How to Buy and Trade Bitcoin & Ether Anonymously in 2018
With the value of cryptocurrencies recently crossing the $500 billion mark, it’s easy to get tempted by the biggest digital gold rush since the dot-com frenzy of the 90s. But while everyone with common sense and a thousand-dollar investment seems to enjoy decent ROI, it may be the ideal time to remind ourselves that it’s just as easy to lose every penny because…
… Bitcoin and Ether are not inherently anonymous.
Yes, you can buy both and store them in a wallet without revealing your true identity. However, this only offers a type of pseudonymity. Interested parties (hackers, government agencies, etc.) can utilize sophisticated data analysis techniques to search for patterns to de-anonymize buyers. Such high-level data analysis is Cisco and Google’s entire business model.
How Can Crypto Buyers Be De-Anonymized
Unfortunately, there are several ways for an adversary to link a Bitcoin transaction to someone’s true identity. 100% anonymity against a skilled antagonist is quite challenging to achieve. Essentially, it requires mindful use of encryption and privacy tools because of the following reasons.
Your Bitcoin Address Might Reveal Your Name & IP
Most crypto exchanges and even some crypto ATMs require you to verify your identity before you can purchase or sell Bitcoin and Ether. Usually, they’ll ask you to upload your driver’s license or passport as well as a utility bill. This means your identity is linked to the exchange or ATM, so if someone hacks into the exchange or ATM machine, they can see who you are. Moreover, an adversary could hack into your browsing session as you’re about to upload the documents needed for verification.
Additionally, your IP might be linked to your crypto account’s address. When you make a transaction, you are actually creating a message on your PC or mobile phone and transferring it to the crypto network. If someone is operating a vast number of nodes in the Bitcoin or Ether network, he/she might be able to link some of your transactions to your IP, which will allow him/her to deanonymize your Bitcoin and Ether portfolio.
Crypto Wallets Store Buyers’ Addresses Without Encryption
If someone wants to de-anonymize you, they might just need to know that you keep records of crypto addresses. This knowledge could be enough evidence of your involvement in cryptocurrency trading and blockchain technology can point adversaries exactly to your transactions. All they need to do is search for your address on record.
Most crypto wallets store buyer addresses without encryption; wallets only encrypt private keys. Users can securely store their wallet into their Dropbox account or flash USB drive if the private keys are properly encrypted. However, if someone gains access to these channels, he/she could maneuver through to find what addresses you own and the transactions you’ve made.
Any Digital Transaction Is Unsafe
Bitcoin and Ether are basically electronic cash. And like everything digital, they are prone to hacking. Case in point: A few months ago, a man lost over $100,000 worth of the digital currency while having dinner at a local restaurant. The incident happened in Innsbruck, Austria where nearby hackers stole Bitcoins from the victim’s wallet while he went online using the restaurant’s public WiFi network.
By hacking into his device over public WiFi, adversaries were able to access the Bitcoins when the victim logged in to check the current value in his account. While it wasn’t confirmed if the person’s account was previously unethically breached before he ever logged into the restaurant’s network, this doesn’t undermine the risks that inevitably comes with buying and trading cryptocurrencies.
How to Protect Your Crypto Investment & Identity
The first step is to be careful about what you are unveiling about yourself. Question your activities. What tabs are open in your browser? Which crypto wallet are you using? Who did you recently communicate with about crypto trading? Was your network connection public or private? All these details are important if you want to stay safe.
Other than being vigilant, consider taking the following measures:
Use a Virtual Private Network (VPN)
It’s possible to keep your Bitcoin and Ether wallets anonymous with little planning. One thing you can do is create webmail accounts without using your real details. Then those relatively anonymous email addresses can be used to access services.
The next step is to disallow the tracing of your crypto activities via your IP. This can be achieved with a virtual private network like SlickVPN. Connecting to a site using VPN means your transactions will be identified by the VPN server’s IP address, instead of yours. Also, VPN vendors offer top-notch encryption, making it very challenging to trace your actions.
Don’t Reuse Addresses
Select crypto wallets that respect your privacy by never using the same address more than once. A good option is Hierarchical Deterministic (HD) wallets – these make it easy to have a new address for each crypto transaction and also offer a safe backup mechanism.
Watch out for fixed withdrawal addresses though. It’s best practice to change the address manually after each withdrawal to a fresh address. Also, ask other traders to change their address after each transaction too, as their activities will have an impact on your privacy if you’ve been interacting with them.
Mix Bitcoin with Other Buyers
You can further enhance your anonymity by using a crypto mixing service. This can be used when you send coins to your wallet from the website you used to purchase them, when you make a payment to someone, or you can even send money to another address using a mixing service.
It works by mixing your coins with a large pool of other coins from other buyers before sending them out. Hence, with a crypto mixer, it becomes almost impossible for an observer to link specific payments going into the service with payments coming out of the service.
One popular mixing service is CoinMixer.se. It is reasonably priced and gets the job done by cutting the link between the crypto buyer and his/her transactions.
These measures cannot guarantee complete anonymity, but they will provide great results if you want to buy and trade Bitcoin & Ether anonymously in 2018.