Bitcoin as a currency is often associated with anonymous trading and payment because many people believe that Bitcoin is anonymous. But is that really true? Without anticipating too much, we can already say that this is not entirely true. In this article we explain why this is so and what methods are available to trade and use Bitcoin anonymously.
Is Bitcoin anonymous?
At first sight you might believe that when you look at the Blockchain. After all, there are neither names nor other personal information like IP addresses. Nevertheless, the network is not completely anonymous. In the following we will explain briefly why this is so.
Anonymity of Bitcoin addresses
Receive addresses for Bitcoins are nothing more than pseudonyms. You can compare a receiving address with your personal bank account. Although the order that follows the number 1 or 3 at the beginning is always randomized, each transaction is stored in the block chain, where the addresses of sender and receiver are also found.
For example, if you always select the same receiver or sender address to receive Bitcoins, the same address will appear several times and patterns will be visible. In addition, since the regulation on most exchanges and most brokers you have to undergo an identity check. Although transactions can also be carried out outside brokers and exchanges, if a stranger or an authority gains access to your personal data at an exchange, it is quite possible that conclusions can be drawn about certain transactions.
Even those who carry out private transactions with crypto-currencies in order to buy something must inevitably allow their own identity to be linked to the merchant in the form of the wallet; the first potential point of entry for hackers, criminals or even authorities.
KYC requirements for Bitcoins
Anyone trading Bitcoins on an exchange in Germany can hardly avoid disclosing personal information, because the exchanges must meet KYC (Know your customer) requirements. The higher the volume traded, the stricter the requirements of the exchanges.
This creates a single point of failure for the Bitcoiner, because there is automatically a connection between the Bitcoin address and the clear name of the buyer. Such third parties are one of the biggest threats to the data protection of coin owners due to the regulations.
Why should you buy Bitcoin anonymously?
In the meantime, block chain analysis tools such as Chainanalysis allow extensive conclusions to be drawn about Bitcoin users, which can have serious consequences. The respective digital account balances are quickly no longer a secret, and increases in value due to Bitcoins increases in value do not remain undetected. This makes one's own BTC assets a potential target for criminals, especially if single points of failure have already existed in the past through purchases or other links between wallet and clear names. Out of this need often arises the desire for complete anonymity, but also beginners should deal with the topic of anonymous Bitcoins early enough, because the earlier you start, the better you can protect yourself and your assets.
Hiding a larger fortune from potential attackers by crypto-washing or simply making one's own wallet more secure and less transparent for partners or employees are just some of the reasons for making crypto coins anonymous. Today, many investors who invest in Bitcoins are also anxious to disguise the origin of the coins in order to prevent potential attackers from getting in and thus better protect digital assets.
The best ways to make Bitcoins anonymous
There are several ways to anonymously buy, trade, and operate Bitcoins. We have summarized here how Bitcoins can be used anonymously in Germany.
1. Use Bitcoin Mixer
Instead of already disguising and anonymizing the acquisition of Bitcoins, you can disguise it afterwards. This procedure is also called CoinJoins, Crypto Currency Mix or Crypto Tumbler procedure. A large number of inputs are bundled into one transaction and written to a new address. This is not comprehensible for block chain analysis tools and it is no longer possible to trace the exact origin or destination of individual transactions. A BTC Mixer works very simply: Bitcoin users send the desired amount of Bitcoin to a processing server, which mixes the transaction with other transactions and forwards a final output to the destination address. The more participants are involved in such a mix and the larger the pool of transactions, the more anonymous the whole thing is. Original sources and allocations are practically no longer possible.
2. Frequent change of addresses
Good Bitcoin anonymity can also be achieved by changing BTC addresses frequently and using many different such addresses. This allows the detection of difficult patterns in transactions, and there are also some Bitcoin Wallets that practically integrate and enable the change. However, using a separate address for each transaction can be quite cumbersome, and you can lose track of what is happening. If you use a single wallet for many different addresses, the connection between the account and the respective addresses remains the same.
3. Decentralised Exchanges
Instead of buying Bitcoins on a traditional exchange subject to KYC guidelines, fiat currencies such as the euro or dollar can also be purchased via decentralized exchanges (DEX). Such decentralized Exchanges, which are based on a block chain, are not yet very common. They are not located in a physical location and therefore cannot be regulated. Although there are some promising projects, lack of regulation automatically makes them less secure and not really tangible in case of abuse. Extreme caution must therefore be exercised.
4. Bitcoin purchase with cash
There are ways to purchase Bitcoins for cash through various exchanges. This is completely anonymous and is actually the best way to purchase and use Bitcoins anonymously. However, offers for cash trades are becoming increasingly rare, not least because of the requirements in Germany.
5. Bitcoin mining
100 percent anonymity can hardly be achieved in Germany with any crypto currency, despite blockchain. Methods such as acquisition with cash or mining make little sense, decentralized exchanges are rare and pose a security risk, so that the only reasonable methods for good Bitcoin anonymity are frequent address changes and Bitcoin mixers. In addition, it's recommended to use secure browsers like the Tor Browser in conjunction with VPNs and to create as few single points of failure as possible. A good Bitcoin mixer should therefore always be accessible through Tor, and should also offer variable anonymity settings, fees, and time windows for mixing, because this allows you to control the desired level of anonymity.