How to be anonymous when using Bitcoin – 7 Steps

Take responsibility for your privacy.

Privacy is a fundamental human right.  Privacy is not a crime.  Humans need privacy.  

Businesses, governments, and attackers all want your information.  They profit from your carelessness.  You are responsible for protecting your privacy.  

Bitcoin is less private than cash, yet more private than a credit card.

Your bitcoin transactions are private, only if you follow the simple advice outlined in this article.   This article will teach you how to privately transact in bitcoin.  No expertise required.  

Remember that the Blockchain is both Public and Permanent

The Bitcoin Blockchain records every transactions in a permanent public ledger.  

The Blockchain will never disappear.  Any privacy blunder will be visible forever.

Anyone can use a “block explorer,” which acts like a search engine for the blockchain.  Blockstream provides a good blockchain explorer: https://blockstream.info

Any person you send or receive bitcoin from can look at your transaction history through a blockchain explorer.

WARNING: some explorers, such as https://blockchain.info , will keep or sell a record of what you search, tying your computer to your search.  They assume that you are searching for your own transaction history.

Things to remember:

  • Bitcoin is pseudonymous, not anonymous. This means that you are operating under another identity and different transactions that you make can be tied to that identity
  • Remember, The Blockchain does not store any personal information.  Instead, the Blockchain stores your bitcoin addresses, which looks sometime like this: 33UeDRtoCo8sNS67AhqgQ5umdwXHj3FQ4Q (any bitcoin sent to this address will be kept as a tip!).
  • A Bitcoin Address is like an email address.  You can have as many email addresses as you want.  However, once someone ties your real identity to your email address, then they know that every email ever sent from that email address came from you.  
  • Once a bitcoin address links to your real identity, then your other bitcoin addresses can be unveiled too.
  • A bitcoin address is a pseudonym.  Thus, we say that bitcoin is pseudonymous, not anonymous.  The blockchain tells you how much bitcoin is owned by any bitcoin address at any time.

Thankfully, you can make your transactions much more private by following the following best practices, discussed below:

  1. Assume Bitcoin is not Anonymous
  2. Do not Commingle funds
  3. Earn Bitcoin, or Buy it from a Friend
  4. Break the transaction history
  5. Use the Bitcoin Core Wallet
  6. Use Tails Operating System

1. Assume your transactions are not anonymous.  

Do not assume your transactions are private.  The most private transactions are the transactions which never occur.  

There are three reasons for this advice.  

If you make a mistake, then your transaction is not private.

First, you might make a mistake even if you try to follow all the best practices.  If you make one mistake, and your identity is linked to that bitcoin address forever. 

If future information reveals your identity, then your transaction is not private.

Second, your transactions may be de-anonymized in the future, due to new techniques or new information.  Blockchain analysis firms make a lot of money by buying and selling your information.  They have a profit motive to acquire your information, and will never stop trying.

If the government subpoenas a business, then your information is not private.

Third, only experts can anonymously transact bitcoin.  This article will protect your privacy from most attacks, but it will not fully protect against a state-level or professional attacker.

man-holding-bitcoin

2. Maintain different wallets, passphrases, and accounts. 

Remove the links between your bitcoin addresses.  If you receive bitcoin from many sources, and spend them in the same transaction, your bitcoin addresses will be linked together in that transaction.

If you have one bitcoin in savings, and buy a cup of coffee with that account, then you might reveal your entire savings for a small transaction.

Instead, keep a separate accounts for saving and spending.  

If you fund your checking account with your savings account, then the accounts are linked together.  Do not combine bitcoin from different sources.  Keep bitcoin separated based upon its source and purpose.

For example, if you want to buy small items, then withdraw spending money from your exchange to a fresh account, and only use that account for small spending.

There are three different ways to separate funds.  You can use different wallets, passphrases, and accounts.

Wallets refer to hardware or software which contains the keys to your bitcoin.  Certain wallets are better than others in terms of privacy.  

Some wallets are divisible into passphrases.  Passphrases are even better than a password.  

Imagine if you had a safe, and its contents within depended on the code you entered.  Thus, if you want to only see your petty cash, you enter one passphrase.  If you want to access your savings, you enter a different passphrase.

A Trezor Model T allows a simple user interface for entering passphrases.

Click here to purchase a Trezor Model T

Passphrases are further divided into accounts.  You can have multiple accounts for each passphrase.

Do not make transactions between your separate accounts. Every transaction goes onto the blockchain.  

When a trustee handles trust property, they must maintain separate accounts and records.  If a trustee deposits another person’s money in their own personal account, that constitutes “commingling.”  Commingling is illegal.  

Similarly, in bitcoin, you should maintain separate accounts for every source or purpose.

3. Acquire bitcoin from friends and customers.

The most anonymous way to acquire bitcoin is to buy it from a stranger, in person, for cash.  However, this may be dangerous.  

Instead, try to buy bitcoin from a friend.  Alternatively, try to earn bitcoin by selling goods or services for it.

The safest way to acquire bitcoin is through a regulated exchange, such as the Cash App (if you use this link, we will both get $5 of free bitcoin

Any regulated exchange will want to know who you are, and other details about you.  This is ok, because you can coin-join coins that come from an exchange.

buy-bitcoin-with-cash-app

4. Coinjoin your Bitcoin – “the money laundering of Bitcoin”

Coin-join is a type of bitcoin transaction which creates fresh bitcoin, without a clear transaction history.

Imagine if many people each put a dollar into a hat, and randomly took a dollar out of the hat.  Then, they would each have a dollar that came from someone else.  That is the idea behind a coin-join.

Everyone puts a little bitcoin into a transaction which pays them out the same amount of bitcoin, minus a tiny fee.  

The best wallet to coin-join at this time is Whirlpool by Samouri Wallet

The more rounds of coin-join transactions, the more private the final outputs. 

Coinjoin allows you to buy from a regulated exchange who knows who you are, and still transact without the exchange knowing your future transactions.  

Exchanges are vulnerable, because a government can take their information, without their permission and without your knowledge.

It is good practice to coinjoin before spending, and after receiving bitcoin.

WARNING: Some exchanges will not accept coin-joined bitcoin.  If this happens to you, you may make your coin-join appear too far away in the transaction history, by doing 10 normal transactions in-between the coin-join and the exchange deposit.

WARNING: Do not coin-join with anyone who you have reason to believe has committed a crime.  Coin-joining is legal, but helping another person evade law enforcement is not legal.

coinjoin

5. Send and receive bitcoins from a Bitcoin Core wallet.  

The most private way to obtain information from the blockchain is to verify and download the blockchain yourself.  Otherwise, you are asking someone else to check the blockchain for you.  They will know your IP address, when you asked, and which records you are requesting. 

The flagship full node wallet software is by Bitcoin Core.  Download here or from https://github.com/bitcoin/bitcoin.  Although the wallet appears simple, it is the best bitcoin wallet in existence.

Bitcoin Core is a “full node,” meaning that it contains a fully verified copy of the blockchain.  If you run a full node, you do not need to rely on someone else to publish or verify your transactions.  Using another wallet may share all of your data with the wallet’s maker.

Since a full node independently verifies the authenticity of every single bitcoin transaction, it may slow down your computer’s performance.

All experts agree that a full node is very important.

6. Use Tails operating system Live Boot USB

Tor allows you to access the internet anonymously.  Tor sends encrypted messages to many random computers, which anonymously forward the message until it reaches its destination.  

It is essentially a VPN but with many more layers of protection. It is also free to use.

The Tails Linux operating system uses Tor all the time for all internet activity.  It is by far the best way to use Tor.

When using a regular VPN, you risk accidentally being disconnected from the VPN. This can be catastrophic because the moment you click “send” without a VPN, you have completely revealed your ip address. You have essentially revealed your identity.

If you want to make an anonymous transaction, you should use Bitcoin Core, Coinjoin, and a Trezor while operating from a live Tails OS USB.

A live boot usb refers to a computer that runs from a thumb drive.  Since the operating system does not save information onto a computer, it is like operating on a clean slate every time.

tails-tor

The safest way to acquire bitcoin is through a regulated exchange, such as the Cash App (if you use this link, we will both get $5 of free bitcoin

Recap

  • Always assume that you are not anonymous when using the internet. Only then can you get true anonymity.
  • Never co-mingle Bitcoins from your “personal” wallet with your “anonymous” wallet or vise versa. (Never mix your personal life with your “anonymous” life)
  • Always use Coinjoin to “clean” your Bitcoins before using.
  • Use a VPN or the TOR to mask your ip address when sending out Bitcoins or doing anything on the internet.