Monday, June 17, 2013

How to Use Bitcoin Anonymously

Paul Rosenberg provides some insights:
Bitcoin is often called an anonymous digital currency, but this is not correct – it only provides strong anonymity when used properly.

The reality is that Bitcoin transactions are not private; in fact they are very public. Due to the way Bitcoin's decentralized ledger works (the blockchain), all transaction history is recorded and is available to anyone on the Bitcoin network. This is a bit like posting your bank statements online.
However, there is no reason that you have to put your name on that statement. In fact you can have many statements all with different names, and you can effectively swap statements with other Bitcoin users. Doing this makes it effectively impossible to connect you to your transactions.
And by doing so, your use of Bitcoin can be made, for all intents and purposes, anonymous.

How to Use Bitcoin Anonymously

First, it is good practice to use multiple Bitcoin addresses (the way in which bitcoins can be sent back and forth – they look like this: 1LCrzrJscnzHCsEd5gNaCJ4X8gqWanTnM2). Whenever you are going to enter into a transaction with a new person or group, generate a new address for that person. Generating new addresses for new transactions will help to obscure the transaction history.
As mentioned above, the way to remain truly anonymous is to avoid ever connecting your name to any of your Bitcoin addresses. For example, if you put your name next to a Bitcoin address on a website, and accept payment/donations at that address, the bitcoins accepted will be linked to your name. If you then use the coins stored at that address to purchase some socks from Grass Hill Alpacas, anyone in the world with an Internet connection and an interest would know that you are walking around in alpaca socks.

It is not always possible to separate your name from your Bitcoin address, particularly if you use a purchase method that requires ID. The solution for these situations is a mixing service.
While it's beyond the scope of this article to spend too much time on this, it's good to know that, even if you use a service that does track your Bitcoin use to your name, you can achieve a strong level of privacy simply by using something called a "mixing" service.

As the name suggests these services 'mix' your coins with other users' coins. By doing so, it breaks the chain between your name and the coins held in your wallet.

There are a variety of services that offer this, one of the largest being called BitLaundry.
Definitely a good way to restore privacy if you find yourself in an "unprivate" situation.

Read more here.

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