Cryptocurrency usage is growing everyday and, with it, people’s awareness about them is growing too. One of the greatest advantage of using Bitcoins or other cryptocurrencies, is the protection of your anonymity during and after the transaction; anyway, it’s crucial to point out that the word “anonymity” is here intended as the fact that your transactions are linked to your wallet’s address and not to your name, bank account etc. Nonetheless, one way or another, you will have to spend your crypto-money giving away your physical address (for example if you buy something that must be sent to you at home) and your real name. Being all the transactions and the relative addresses public, if someone links your name to your wallet’s address, he will easily find you. Why should you care? Well, let’s say that you earned your Bitcoins under a pseudonym, using a nickname that you don’t want to be related to you. Then, you want to spend your money. If you spend those Bitcoins without previously mixing them, your real name will be linkable back to your secret identity. For this reason, it is important to use a method that “mixes” randomly generated transactions guaranteeing the best separation between your real identity and your secret one. In this article we’ll see together what is “mixing” and which tools are involved.
How Mixing Works
To mix your Bitcoins, you basically have to create a wallet that can connect over Tor; such a wallet can be Electrum, for sure, but you also can choose different wallets. Anyway, Electrum is recommended. Go to “tools” and set the “network” port to 9050 to ensure to connect through Tor. Obviously, to make it work, you have to previously install Tor and leave it up and running while you connect Electrum. Now, in the “receive” tab, let’s create from two to five output addresses. Go to your favourite mixing site (only few onion services are recommended, don’t use the ones on the clearnet) and set there the output addresses that you selected on your wallet. From there, the concept is simple. The mixing service will receive your coins and it will send them from different addresses with different times to the output addresses that you specified, then you’ll receive the exact amount of coins that you sent, mixed. In this way, for one that observes the blockchain, it will be almost impossible to link the transactions directly to you.
The Letter Of Guarantee
Remember to save the letter of guarantee in the case that the mixing service doesn’t works properly and presents withdrawal problems or unexpected hiccups. The letter of guarantee is digitally signed and it remains even when your browser’s cookies are deleted.
Coinjoin is an alternative method to mixing that makes your transactions nearly untraceable. It was invented by Gregory Maxwell and it is based on adding your transaction to another person.
In this way, since the output comes from different wallets, it becomes nearly impossible to understand from where the transactions are originated. Different wallets implement this method today, and those who use the coinjoin method, often don’t feel the need to use mixing.
“Confidential transactions” is another efficient way of anonymizing your transactions without using a mixing service. The great advantage of a Bitcoin system, is that everyone can individually and anonymously verify transactions without a third party, but this is possible only because all the transactions are registered and public. Yes, the public element is your wallet’s address and not your name but, as we previously said, it is possible to link your address to you. The method called confidential transactions, encrypts the amount of your transactions, making really hard for everyone to spy on your financial habits. There is, anyway, an important limitation that you must be aware of. The confidential transaction only encrypts a certain number of digits of the amount so, for example, if you send 765.231521 BTC, an observer will see “?.????21 BTC”. This is unlikely to be important, but someone could follow, for example, all the transactions with the same final digits and link them to you. A useful feature, instead, is that two individuals involved in a confidential transaction, can share their blinding key to access information about it that would, otherwise, be hidden.