How anonymous is Bitcoin really?
Unfortunately, Bitcoin is not as anonymous as Nakamoto wanted it to be. Technically, it is only pseudo-anonymous because every user is assigned a public address that can be traced back to the real IP address or exchange account by doing proper network analysis.
It is only considered anonymous because the components of Bitcoin, including the email addresses, transactions, as well as private and public keys, are all saved in text strings that cannot be directly linked to the user’s personal identity.
Bitcoin used to be a safe haven for criminals, terrorists, and other unlawful entities because it was thought to be untraceable and completely anonymous. Bitcoin is also popular among individuals and companies who value their privacy. But as blockchain technology becomes popular, more people come to understand how it works and they realize that Bitcoin is actually not as anonymous as they expected. In fact, it is a massive gold mine of information for those who know how to do their research and analyze connections.
Every bitcoin transaction that took place are forever recorded in a permanent ledger and is publicly broadcasted on the Bitcoin blockchain. Since all Bitcoin transactions are permanent and public, analytical tools are now able to map where the bitcoins are going. Bitcoin addresses might be anonymous, but if that address can somehow be connected to your real identity, Bitcoin will not guarantee your privacy. And right now, there are already several ways to link addresses to actual identities, including Know Your Customer/Anti-Money Laundering KYC/AM policies, address clustering, and blockchain analysis.
So if you’re thinking that using Bitcoin protects your privacy and anonymity, you need to think again.
How to Remain Anonymous When Using Bitcoin
Bitcoin transactions can be tracked with just a little technical knowledge and a bit of effort. Moreover, being private is not an option because Bitcoin uses a permissionless protocol.
However, there are several ways you can secure your privacy and become completely anonymous when dealing with Bitcoin. Here are some tips you can follow:
Never Let Your Bitcoin Address Get Exposed to the Public
Your Bitcoin address contains information that can be traced back to your real identity, so you must keep it private at all times. You can use a new Bitcoin address for every transaction to minimize the chances of your identity being associated with a specific Bitcoin address.
Use a VPN
A virtual private network masks your real IP address so that your transactions won’t be traced back to you. When you use a VPN and connect to one of its servers, you are assigned a temporary IP address based on the location of the server you are using. Plus, your traffic will be encrypted so you can stay private and anonymous, even when securing deals and handling your transactions online. Privacy is very critical when transacting with Bitcoin because you’re dealing with money here. Using a VPN is currently your best bet at protecting your online transactions.
Use an Anonymous Bitcoin Wallet
Anonymous Bitcoin wallets are also useful in protecting your identity when handling Bitcoin transactions. A Bitcoin wallet keeps a private key or seed, which is a secret piece of data, which can be used to sign transactions, providing solid proof that the signature came from the owner of the wallet. This digital signature also protects the transaction from being modified by others after it has been issued. There are different types of Bitcoin wallets out there, and they all work differently. However, the main concept behind each type is the same: to keep your Bitcoin transactions anonymous.
Types of Bitcoin Wallets
There are many different forms of Bitcoin wallets that have different requirements, and they vary in terms of features, security, convenience, and accessibility. Here are some of the most common types of Bitcoin wallets that you might encounter.
A paper wallet is basically a document with a public address used for receiving Bitcoin, and a private key that allows you to buy or transfer Bitcoin kept in that public address. Paper wallets are usually printed as QR-codes, so you just need to scan them and input the keys to a software wallet when making a transaction. You can generate a paper wallet using services, such as BitAddress or Bitcoinpaperwallet. These services allow users to generate a random Bitcoin address that has its own private key. The private keys can then be printed out when making transactions. The greatest advantage of using a paper wallet is that your keys are stored offline, making it completely immune to online attacks, including keyloggers and spyware. However, since you’re printing sensitive information on a piece of paper, you need to make sure that no one else can access that document and that it is protected from physical damage at all times.
Physical Bitcoin, usually in the form of a credit card or a medal, is preloaded with a fixed amount of Bitcoin currency. That preloaded value cannot be spent or transferred as long as the private key remains hidden with a tamper-evident seal. Once the seal has been removed, a tamper-evident mark is created which means that the coin has been redeemed and has lost its digital worth. Mike Cadwell, also known as Casascius, was the first to create Casascius physical Bitcoins in 2011. However, in 2013, the Financial Crimes Enforcement Network told him to cease operations because his activities were considered to be a money transmitter. In some countries, Bitcoin is still considered to belong in the gray area, which means that your physical Bitcoin might be categorized as counterfeit money.
For users who are using Bitcoin on a daily basis, either for online shopping or for face-to-face trading, using a mobile Bitcoin wallet is more convenient. All you need to do is install the app on your mobile device, store your private keys in it, and then use the app to pay for items directly from your mobile phone. Additionally, some apps allow users to utilize their device’s near-field communication feature to pay wirelessly. This means that the user can simply tap the device against the terminal without needing to provide any information at all. However, mobile wallets are vulnerable to hacker attacks and users also need to ensure that the device doesn’t get lost or stolen.
These wallets save your private keys on a server, which is constantly online and managed by a third party. Various services provide different features — some are able to link to the mobile and desktop wallets while some can replicate your addresses across the devices you use. Just like mobile wallets, web or e-wallets allow their users to access their funds from any computer or device connected to the internet. If it is not secured, the people running the website can access your private keys and gain total control of your funds.
Desktop wallets, on the other hand, are installed onto your device. You can then store your private keys on your hard disk. Generally, desktop wallets are safer compared to online and mobile wallets because they don’t depend on third parties for their data, making your account more secure. However, desktop wallets still need to connect to the internet, which makes them vulnerable to online attacks. However, desktop wallets are suitable for users who trade small amounts of Bitcoin from their devices.
This type of wallet is rather unique. A hardware Bitcoin wallet ]stores your private keys in a secure hardware storage. This is the safest way of storing any amount of Bitcoin. Unlike paper wallets, which should be imported to a piece of software at some point, hardware Bitcoin wallets are not vulnerable to computer viruses, which makes them more secured. The funds stored there also cannot be transferred out of the hardware device in plaintext and the software is mostly open source.
Bitcoin Crypto Bank
Most large banks are afraid to deal with cryptocurrencies, so the Bitcoin Crypto Bank was established, which is a privately owned company running on the Bitcoin trade market. It works just like an ordinary bank, except that it only accepts Bitcoin. The bank accepts and processes Bitcoin deposits and claims to be a secure, no-risk, and certified platform for Bitcoin investments with high chances of making huge profits.
Best Anonymous Bitcoin Wallets in 2020
Now that we have established the different types of Bitcoin wallets, let’s now look into the best anonymous Bitcoin wallets users can choose from. In choosing a Bitcoin wallet, it is important to dissect the wallet’s security features to determine whether it can privately and securely store your Bitcoin funds. Let’s look at the list below:
1. Samourai Wallet (Mobile Wallet)
Samourai wallet is a modern Bitcoin wallet for Android devices. It is designed to keep your transactions secure, your identity private, and your funds secure. The wallet is encrypted on the device level using AES-256 encryption. It doesn’t communicate with any servers, making it more secure. It also includes robust features, such as PIN code for added security and a seed word backup that allows you to store your funds safely.
Samourai Wallet does not reuse Bitcoin addresses and it will notify you if you have previously sent to an address. This helps prevent unintentional address reuse. Another security feature of this app is called Stonewall. By default, using Samourai increases the difficulty of connecting the inputs to the outputs of a transaction, making associated metadata and clustering wallet addresses more difficult. Stonewall also allows Samourai transactions to generate higher entropy than standard bitcoin transactions, which more often resemble CoinJoin transactions on the blockchain, making them more complicated to analyze.
Samourai also has Tor and VPN support. It is Tor and VPN enabled, which enables you to route all your transactions through an anonymous IP address. Finally, the Samourai wallet comes with segwit support, which helps in reducing your Bitcoin transaction cost.
Unfortunately, Samourai wallet is available for Android devices only.
2. Ledger Nano X (Hardware Wallet)
Ledger is a dynamic organization known for producing high-grade Bitcoin hardware wallets designed for privacy-centric users. Ledger Nano X, the successor of the Ledger Nano S, is a remarkably secure anonymous wallet.
The Ledger Nano X’s True Random Number Generator is NIST-certified and is capable of ensuring the security of your signatures. Its Hierarchical Deterministic (HD) also has more than 100 wallets, with each wallet capable of generating millions of unique addresses.
Ledger Nano X also allows users to create hidden wallets. The data inside the Hidden wallet is indistinguishable from ordinary data bytes and only the user knows they exist. Its 24-word mnemonic backup makes it easier for users to recover all funds and data if your wallet is lost or stolen.
Unfortunately, Ledger Nano X is a bit pricey with its $119 tag.
Here’s a tip: If you’re uncomfortable with purchasing software, such as Ledge Nano X online, you can use a VPN to secure your purchase and make sure that your financial information remains private.
3. Rahakott Wallet (Web Wallet)
Rahakott wallet is an online wallet that fits those who want to secure their privacy and anonymity while transacting in several other cryptocurrencies, including Bitcoin. It is a web multi-currency wallet enabling its users to manage anonymous transactions. It might be new in the crypto market, but this wallet has already processed more than 20 million dollars in Bitcoin.
When you sign up for Rahakott, you don’t need to enter your phone number or email address, so there is no risk of losing your personal data.
Right now, Rahakott wallet is available in four languages, including English, Chinese, Japanese, and Russian. It also supports up to six cryptocurrencies, including BTC, BCH, LTC, ETH, DASH, ZEC.
Rahakott wallet provides the users with the option to choose which security features to use, such as OTP, password, or 2-FA authentication. It also has a built-in mixer for cryptocurrencies that makes it difficult for others to track transactions. Its HD wallet also prevents the reuse of the same addresses.
The Rahakott wallet can be accessed using Tor network, which should enhance your IP privacy. BUt if you really want to remain completely anonymous, you can use a VPN instead.
4. Electrum On Tails Operating System (Desktop Wallet)
Electrum is probably one of the earliest and most lightweight Bitcoin wallets since it has been operating in this industry since 2011. It is considered one of the most trusted Bitcoin wallets in the market today. Electrum is an open-source anonymous Bitcoin wallet under an MIT license, but it supports integration with third-party hardware wallets, including Ledger, Keepkey, and Trezor.
Tails refers to the operating system designed especially to protect your internet privacy. It routes all your traffic through the Tor network and leaves no trace on your computer.
Electrum On Tails Operating System is available for Windows, Mac OSX, Linux, and Android devices.
5. PINT Wallet (Mobile Wallet)
This anonymous Bitcoin wallet is designed for mobile devices and supports multiple cryptocurrencies, including Bitcoin Cash (BCH), Litecoin (LTC), Ethereum (ETH), Dogecoin (DOGE), Dash (DASH), and Bitcoin (BTC).
PINT wallet is non-custodial, which means that the keys never leave the users’ device. You also don’t need to provide your personal information, such as your phone number or email, when you create a PINT wallet.
The app also includes a Tor routing feature that prevents your crypto transactions from being linked to your real IP address.
Every transaction that is carried out on the Bitcoin platform is permanent and available for everyone to see, so you need to make sure that your transactions cannot be traced back to your real identity. To do this, you can either use a VPN to obfuscate your IP address or use any of the anonymous Bitcoin wallets listed above.