Using Bitcoin Anonymously

Let’s begin with the two facts that underlie this discussion:

1. We live in surveillance states. Everything on the Internet (unless you take action to shield it) is recorded and saved, for future use against you.

2. The powers that be do not like Bitcoin. If Bitcoin succeeds and spreads, central banks will be greatly weakened... and with them the governments that thrive on their print-em-up currencies.

Put together, these two points are tell us that we need to use Bitcoin securely. So, we face a choice: Either we can accept these facts (which I see as unassailable) or we push ourselves into denial.

So, presuming that you, dear reader, are not in denial, I shall continue.

Bitcoin Is NOT Anonymous

Bitcoin has often been called an anonymous digital currency, but that is false. Bitcoin, in fact, is the most transparent currency ever created – far more traceable than dollars, Euros or Yen have ever been.

Every bitcoin ever mined and used, has a 100% traceable history... and an easy-to-trace history. All you have to do is look at the blockchain, which exists in thousands of copies, freely available world-wide.

How You Can Use Bitcoin Anonymously

Now, with that point made, I hope, I will add that you can use bitcoin anonymously. But only if you do certain things:

1: Use Multiple Addresses.

Every time you send or receive bitcoins, you use an address that looks like this:

1tHYkrgHwCghi59HAWKgS17qUaf6kwMtKN

Some people use the same address, time after time. But by doing so, they are identifying themselves over and over. That's bad. The solution is to never use the same address twice. And it's easy to do so.

Whenever you enter into a transaction with a new person or group, generate a new address for them. That will obscure the transaction history in the public record (the blockchain).

Any good wallet will keep track of as many addresses as you like and even let you specific which address belongs to which person.

2: Never connect your name to any of your Bitcoin addresses.

Don't paste a bitcoin address on forums or discussion boards. If you do, anyone can know how much bitcoin you received. If you’ve got a website, don’t put a Bitcoin address online to accept payment or donations... unless, of course, you want to publicize your finances to one and all.

Instead, let people know you accept Bitcoin and invite them to email you for more information. Then, when they respond, you generate a brand new address for them.

3: Encrypt!

If you send your bitcoin address over email, all the worst people in the world will connect it to you. Let's get real about this: If you don't encrypt, you're a minnow among sharks. You can rationalize this however you like, claim ignorance, wallow in denial, or whatever, but if you're not using encryption, you're an open target.

Text encryption is free fer goodness sake. Get it! Use it!

4: Get Anonymous!

See below.

5: Use a Bitcoin Mixing Service

It is not always possible to separate your name from your Bitcoin address, particularly if you use a purchase method that requires ID or trading partners who won't use encryption. In that case, you can use a mixing service. In simple terms, a mixing service breaks the chain between your name and the coins held in your wallet.

This is how they work:

1. You generate a new Bitcoin address - one that is not associated with your name.
2. You send this new address to the mixing service.
3. You then transfer the bitcoins that are to be mixed to the service (the same process as sending anyone a bitcoin).

Various mixing services operate in various ways. Check them out if you're interested. The fear in using a mixing service is that they'll just run away with your coins. Notwithstanding the fact that this would destroy their business, one of the beauties of digital currencies is that they are divisible. So, if you don't trust the mixing operation, send small amounts multiple times. Rather than sending 5 bitcoins at once, send a quarter bitcoin first, to check them out. If that goes well, send another quarter, and so on. You don't have to go all-or-nothing.

Getting Anonymous

Encryption and anonymity are not the same thing.

Encrypted = No one can read it.

Anonymous = No one knows who said it.

The truth is that you need both, because this is true also:

Encrypted only = Everyone knows who was communicating.

Anonymous only = Everyone knows what was said.

So, you need both.

One way to get them is with a quality privacy service. (I could go on at length on why you need quality, but I'll save that for another time.)

The other way is to use a free service that promises to do it for you. The go-to free service for many years has been Tor. But law enforcers, when they haven't been stealing bitcoins, have been running stings on one Tor service after another. At some point, I think we need to admit that Tor might not be our be-all and end-all.

So, if you have some kind of deep philosophical belief that only free things can be good, I suggest that you start using I2P.

In Conclusion

There are two points that you need to understand from this article:

1. If you want to use Bitcoin anonymously then you'll have to work for it. It isn't hard, but you have to do it.

2. If you don't act to protect your privacy with every bitcoin transaction you ever make with the particular wallet will be permanently, publicly and transparently recorded... and the worst of people will have all that information.

The choice is yours.

Paul's company, Cryptohippie, has offered all We Use Coins readers a free trial of their privacy service.