Although bitcoin addresses are composed of randomly generated hexadecimal characters, which are unrelated to one’s id, anyone can see each and every transaction on the public ledger, so the flow of bitcoins from an address to another along the blockchain is visible to everyone. Solely, the hexadecimal characters of a given address can never be used to identify the person using it to send or receive bitcoins. However, a bitcoin address can be linked to a specific individual based on past transactions via blockchain analysis, Googling btc addresses, surveillance and hacking with extraction of addresses. Most professional bitcoiners use a new address for each incoming and outcoming transaction to minimize tracing and endorse the anonymity of their transactions.
So, how can you completely “anonymize” your bitcoin transactions and cover any traces that can link your bitcoin address to your real identity?
Effacing Bitcoin Transactions:
The blockchain has been scripted in a manner that ensures that the history of all transactions is broadcast on the public ledger. Conjecturally, one can choose which coins to spend and generate new addresses to minimize the amount of leaked information that can be used to trace the spender. However, the current bitcoin-qt wallet doesn’t fully support this, yet top online wallets e.g. blockchain.info fully support such spending behavior.
A bitcoin address is more vulnerable to be traced when it is posted online, or when the attacker spoofs identifying info via other means such as social engineering.
The following are the best ways you can use to airbrush your bitcoin transactions:
- Protect your IP from being phsihed using proxies, VPN or TOR browser; generate a new address for each ingoing and outgoing transaction and never post your bitcoin address publicly online.
- Send your coins to an online wallet, then create a new address(es) and withdraw your coins from your online wallet to it along 4-7 days.
- Buy altcoins with your bitcoins (look for less volatile altcoins to minimize losses e.g. litecoin) and then sell them for bitcoins in 2-3 days and send your bitcoins to a brand new address.
- Bitcoin mixing services.
- CoinJoin
Bitcoin Mixing Services:
Bitcoin mixers can be very handy in covering the tracks of your bitcoin transactions, yet you have to use them at your own discretion, because you may never see your coins again, if you pick a fraudulent bitcoin mixer!!
You register an account with the btc mixing service you choose and then deposit your coins to the address designated to your account. After your bitcoins are added to your account, schedule multiple withdrawals to your brand new bitcoin addresses. A bitcoin mixer splits your withdrawals randomly according to the amount of each withdrawal and the number of outgoing transactions. Moreover, the timings of your withdrawals will be randomized as well over your specified time window.
CoinJoin
CoinJoin is a strategy that compresses bitcoin transactions in order to endorse privacy via excluding unnecessary data. A coinjoin transaction takes place when multiple individuals have agreed to formulate a single bitcoin transaction, provided that some of the outgoing transactions share a similar value. Accordingly, observing of the transactions along the blockchain can never link any of the outgoing transactions to its corresponding sender. Coinjoin is a privacy solution that doesn’t involve any modification of the bitcoin protocol.
The below diagram illustrates a coinjoin transaction that was arranged to pay 0.8 bitcoin to two bitcoin addresses anonymously.
CoinJoin Transaction (source Bitcoin Wiki)
Conclusion:
Bitcoin transactions are not completely anonymous, as they are thought to be, as blockchain analysis, google searches and social engineering can help identify the sender of a given amount of coins. Concealing your IP, using new addresses for each transaction, bitcoin mixers and coinjoin transactions are effective ways that can help anonymize your transactions.
References:
1- Bitcoin Wiki – CoinJoin
https://en.bitcoin.it/wiki/CoinJoin
2- Bitcoin Wiki – Anonymity
https://en.bitcoin.it/wiki/Anonymity