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Free Minds & Free Markets

3 Steps to Buy and Store Bitcoins Anonymously

A handful of best practices can go a long way toward shielding your transactions from government spies and other malevolents.

This article is part of Reason's special Burn After Reading issue, where we offer how-tos, personal stories, and guides for all kinds of activities that can and do happen at the borders of legally permissible behavior. Subscribe Now to get future issues of Reason magazine delivered to your mailbox!

Bitcoin is the first uncensorable digital currency: When it moves between buyers and sellers, there's nothing anyone can do to stop it. The now-shuttered online marketplace Silk Road couldn't have existed before bitcoin, because it's unfathomable that Visa, Mastercard, or PayPal would approve transactions on an e-commerce site for buying and selling illicit drugs.

Bitcoin is often mistakenly described as a "fully anonymous" cryptocurrency. In fact, while global superpowers can't prevent you from spending your bitcoins, that doesn't mean they can't figure out what you bought. More than 100 Silk Road users have gotten into trouble with law enforcement since 2012, and the Snowden leaks revealed that the National Security Agency has worked to uncover the identities of other bitcoin users as well.

Though you don't need to give up your real name to use bitcoin, transaction histories are fully visible in an online ledger called the "blockchain." Skilled digital forensics investigators can link your real identity to a bitcoin address by extracting information from pervasive "web trackers." These are hidden programs installed on your computer that capture information about your browsing and purchasing habits. Trackers, which are used by Facebook, Google, the FBI, and all sorts of malicious actors, can also record an IP address, the numeric code that identifies a home internet network. "Anonymity is misrepresented in popular culture…it's not an absolute," cryptocurrency researcher and security consultant Kristov Atlas writes in his self-published 2014 book Anonymous Bitcoin, a practical guide to concealing your identity. "The question at any given time is not, 'Am I anonymous?' but rather, 'How anonymous am I, and to whom?'"

There's no such thing as perfect anonymity, but a handful of best practices can go a long way toward shielding your transactions from government spies and other malevolents.

Step 1: Hold Your Own Bitcoins

Don't keep your bitcoins on a custodial exchange such as Coinbase. These sites store your identity and may share it with law enforcement agencies, making transactions about as private as mailing a personal check with a return address. Instead, set up a bitcoin "wallet"—a software application that enables you to send or receive bitcoins in a peer-to-peer fashion, directly from your own computer. With a wallet, the secret codes required to spend bitcoins aren't stored by a third-party company or somewhere in the cloud. You maintain them yourself.

Atlas recommends running your bitcoin wallet on a cheap, dedicated PC laptop with the open-source Tails Linux operating system, which makes internet use hard to track. Tails Linux is designed to run off an external USB drive. (Since your laptop won't be functional until you have a working operating system, start by downloading Tails Linux on a different computer and saving it to your external drive.) Every time you finish using your dedicated bitcoin laptop, turn it off, unplug it, and disconnect the battery. This creates a fresh, anonymous session for next time that throws off trackers.

Electrum is an excellent bitcoin wallet that comes preinstalled on Tails Linux. Supplement it with a hardware USB device like a TREZOR or a Ledger Nano S, which add additional security layers that make it harder for an attacker to steal your bitcoins. The extra device will also help you detect if malware that compromises your anonymity somehow made it on to your computer. You can set the Electrum wallet to open only if one of these devices has been inserted into your computer and verified with a pin.

Step 2: Buy Bitcoins in Person

Start the buying process with the anonymous Tor internet browser, which comes preinstalled on Tails Linux. (You can download Tor on any computer, but you're less likely to be tracked if you use it on your dedicated bitcoin laptop.) Navigate to LocalBitcoins.com to look for a nearby bitcoin seller. Don't use your real email account to register. You can generate a temporary, anonymous email address using a service like Dispostable.com.

Meet your seller at a coffee shop with a public WiFi network. Bring your laptop, and pay with cash. Once you're there, with a click of the mouse in your bitcoin wallet, you can generate a "receiving address"—an alphanumeric code that's the equivalent of a bank routing and account number—which the seller can enter or scan into his or her wallet to execute the transfer. Arrive in a borrowed vehicle or park far away. Don't give the seller your cellphone number, and don't show him or her pictures of your kids while waiting for your multiple transaction confirmations.

Step 3: Bury Your Trail With a Bitcoin Mixer

To obfuscate the movement of your funds, use a bitcoin "mixing" service. These are websites that accept your bitcoins and send you back different bitcoins that have no connection to your previous activities. It's like swapping cash for bills with different serial numbers. To make the transaction record harder to follow, mixing services will generally send the "clean" coins back to you in multiple transfers over a staggered time period.

The first step is to use your bitcoin wallet to generate several receiving addresses. (Again, a "receiving address" is the equivalent of a bank account and routing number—but bitcoin allows you to generate a fresh code with every transaction for better security.) Enter your receiving addresses into the mixer's website so it knows where to send your money when the time comes. Next, enter the receiving address of the mixer service into your bitcoin wallet. Execute the transfer.

After the payment is confirmed, the mixing service will send back the clean currency. Some services let you specify the intervals in which the payments will be made.

Bitcoin mixers do have downsides: Their fees can run as high as 3 percent, and they involve a degree of risk. You're trusting that the service won't maintain a record of your activities and that it won't abscond with your funds. But if you care about anonymity, mixers are an important tool for covering your tracks.

Take precautions, like using an established service, and test it with a small amount of currency before risking a large sum. The review site Darknetmarkets.co currently recommends Coinmixer.se, Helix, and Bitcoin Blender. Keep in mind, however, that bitcoin mixers can shut down or be compromised—a service that's reliable today won't necessarily stay that way. With bitcoin, you're in control of your own money. Use that power with care and caution.


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Photo Credit: Joanna Andreasson

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  • Bill Goode||

    This is a lot of steps to go through. Why use the blockchain at all? Why not use a digital currency, such as ClouldCoin, that does not use the blockchain?

    CloudCoins are anonymous because they don't use the blockchain. CloudCoin transactions are as fast and simple as cash, again because there is no blockchain involved. One can simply transfer one's ClouldCoins at point of sale from a Flashdrive or by encrypted email. Much simpler, instantaneous and anonymous.

  • GlenchristLaw||

    Why not just Ron Swanson it?

    https://www.youtube.com/watch?v=l_3_9zK4y-Q

  • Rev. Arthur L. Kirkland||

    Seizure-and-forfeiture actions aimed at tax-evaders' cryptocurrencies could be a promising method of generating government revenue.

  • Cy||

    I wonder how much longer Uncle Sam is going to let these sheep wander the valley before he slaughters them.

  • chemjeff radical individualist||

    It's a bit sad to think that this is the direction that transactions are headed nowadays.

    It's only a matter of time before all governments everywhere start regulating the Internet much more heavily. We've been lucky this far that most governments have taken a hands-off approach. But Europe is certainly increasing their regulations and the US won't be far behind.

    In the near future I expect every "normal" transaction, like buying stuff on Amazon, to be routed through some NSA server or something, "just in case" these transactions fund terrorism or drugs or sex trafficking or whatever the moral panic du jour is. Who knows maybe it is already happening. Third party doctrine FTW, right? All the government would need is some secret deal with Amazon in exchange for some government goodies.

  • OpenBordersLiberal-tarian||

    I realize it's Sunday, but I'm disappointed Reason hasn't denounced Drumpf's white nationalist immigration policies today with the intensity they do on the typical weekday. This presidency is a human rights emergency, a grave threat to the entire planet, so normal rules about "taking the weekend off" shouldn't apply.

    Let's hope there are at least 5 immigration related articles by noon Eastern time tomorrow.

    #Resist
    #NoBanNoWall
    #NoHumanBeingIsIllegal

  • Sevo||

    Personally, I expect several articles on how his wife's jacket = treason, and how his driving 32MPH in a 25-zone is *PROOF* that the Russkis caused the hag to lose the election. Plus one or two with interviews from someone who once appeared on his show claiming he's a big poopyhead and therefore the hag should be enthroned as POTUS since she deserves it! Oh, and the guy who cut his hair years ago was busted for tax evasion! Do I have to connect the dots?!
    And I expect at least one lame attempt at satire from you for each one.

  • Colossal Douchebag||

    Don't forget to wear your aluminum foil deflector beanie when you go to buy.

  • SIV||

  • chemjeff radical individualist||

    That article wasn't even about banning any books. It was about changing the name of an award.

  • Sevo||

    OK, but:

    "This decision was made in consideration of the fact that Wilder's legacy, as represented by her body of work, includes expressions of stereotypical attitudes inconsistent with ALSC's core values of inclusiveness, integrity and respect, and responsiveness," the Association for Library Service to Children said in a statement after the unanimous vote."

    Mark Twain is now in jeopardy? Ezra Pound and e e cummings are to be excluded?
    I'd be more impressed if they excluded Duranty for his conscious and blatant dishonesty regarding the USSR rather than those who reflected the 'received wisdom' of the times.
    "Comanche Empire" was recommended by someone here, and I second that; you can read how the Amer-Indians viewed (and stereotyped) the whites.

  • AlmightyJB||

    Everyone is problematic.

  • SIV||

    Half-pint even more so.

  • santamonica811||

    The article gives excellent advice for those who are paranoid about governmental (and other) oversight, so it seems geared towards those hiring a hitman, buying child pornography, selling drugs, etc. For me, doing nothing illegal, I'd love to see an article talking about steps normal people can take to buy bitcoins safely and not have them stolen/hacked.

  • Sevo||

    "The article gives excellent advice for those who are paranoid about governmental (and other) oversight, so it seems geared towards those hiring a hitman, buying child pornography, selling drugs, etc"

    OBL's newest sock? A brand new troll?
    Sarc or stupidity; you decide.

  • Pogue Mahon||

    Or you could buy Bitcoin like a normal person, then use it to buy a privacy coin like Monero, and give The Man the bird.

    Bitcoin is not private, and normal people cannot be bothered with the digital hygiene required to stay anonymous. Better to use a coin that does the work for you.

  • David1234||

    "Malevolent" is an adjective, not a noun. One may refer to "malevolent people" but not to "malevolents." I wish there were more capables in the in copy-editing space.