Everyone knows, or should know, that the authorities hate bitcoin for its potential to allow private, anonymous transactions, and try to eliminate privacy. Therefore, there's a lot of emphasis on privacy-enhanced alternative cryptocurrencies, such as Monero, DASH and Zcash, or future privacy-enhanced versions of bitcoin.
But it turns out that good old bitcoin already provides excellent privacy IF all partners in a transaction take simple privacy measures. Of course you shouldn't use these measures to buy a coffee with bitcoin. For small daily expenses, your mobile wallet is good enough. But if you want to exchange large amounts, you and your partner in the transaction should at least:
- Use a self-hosted wallet in a secure laptop, or a hardware wallet.
- Use a fresh bitcoin address that has never been used before.
- Hide the IP with Tor, or use a public WiFi network, or both.
- Introduce a reasonable time delay between one transaction and the next.
A more detailed guide to Bitcoin anonymity, written by Aaron van Wirdum, is based on a research paper titled "Research on Anonymization and De-anonymization in the Bitcoin System."
If you and your partner don't systematically take these simple privacy measures, chances are that the authorities or their blockchain monitoring contractors will uncover your transactions and your identity in no time with network analysis. But if you do systematically take these privacy measures, your transactions should be reasonably safe.
So, if you are the receiving end, now you have a significant sum stored in your laptop or hardware wallet. Of course I am assuming that you keep your hardware physically and electronically secure at all times.
You should never send bitcoin from your secure storage to any bitcoin address that can be connected to you. This includes not only exchanges and wallets hosted by service providers that have your identity stored on file, but also any bitcoin address that you might have used in the past without watertight privacy measures. If in doubt, don't.
There's nothing wrong if you also have a less private bitcoin identity, for example an account with Circle or a cryptocurrency exchange. Just remember to keep the two worlds separated: If you need bitcoin for routine purchases, it makes sense to buy your daily bitcoin separately under your real identity.
The critical point comes if and when you need to exchange bitcoin for fiat currency. If you use a centralized exchange, you must remember that the exchange operator has your real name, address and bank account on file, and you should assume that your personal information is not secure: The exchange operator could choose, or be forced to, reveal your personal information to the authorities.
So, the only secure option is to use physical cash, face to face. For example you can use LocalBitcoins to find a buyer or seller nearby, or (better) transact with a trusted partner. Of course, you should take exactly the same precautions that you would take with physical cash. It's also worth bearing in mind that next-generation physical bitcoin carriers can be used as untraceable electronic cash.
Picture from pxhere.
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Crypto Insider Editor Giulio Prisco is a writer specialized in science, technology and business. He is persuaded that crypto has the potential to bring disruptive positive changes to the internet and society at large.