Bitcoin Isn't an Anonymous Currency
It may be time to mix things up.
On its surface, Bitcoin is a coin that seemingly subverts traditional financial conglomerates and governments alike since anyone can open a wallet without identification. In reality, it is a pseudo-anonymous coin that leaves behind a public paper trail that anyone can see, and cannot be erased from the blockchain.
There is still a certain level of anonymity when using Bitcoin, but that depends on how it’s used and where it will end up. A randomly generated address is just a number and has no tie to any identity, and can even be transferred to anyone who obtains its private key. In that regard, it can be compared to a digital form of cash, and where it’s spent is up to the discretion of the user.
Being pragmatic with trading Bitcoin, you will eventually run into exchanges that are regulated, work with banks, and probably require verification of your identity. Once you transfer money into your ID-verified account, the entire past of your transactions are now linked to your real-world identity and can be investigated at any time.
The only saving grace of having the freedom to trade Bitcoin in any manner we please has led to sophisticated obfuscation methods that can be made near-anonymous. Using a mixing or “tumbling” service, like SmartMixer, past transactions may be buried through a sea of other transaction to add an abstraction layer to your past.
Besides, you will want to use a mixer that doesn’t take IP or transaction logs, uses Tor, or requires user registration. Keep in mind, the more privacy a mixing service offers, the more likely they are to take a higher fee. Generally speaking, they are rather straightforward to use, assuming you know how to send and receive Bitcoin.
A legitimate use case of why someone would want to do this would be a refugee attempting to flee to another country and bypass local authorities confiscating their money. Assuming they use a mixer, they can easily have a family exchange their money, mix it for obfuscation, and have it end up safely, without a trace, at their destination.
Your average person that’s concerned about privacy would also benefit by using a mixer, albeit with an extra fee on top of their transactions. This can mitigate things like people doxing you based on your transaction history, preventing people from selling your identity to advertisers, or simply trying to stay off the grid.
Mixing coins and then trading them for cash or using local exchanges has its own set of risks, but it is viable for short-term circumstances. There is a chance mixing can be reverse-engineered down the road, so always keep that in mind when making transactions.
Using an Anonymous Coin
As a response to the pseudo-anonymous nature of most cryptocurrencies, certain anonymous coins have sprung up in recent years. The most popular amongst them are Monero (XMR), Dash, and Zcash. In particular, the usage of stealth addresses and ring signatures takes away the problem of having one’s transactions available on the public ledger.
In the case of Monero, it’s major flaw is that anonymity is traded in for its lack of complexity. The idea of designing advanced wallets, exchange integration, or the creation of web apps are not very viable.
The means of which Monero is updated by developers is a bit unstable. When there is a major update, a hard fork needs to take place and the community switches over their miners to the new version. With Bitcoin and most other currencies, this is simply resolved with a patch to the client software.
Consider the fact that nothing on the internet is inherently anonymous, and that includes your Bitcoin transactions. You may either choose to be mindful of where you spend or receive your funds, or you may eventually need to clean your tracks using a mixing service.