You might want to use Bitcoin because it’s considered anonymous and can give you the same level of privacy that you enjoy when using cash in your transactions.
But, unfortunately, that’s not true. It’s faulty thinking in part because it’s a myth to think that Bitcoin is untraceable or completely anonymous.
How private is Bitcoin?
Bitcoin does give its users an acceptable level of privacy, as stated on the Bitcoin site. However, it’s not anonymous and you’ll never be able to use it in exactly the same way as cash when it comes to staying private.
This is because Bitcoin needs to be able to prevent financial crime. While that makes sense, what if you want to ensure that your transactions remain safe and private, without your details being leaked to competitors, such as if you’re a business?
Let’s look at what you need to know about Bitcoin privacy and how to improve it.
- 1 Bitcoin Is Like Using A Pseudonym
- 2 Three Ways In Which Bitcoin Is Considered Anonymous
- 3 How Bitcoin Transactions Are Traced
- 4 Why Bitcoin Can’t Be Completely Anonymous
- 5 How To Boost Your Bitcoin Privacy
- 6 Which Form Of Buying Coins Is More Anonymous: Coin Exchange Or Buying Direct?
- 7 Should You Worry About Bitcoin Anonymity If You’re Lawful?
- 8 Related Questions
- 9 Conclusion
Bitcoin Is Like Using A Pseudonym
When you purchase bitcoins, you do so with the use of an address that enables you to receive your coins. Your Bitcoin address is made up of a long string of numbers and letters. It’s unique and will be assigned to one Bitcoin wallet.
This is to keep you safe, but if it ever happens that this address is connected to your real identity, then your bitcoin transactions can easily be traced back to you. There are some ways in which Bitcoin is already a little anonymous, though.
Not just your address but also public and private keys as well as transactions, are read in what’s known as text strings, so they can’t instantly be linked to your personal identity. But, it is possible for Bitcoin transactions to be tracked.
Three Ways In Which Bitcoin Is Considered Anonymous
- Bitcoin addresses are not linked to user identity, in the way that bank accounts are. You can create a new Bitcoin address and get a private key for it whenever you like. You don’t need to submit information to get it.
- Bitcoin transactions aren’t linked to users’ real identities. You can transfer bitcoin from your address to any other one. You don’t need to reveal your personal information.
- The transaction of Bitcoin data is sent by nodes to a set of random nodes on the peer-to-peer network. These nodes do connect to each other, via the use of IP addresses, however it’s not clear if the transaction information the nodes receive is produced by the node to which they connect, or if that node only forwards the information, as Bitcoin Magazine explains.
How Bitcoin Transactions Are Traced
When you make Bitcoin transactions, these are broadcasted on the Bitcoin blockchain, and they’re both public and permanent.
Although your Bitcoin address is anonymous, there are ways in which addresses can be linked to their real-life persons. Examples include the Know Your Customer and Anti-Money Laundering policies, which have been put in place to prevent fraud.
However, Bitcoin transactions can also be traced by companies. Chainalysis is an example of one that has been identifying not just transactions but wallets that are linked to criminal activity, thanks to the use of their blockchain analysis software.
Why Bitcoin Can’t Be Completely Anonymous
You can’t gain 100-percent anonymity on Bitcoin because you’ll need to reveal your identity when you want to receive goods you’ve purchased.
When you use your address to do so, it will be connected to all your transactions so that every user on the blockchain will be able to see the balance and transactions linked to that address.
Now, how this happens will vary depending on what services and methods you use. For example, if you’re purchasing goods with bitcoins, the merchant and/or payment processor will know your details.
On the other hand, if you’re using Bitcoin without making use of a Virtual Private Network (more on that later in the article!), your service provider will know your address.
This also means that your Bitcoin wallets are traceable. However, there are some wallets that have become popular for how they can increase your anonymity. One example is the Ledger Nano X.
It’s hardware cryptocurrency that can even be used in devices infected with viruses because it uses a read-only feature. It’s also a wallet that gives you complete access to your private keys.
It’s equipped with Bluetooth but this is guaranteed to enhance your security because the Bluetooth connection keeps you private thanks to its end-to-end encryption. That said, to use it anonymously, you’ll have to use a strong Virtual Private Network.
With that in mind, let’s look at ways in which you can improve your Bitcoin anonymity.
How To Boost Your Bitcoin Privacy
Use Different Addresses For Transactions
Many Bitcoin wallets are known as HD wallets that enable you to create as many receiving addresses as you like so that you can produce a new address whenever someone sends you Bitcoins.
This is enabled with wallets such as the Ledger Nano X and Samourai. Using different addresses can really improve your anonymity, especially if you like to use Bitcoin regularly.
When you use a different address every time, you basically isolate each and every transaction so that they can’t all be linked to you. If someone sends you bitcoins, they won’t be able to see that you own other Bitcoin addresses or the transactions associated with them.
Use A Logless Virtual Private Network (VPN)
A virtual private network can help you to remain more anonymous on Bitcoin by preventing your activity history from being stored on the servers. Basically, all your web activity is encrypted through multiple servers at different locations, before ultimately arriving at the final location.
With some logless virtual private networks, you can even have shared IP addresses for many users, which increases the difficulty associated with locating just one person’s real identity.
There are many types of anonymous networks you can try, such as Tor, I2P, and Freenet. You’ll have to see which one is most accessible and convenient for you to use.
Still don’t think you need a VPN? Consider this: a hacker can get your personal details from exposed internet connections as well as see all the traffic on your cryptocurrency wallet, therefore seeing all your transactions!
Keep Funds In Separate Wallets
If you have a wallet that you use for daily transactions and one that’s used more sparingly, it’s a really good tip to keep them separate from each other.
The one for storage, known as a cold wallet, should ideally be stored on a device that doesn’t have an internet connection. When your funds are in cold storage – in other words, they’re offline – this will make them much more private.
Mix Your Coins
Mixing your coins is often recommended if you want to be more anonymous when using Bitcoin. It makes transactions much more complicated to trace. To mix coins, you have to make use of a coin mixing service website such as Bitcoin Laundry.
How these services work is that they allow users to mix their coins with those belonging to other users, which makes them harder to track and can give users more privacy.
But Is It Safe And Legal?
If you’re interested in mixing your coins, there are some important things to bear in mind.
- These services might not always be legal – this will vary from one region and service to another, and their legal status will also depend on rules in different jurisdictions.
- You have to put your trust in the person who’s running the coin mixing service. What’s stopping them from losing or even stealing your funds? That’s why it’s so important to research the platforms carefully before just jumping in.
- The smaller the amount of money, the easier it is to mix. Although coin mixing services seem to be able to make your transactions more private in general, it’s worth bearing in mind that smaller amounts will be easier to make anonymous than larger ones.
Avoid Sharing Your Real Identity
To ensure that you’re safe and private when using Bitcoin, you need to ensure that you’re not doing things that are putting your identity at risk of being discovered. For example, if you’ve made the error of publishing your name and Bitcoin address online.
Now, you might wonder how you’d ever do something like that, but it can happen in ways you don’t even consider can be dangerous.
For example, if you run a blog under your real name and then mention a Bitcoin address for people to make donations you’re exposing your real identity. Another way in which you might make your Bitcoin wallet accessible to hackers is if you don’t back up your keys.
Use A Mobile Wallet
The ability to store bitcoin on your cell phone is convenient when you’re on the go and it can be made more secure and private with the use of wallets such as Breadwallet (BRD).
This one gives you a six-digit pin and enables you to receive and send payments with a QR code scanner – you just have to scan the store’s QR code and then the money will be paid automatically from your Bread wallet.
This wallet also enables transactions to be sent directly to the Bitcoin blockchain.
This is important because it doesn’t require the transactions to first have to move through the wallet’s server, as is the case with many other wallets. The less movements your bitcoins make, the more secure they will be – and the less likely they’ll be tracked.
Which Form Of Buying Coins Is More Anonymous: Coin Exchange Or Buying Direct?
If you’re buying cryptocurrency, you might wonder which methods of doing so will ensure greater privacy for your transaction. You’ve probably heard about purchasing coins via a coin exchange, right?
This isn’t the most anonymous way to buy coins because you have to provide payment details to a third party, which makes you vulnerable. However, if you’re mixing coins as mentioned above, this can help.
With the use of your credit card or bank account you can purchase bitcoin for fiat currencies from exchanges such as Bittrex and Coinbase, and then simply send them to your wallet address.
Many bitcoin exchanges will require you to verify your identity when signing up, especially if you’re going to be trading large amounts, so this makes you slightly less anonymous.
A safer, more anonymous, method of buying bitcoins is to pay for coins in a direct way. This means dealing with a private seller. This is not only more private but also usually offers better rates. That said, you don’t always know who you’re purchasing from, which can be risky.
How can you get started?
You’ll find opportunities to purchase bitcoin from private sellers on sites such as Bisq. This is a peer-to-peer Bitcoin exchange that’s decentralized. Here, you can sell or buy bitcoin using various payment methods.
If this appeals to you, there are other options at your disposal too, such as LocalCryptos, a P2P exchange. It enables you to use different payment methods, such as bank transfers or PayPal. Your details will be disclosed solely to the seller.
You can also find Bitcoin sellers you can meet in person if you’re interested in making a cash deal. You can make use of sites such as LocalBitcoins or LocalCryptos that will help you get started in this regard.
Of course, this might take longer because you have to ensure you can trust the person. In that way, it’s a better idea to start with a small purchase and small amounts of money.
The bonus of using a platform such as LocalBitcoins is that you won’t have to provide identification documents when you set up an account.
That’s a big bonus when privacy is your main concern, however it’s important to note that some sellers on the site will only want to sell to users that have verified their identities. You can always try to go around this by only transacting with sellers who don’t insist on that.
What About Bitcoin ATMs?
It’s amazing to think that you can use Bitcoin ATMs that enable you to enter cash and receive Bitcoins digitally.
How it works is that you’ll give the machine the address of your Bitcoin wallet and then it transfers digital currency to you. You can find a Bitcoin ATM that’s close to you by checking out Coinatmradar.
There are some important things to bear in mind if you like the idea of using a Bitcoin ATM. You won’t be able to buy coins anonymously on every Bitcoin ATM – some want you to scan your ID.
In addition, without showing your ID as proof of your identity, this will limit the amount you can buy and this is because of laundering concerns.
Should You Worry About Bitcoin Anonymity If You’re Lawful?
You might wonder why you need to worry so much about Bitcoin anonymity if you’re not a criminal. But there are good reasons to do so!
One of the most obvious is that if someone has previously used bitcoins for criminal means, they could move their filthy money through offline transactions in order to keep their tracks invisible.
But, this could end up getting into innocent hands, like someone who legally receives the bitcoins and wants to sell them to an exchange run by a third party.
The person might find that the exchange doesn’t want his/her money and blacklists them, as Reason points out. In addition, the authorities could trace the blockchain.
Worrying about Bitcoin privacy isn’t just reserved for people who don’t want their illegal transactions to be traced. Trustworthy users who follow the law can also feel unsettled about a lack of privacy, and rightly so.
These privacy concerns increase when it comes to third-party involvement in transactions and, of course, if you don’t find ways to protect your own privacy as much as possible.
What Are CoinJoins?
These assist in making it difficult to track bitcoins because people’s inputs and outputs are meshed together in the same transaction. So, if all the inputs are the same, blockchain analysis can’t tell you which one belongs to whom. They’re basically the same as coin mixing.
Should you store many bitcoins in your Breadwallet?
Although it’s safe, Breadwallet shouldn’t store large cryptocurrency amounts. This is because you should choose more secure wallets, such as hardware wallets, for larger funds.
If you want to use Bitcoin, you might worry about your level of privacy. Can you use Bitcoin anonymously?
If that’s been a question on your mind, then this article will have answered your question.
The bottom line when using Bitcoin is this: Although you can’t ever be completely anonymous with Bitcoin, you can definitely bump up your level of privacy, such as by following the tips and tricks we’ve outlined in this article. Stay safe out there!
Last Updated on June 16, 2020 by Eito