Note: This is an educational piece. Hiding your traces could be a criminal offense in some jurisdictions, so refer to your local law.
Hiding your identity in this digital world is quite tricky, as you often leave behind several digital footprints.
Since Bitcoin is part of the digital world, it’s also quite tricky to be completely anonymous when using this cryptocurrency.
Did you know that Bitcoin transactions are not anonymous (Pseudo anonymous) and can be traced?
Bitcoin transactions, by design, are not linked to a person or identity. Public addresses are used for transactions- alphanumeric strings publicly recorded on the blockchain.
A person’s name, physical address, or email is found nowhere in the transaction. But a person’s identity can still be tracked down using public address info and IPs.
That’s why Bitcoin transactions are called pseudo-anonymous.
But how is this possible when there’s no name attached to the public address or IP?
Well, sometimes the user of the Bitcoin public address declares their name along with the public address. Identity can also be traced if you are using a private wifi connection. Here we generally give our proof of ID, through which our identities can be matched against our IP.
There are several other ways to track you down digitally, but cutting a long story short, there are some tricks that can help you use Bitcoin anonymously.
Here are some identity-hiding things to do while using Bitcoin.
Best Methods to Make Bitcoin Transactions Untraceable:
1. Use Logless VPN
A logless virtual private network (VPN) is a network that doesn’t store the history of your activities on its servers. It encrypts all of your Internet traffic and routes it through multiple servers of your choice at different locations before arriving at the final location.
Some logless VPNs also maintain a shared IP address for multiple users, hence making it difficult to pinpoint and trace one person’s identity.
Using lossless VPNs to connect to your Bitcoin client is another way to improve the privacy of your Bitcoin transactions. But in this case, you have to trust the VPN service provider not to log your activities.
Here are a few popular Non-USA based Logless VPN Service Providers:
Check my detailed list of Best VPN for no logs. Just one thumb rule, Avoid USA/UK based VPN Services due to strict surveillance law.
2. Always use New Bitcoin Address for Transactions
Note – Most of the top Bitcoin wallets let you generate new receiving address. This makes your wallets safe from the preying eyes.
Most of the popular Bitcoin wallets are HD wallets. That means you can generate any number of receiving addresses & every time you receive bitcoins from anywhere, use a new address. This at times also confuses new users, as they wonder why their receiving address has changed.
This is a good practice to ensure anonymity when using Bitcoins regularly. This way, it would be hard to link 2 or more transactions to you.
You may think, when bitcoin’s blockchain is hackproof, why can’t you re-use the same address, and what’s the threat?
Yes! it’s true that you can re-use the same address unless you don’t care about your privacy and security.
As you might know, BTC blockchain is also public and transparent. Anyone who knows about your address can see your spending habits and can check how much balance you hold. Consider these examples of how re-using the same BTC address can put you in trouble and jeopardize your financial privacy.
- Let say you use a Bitcoin Paper Wallet to store your wealth.
- You bought some BTC for cash from Paxful and transferred it to your paper wallet.
- The person from whom you bought BTC follows your address trail on the blockchain.
- And he finds that you have accumulated $ 100 K in bitcoins on your paper wallet address.
- He mentions this openly in a public place and this word gets spread. (Chances of this is low but again possibility can’t be denied)
- Next day a kidnapper kidnaps your child/family member and knows exactly how much to demand in ransom.
- Or maybe the next day he raids your home and takes the Bitcoin paper wallet from you on a gunpoint which also contains the private keys.
- Let suppose you are a merchant who sells electronic items.
- You have started accepting Bitcoins as payment.
- And have put a public address QR code on display in your shop for customers to see.
- Now imagine some robbers come on gunpoint to rob you.
- And you say you have not done enough business this month and don’t have any cash to give.
- If they are tech-savvy robbers, it will take seconds for them to just check the displayed Bitcoin public address.
- The robbers check the address on the blockchain and found that you have 100 BTC.
- Your lie is caught and you lose your earned BTCs of the month.
You might think I am scaring and discouraging you by such examples, but I am not. I am just trying to explain some unfavorable scenarios which can come up. So that’s why handling your BTCs with some level of anonymity and care is of paramount importance.
So quick piece of advice from us:-
- If you accidentally or willingly expose your Bitcoin public address, then stop using it and use a new public address.
- Use HD wallets like Ledger Nano X, Trezor or any other, so that you can generate as many Bitcoin receiving addresses as you want.
- And don’t transfer funds to the previously exposed public address for which you had revealed your identity from this new address. (You can get tracked !)
- Remember to use your new public address while using a Tor browser or VPN (or both). And when you have to spend your funds from the same new address, connect to Tor and/or VPN again and then to your Bitcoin network to transact. 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. This way, it becomes difficult to track you down.
3. Bitcoin Mixing
Bitcoin transactions are recorded on a public ledger. Anyone who traces a public address can know the origin and/or destination. There is no protocol-level procedure to anonymize these bitcoins, which is why a Bitcoin mixer is required to hide identity.
Bitcoin mixing is a process that tries to break the linkability or traceability.
Mixing breaks the link between Bitcoin addresses by either creating temporary addresses or by swapping coins with other addresses of the same value. This makes the trail hard to follow on the blockchain.
Note: In August 2022, the U.S. treasury sanctions Tornado cash, an Ethereum mixer. If you are from the USA or linked to the USA, you are better off not using any mixer, including Bitcoin mixers. Also, consult your local law to ensure if using a Bitcoin mixer is allowed or not.
This article is for educational purposes only, and nothing should be considered as legal or financial advice.
4. Tor- Onion Router to stay anonymous
You can use the Tor browser to connect with the Bitcoin network. Tor is a volunteer community that beliefs in anonymity and surveillance-free internet usage. If you are looking for something fancy, Brave browser should be your go-to browser. It’s free, faster than Chrome, and have Tor feature in-built. This is the browser I use personally.
Tor nodes encrypt and route your internet traffic to random computer nodes on the Tor network before it reaches its final destination. Hence, it becomes extremely difficult to pinpoint the IP address or system from which the message or transaction was broadcasted.
In simple words, your transactions & other activities couldn’t be pointed to your I.P & thus helps you stay anonymous. However, if you use a KYC-enabled Bitcoin site like CEX or any other, then using TOR is not so useful.
There are several ways to use Tor on different devices, but if you are using a Windows PC, you can run your Tor client and connect to the Bitcoin network using the localhost address 127.0.0.1 via standard Tor port 9050.
5. Buy/Sell Bitcoins in Cash
Another anonymous way of dealing in Bitcoin transactions is doing face-to-face cash transactions.
How is a face-to-face interaction through an Escrow service anonymous?
Follow the recommended do’s and don’ts to stay anonymous:
- Always Access P2P exchange using a VPN software or browser that supports Tor. (Combination of VPN and Tor would be the best).
- Register using burner email like Protonmail and guerrilla mail. (Don’t use your email or address or real name.)
- Find a trustable seller/buyer on LBC for cash trade. Sellers/buyers with good feedback and a high reputation are safe.
- Use a public phone or a burner phone to coordinate the meeting.
- Choose a public place for a meeting where you have access to free public wi-fi.
- Reach the venue, transact, and wait for 2-3 confirmations.
- Don’t use your personal vehicle to commute as your vehicle number can expose your identity.
Following these steps, you will maintain a high degree of anonymity. For a step-by-step procedure on how to buy bitcoins using cash, have a look at this guide.
Let’s say you want to play it safe and don’t want to trust a centralized website administrator to anonymize your coins.
Then you can try JoinMarket.
This is not a software or a service; rather, it’s a market. In JoinMarket, market makers and takers come together to make special transactions called CoinJoin transactions. This market arranges the right amount of coins at the right time and the right place.
Takers of this market pay a nominal fee to the makers who are ready to mix their coins. The CoinJoin mechanism enables mixing without Escrow or centralized parties.
In this type of transaction, private keys are always under the control of the user.
However, at present, the market is not so popular and there is not much traffic on it. Also, installing the JoinMarket app takes considerable knowledge and time. But if you want to give it a shot, head toward this link for more information.
How To Make Untracable Bitcoin Transactions
Bitcoin, by design, is not anonymous, but if used safely, it can give you more than enough privacy. These are just workaround solutions to make Bitcoin anonymous. The technology still has a long way to go as it is still fresh.
On the other hand, Bitcoin is already facing competition from its peer currencies like ( Monero) which offer anonymity as core features at the protocol level.
As cryptocurrencies mature, things like complete anonymity will become commonplace.
But for now, we need these workarounds.
Can Bitcoin be traced?
The short answer is yes, and no. It all depends upon how anonymous you were when making the transaction. To ensure a completely anonymous transaction, you should purchase Bitcoin from a non-KYC exchange, use an anonymous bitcoin wallet, and you should use a VPN to hide your IP. Even though your bitcoin transactions will be publicly available on the blockchain, but as long as they can’t be traced back to you, you are safe.
So which method of anonymity are you using? Let me hear your comments and thoughts!
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Further Suggested Readings:
- Exploring The Top 7 Bitcoin Desktop Wallets
- 9 Interesting Bitcoin Facts Every Bitcoin Owner Should Know
- Zcash Cryptocurrency: Everything You Need To Know
- How To Get A Bitcoin Address & Why It Is Important
- How Long Does It Take To Transfer Bitcoins And Why?
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