How to Make Anonymous Bitcoin Transactions?

Created on 14 Nov, 2019
Last Update on 01 Oct, 2022

Every Bitcoin transaction, since the first one in 3 January 2009, is recorded in the blockchain. There you can get information like in/out addresses and amount transfer. However, no link between the person and such transaction is recorded. Therefore, newcomers might think that Bitcoin transactions are completely anonymous and can not tracked. Unfortunately, this is not entirely true.

In this digital age it is a big challenge to hide your identity, specially from the big techs and the state. These big brothers developed many clever tricks to identify the person behind a computer. These tricks usually revolve around analyzing your digital footprint:

  • IP address
  • tracking cookies
  • system specification
  • window size
  • … etc …

In order to keep your transactions anonymous and avoid leaving your digital footprint, you need to be aware of these tricks. If you're careful enough, you can make your transactions very hard to de-anonymize, even for surveillance agencies.

1. Avoid Block Explorers

Block Explorers are an easy way to check the balance of an address, submit transactions and verify confirmations. However, this might link your digital footprint to a public address.

Still, if you really wants to use a public block explorer, you can access it via Tor or a logless VPN (read more below) in order to anonymize your IP. Even better would be accessing it via the operating system Tails, which has several builtin features in order to minimize your digital footprint. However, the best way is to simply stop using public block explorers.

2. Run Your Full Node

Run your own full node and protect it via Tor. This way, once you download the full blockchain, you can do your analysis without anyone knowing and submit your transactions without leaving much digital footprint.

3. Avoid Reusing Addresses

There are 2 main reasons to not reuse addresses:

  • Cryptographic Security
    Whenever you spend coins from an address, you need to show the public key associated with such address (just as a reminder: addresses are the hash of a public key). This means that this address now has one less level of security and all its left is the strength of the elliptic curve.

  • Keep your Balance Private
    Every transaction is recorded in the blockchain. Therefore, anyone who knows your address can check your balance and spending pattern.
    Since there are several legitimate cases where the receiver must know the identity of the sender (and vice-versa), at least you can mitigate the amount of information the other party can see by using addresses only once.

You can create multiple addresses either manually or by some automatic algorithm. There are several ways to achieve that. However, the most popular approach nowadays is by using HD wallets. Some of its advantages are:

  • Unlimited key pairs from only one seed.
  • Keys can be created in a tree like structure. Suited for hierarchical organizations.
  • Public keys can be created without its corresponding private keys. Suited for insecure servers or in a receive-only mode.

4. P2P Exchanges in Cash

Avoid conventional exchanges. In order to comply with local laws, basically, they have to spy on their customers.

An alternative is to use peer-to-peer (P2P) exchanges and, preferably, choose face-to-face (F2F) cash transactions. LocalBitcoins and Bisq are the most popular ones to provide such services. Doing it right, you can reach a good level of anonymity. However, perfect anonymity is not possible.

Some recommended steps you should and should not follow:

  • Whenever accessing the P2P website, use Tor (preferably via Tails).
  • Use fake names and disposable emails (ex: guerrilla mail).
  • Use a public or disposable phone.
  • Choose a public place with public WiFi.
  • Don't use personal vehicle to commute.

5. Bitcoin Mixing

Bitcoin mixing is the process which tries to break the links between addresses by either creating temporary addresses or by swapping coins with other addresses. This makes the trail hard to follow on the blockchain.

Bitcoin mixing is also referred to as Bitcoin laundering, Bitcoin washing, or Bitcoin tumbling, and it is a paid service.

If you don't wanna trust a centralized party like BitMixer, you can try CoinJoin. This is a thrustless method to mix coins from multiple parties. Combining all these resources at the right moment and place is not a tech problem, but an economic problem.

The most known implementation of that is the JoinMarket app. However, at the moment, this market is not yet so popular.

Additional Reading