, it is also an anonymous payment hub which would help increase Bitcoin’s overall scalability as well as privacy and fungibility.
Tumblebit has a classic tumbler mode which is the coinjoin part of the protocol. It has another mode for payment hub which allows users to make anonymous payments through the trustless tumbler that can’t steal your funds.
Tumblebit’s payment channels are different than the payment channels employed by the Lightning Network, so it is unclear if the two protocols would be integrated at this time.
Tumblebit’s anonymous payment hub would require users to open a payment channel with the payment hub, similar to how channels must be opened to use the Lightning Network.
Tumblebit’s payment hub would also be second layer scaling solution that could make payments in seconds, similar to the lightning network but it would exist as its own layer 2 solution. (unless major work is done to integrate the two).
Additionally, payment hubs would pool Bitcoin, creating upward price pressure while ensuring anonymity, fungibility, privacy, and scaling.
Tumblebit is a pretty new project, so It only has one working proof-of-concept implementation which is not ready for production yet.
It is called NTumblebit and was written by Nicolas Dorier, Bitcoin core developer and creator of BTCPay server.
Tumblebit is open source so anyone can contribute.
Coinshuffle++ is yet another trustless implementation of coinjoin, and this one also takes a unique approach to how your coins are mixed/tumbled.
Coinshuffle was first propsed by a team of Bitcoin security researchers from Saarland University in Germany.
Coinshuffle is more decentralized than other coinjoin implementations. (It doesn’t rely on a centralized coordinator.) It may be possible to build Coinshuffle in a fully trustless and decentralized way. This would give it more censorship resistance and resilience to attackers.
Coinshuffle++ is the successor of the original Coinshuffle project. Coinshuffle has had a couple of implementations like Shufflepuff, and CashShuffle, but a fully decentralized implementation of Coinshuffle++ has not yet been implemented.
This is for two reasons, the first being that Coinshuffle++ utilizes its own mixing network called DiceMix (DM). DiceMix would need to be integrated with TOR/I2P which would require a lot of development work.
The second is that building a decentralized/distributed network is very challenging. It is hard to fix bugs, everything must be done nearly perfect the first time. It is akin to working on the engines of an airplane while it is still in flight.
Decentralized systems are much more complex to create than a standard implementation.
Coinshuffle is also open source, so feel free to contribute.
Zerolink has been called the Bitcoin fungibility framework. It is another unique and interesting implementation of coinjoin.
Zerolink utilizes a new technique called Chaumian Coinjoin which is a faster and less expensive method of conducting coinjoins.
Zerolink is billed as being the first coinjoin implementation to:
“offer protections against all the different ways a user’s privacy can be breached. The scope of ZeroLink is not limited to a single transaction, it extends to transaction chains and it addresses various network layer deanonymizations”
Zerolink at its core is a 3 part system. It consists of a pre-mix wallet, a post-mix wallet, and a method of mixing coins which is known as Chaumian Coinjoin. Chaumian coinjoin is based up David Chaum’s Chaumian Blind Signatures.
Chaumian coinjoin can be immediately implemented by existing wallets, and has already been implemented into Wasabi wallet, and work is underway on a Samourai implementation as well.
Chaumian coinjoin utilizes a simple round-based mixing technique. Its tumbler cannot deanonymize users or steal funds, and its simplicity makes it much faster than other coinjoin implementations with much lower fees.
Zerolink provides mathematically provable anonymity to users.
It is also open source and contributions are encouraged.
My experience using Wasabi Wallet
Wasabi wallet is a complete gamechanger for Bitcoin privacy, anonymity and fungibility. It is brand new and has just released version 1.0.5 which you can download here.
Wasabi wallet was created by Adam Ficsor, aka Nopara73. Adam worked on Tumblebit before he began to work on Zerolink, he also worked on Stratis’ Breeze wallet, and then Hiddenwallet before it morphed into Wasabi.
Wasabi wallet is completely redesigned (from the ground up) version of Adam’s earlier project Hiddenwallet. It has several privacy/security improvements and utilizes Chaumian Coinjoin as it’s mixing technique.
Wasabi is the first-ever Zerolink compliant wallet and it’s now live on Bitcoin’s main net.
Wasabi is hands down my favorite Bitcoin wallet. It has forever raised the bar in what a Bitcoin wallet should be, and which features it should incorporate.
Let’s take a look at Wasabi’s features to protect your privacy and anonymity:
- It’s open source, you can audit its code.
- Cross-platform (Linux, Windows, OSX).
- Zerolink Compliant.
- BIP 84 Wallet (only Bech32 Native Segwit Addresses).
- Only light wallet which does not fail against Blockchain Forensic Analysis.
- Built-in high volume mixer/tumbler based on Chaumian Coinjoin.
- Built-in Blockchain analysis tool to help you keep your anonymity intact.
- Built-in advanced coin control feature to help you manage your UTXOs with precision.
- Tumbler cannot deanonymize you or steal your coins.
- Extremely minimal fees of only 0.03%
- Wasabi has made over 2417 BTC fungible since August 1, 2020.
Wasabi is super easy to use and makes coin control simple and easy to understand and use effectively.
It is commonly said that an anonymity set of 50 is sufficient to evade blockchain forensics analysis. With Wasabi this can be achieved in a matter of hours (or minutes if there are lots of other users).
I have been able to achieve much higher anonymity sets than this with my coins. I think the highest anonymity set I have reached is 360, which is extremely high. If I continue tumbling these coins I could keep getting a higher and higher anonymity set.
Coin Control is essential to maintain this level of anonymity, which means using the tools in Wasabi to never mix UTXOs which could deanonymize you. (It’s much easier than it sounds.)
Wasabi utilizes the Zerolink framework of a pre-mix wallet, post-mix wallet and coinjoin. It also allows you even more control of your UTXOs by having multiple wallets in the Wasabi app itself.
This means after you mix your coins, you can send them to a completely new Wasabi wallet with no heuristic links to your other wallets.
It also allows you to have a wallet for each subsector of your spending, (e.g. Healthcare, Monthly expenses, Discretionary spending, Cold storage, etc.).
This allows you to practice coin control across all your wallets and to control you UTXOs with surgical precision.
You can also send anonymized UTXOs to another wallet or a hardware wallet (send the UTXOs one by one so you don’t deanonymize yourself) for offline cold storage.
All in all, Wasabi has changed the dynamics of Blockchain forensic analysis by making their heuristic assumptions unreliable and gives power back to the Bitcoin user by giving them mathematically provable privacy and anonymity sets.
Samourai Wallet will be the second wallet to be Zerolink compliant and will share many of the same groundbreaking features as Wasabi, but for mobile wallets and spending Bitcoin anonymously on the go.
Privacy is more important than scaling for mass adoption of Bitcoin. It is also the main reason that the mainstream finance and business words have not fully embraced Bitcoin yet. They need to protect their business’ financial confidentiality from competitors, and Bitcoin’s public ledger is not conducive to this need, yet.
This post is an overview of existing privacy techniques and how you can utilize them yourself.
To actually use these techniques, this blog post should be viewed as a starting point for further research. Make sure you understand all these concepts before attempting to use them in the wild.
Be very careful when using these anonymity techniques, especially if your life depends on it. There are very real consequences to engaging in controversial behavior that may benefit from the techniques reviewed here.
Every single Bitcoin user that cares about personal freedom and financial privacy should be utilizing Joinmarket, Wasabi, or another trustless mixing technique. Privacy is a team effort, it is much easier to hide in a large crowd.
The more people who use these techniques the more fungible every Bitcoin becomes, making it more and more like digital cash.
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Best Ways That Guarantee Anonymity When Making Bitcoin Transactions
Hiding your identity in this digital world can be quite tricky, because several digital footprints are often left behind.
Bitcoin is part of the digital world, so when using this cryptocurrency it’s quite tricky to be completely anonymous.
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.
That’s why Bitcoin transactions are called pseudonymous or pseudo-anonymous.
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.
On the other hand, using Tor or a VPN is highly recommended when you are using P2P based sites like BitSquare or LocalBitcoins.
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.
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.
On the other hand, Bitcoin is already facing competition from its peer currencies like Monero and Dash . These cryptocurrencies offer anonymity as core features at the protocol level.
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.Best Binary Options Brokers 2020:
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