How To Buy Bitcoin Anonymously – The Ultimate Guide
buy bitcoin anonymously
The world of cryptocurrencies is taking off, and beside the
price records and increasing interest in Blockchain technology, the many
advantages of the original crypto (Bitcoin) are now being explored. One of the
original motivations behind Bitcoin was the need for protecting user privacy
from untoward attention from lawful and unlawful sources. The remarkable traits
of blockchain technology (decentralized consensus, cryptographical encoding)
all stem from this basic need for anonymity.
But in fact, the interface between using Bitcoin anonymously
and getting your hands on Bitcoin in the first place is tricky. It’s a global
industry with dozens of options, some much better than others. In this guide we
will comprehensively discuss each option, how to buy Bitcoin through that
method anonymously, and other considerations you need to take into account. By
the end of this guide you’ll be up to speed on what your best options are and
all the steps necessary to buy Bitcoin securely.
So why do we need anonymity anyway?
Anonymous money transfer might seem unnecessary to some
people, but in reality there are dozens of legitimate reasons for it. From the
personal (not wanting friends or acquaintances to know how much you invest), to
safety reasons (there has been a large movement of buying Bitcoin in Venezuela
lately due to the inability of the government to control currency exchange rates.)
The founding principle of Bitcoin was for decentralized communities to be able
to run their affairs without intervention, and that stands to this day.
Anonymity in Bitcoin transactions is per se legal in most
places, but we’ll touch on some legal cases specific to certain jurisdictions
in the next section.
Best Ways To Buy Bitcoin Anonymously
1. ATMs
For those who remember how obscure and arcane the process of
getting Bitcoin was when it first came on the scene, Bitcoin ATMs were like a
breath of fresh air. They are quite simple in operation: you insert cash into
the machine and input a Bitcoin address, the machine calculates the exchange
rate and sends Bitcoin to the address.
Best of all, they are highly anonymous in principle at
least. Since they are based on physical checking of exchange (i.e. physical
notes), they can be much less strict about ID than exchange online needs to be.
However, there are several considerations depending on the situation when
buying from the ATMs, which we will discuss here.
As with most ways to get BTC, the less you buy the more
anonymous you can be. The most popular ATM provider in Europe, General Bytes,
allows you to buy up to €2000 per day without verification. Click here to find
a Bitcoin ATM near you.
Another issue is that these ATMs obviously require your
physical presence which is not necessarily anonymous. Regardless, all that is
needed is a Bitcoin wallet (preferably a wallet app on your smartphone) and the
cash you want to buy Bitcoin with. You deposit the cash into the machine after
following the instructions, which then deposits to your wallet.
2. LocalBitcoins, Paxful and other p2p Bitcoin exchanges
As mentioned earlier, peer-to-peer (p2p) sites can offer a
higher degree of anonymity since they put you in touch with other Bitcoin users
who usually not ask for verification depending on the situation. This is at the
discretion of the seller. You have the option to carry out transactions either
online or depending on availability in person.
The degree of anonymity possible depends on the seller, but
in general you will get more sellers willing to transact anonymously if you opt
for a face to face transaction. While this involves obviously revealing your
physical appearance to the seller and usually a phone number, if you get a
throwaway sim card then the transaction is nearly anonymous.
The downside is that you will usually pay around 10% of a
premium for this anonymous service, often more. Localbitcoins is the most
popular and usually offers the highest degree of anonymity, but Paxful also
fits the bill (as do other p2p exchanges most of which are locally focussed).
3. Online Bitcoin Exchanges
Depending on your location, buying Bitcoin the regular way
on exchanges is also a good option for anonymity. This is usually contingent on
the amount you need to purchase. For example, the largest exchange worldwide,
Coinbase, has very low limits for anonymous accounts. Local exchanges specific
to each country have often higher limits.
What this means is that you should shop around per site, but
don’t expect to be able to purchase more than $200 worth per 24 hours without
verification. The purchase method is possibly the biggest weakpoint when buying
anonymously on exchanges. If your bank account or credit card is used to buy
the Bitcoin, this leaves a papertrail connecting you to the purchase.
One semi-anonymous option when buying from these exchanges
is “tumbling” the Bitcoin, or converting them to another crypto then back to
Bitcoin. Tumbling involves pooling your funds with others as part of a service
provided by a third party, who essentially jumble the Bitcoins up and charge a
fee after giving you your funds back in anonymous Bitcoin.
Another option is to convert your funds to Monero, which is
another cryptocurrency designed for anonymity, then convert them back into
Bitcoin. So after buying Bitcoin on the likes of GDAX, you can then purchase
Monero on an altcoin exchange such as Binance or Bittrex, then send the Monero
to an anonymous Monero wallet on your device. From there, you can send the Bitcoin to a new, clean address you have
created.
In both of these methods (tumbling and converting to Monero),
the anonymity is very guaranteed up to a point, since ultimately you end up
with Bitcoin that is disconnected from your identity, there is still a
papertrail that you bought Bitcoin in the first place.
4. Mining
For the more technically minded, mining Bitcoin is also an
option. Given the competitive nature of mining, novice miners will probably
make a small loss on their efforts, but considering the fees on most
transactions anyway it could end up being cheaper than other options
(especially is a large amount is needed over time). Take a look here for an
idea of mining margins. In terms of anonymity, the most important factor is the
mining pool you join. Some have very secure privacy practices, so make sure you
investigate before joining.
5. Bisq
Bisq (formerly Bitsquare) is marketed as a completely
decentralized exchange. It uses deposits and escrows to mitigate against fraud.
In many ways it is the ideal option for buying anonymously. Users enter an
agreement on their own, and the Bisq team only intervene when there is a
dispute. This means that in most cases there is no need to give ID verification
for transactions. Furthermore, the system is encrypted and routed through the
Tor network to ensure anonymity. Users download the Bisq software to open and
enact the trades. Each trade involves a seller, buyer, and a randomly selected
arbitrator (another user on the network). The funds to be traded are held in a
wallet that only releases the funds if 2 of the 3 parties sign off on it. If
there is any fraudulent behaviour, the offending party loses their security
deposit.
The major disadvantage as of now is the low volume of open
trades, but hopefully with time the network will reach a larger market. It is
well worth a try if anonymity is required.
6. Mycelium Phone Wallet
This option combines some of the concepts mentioned above
(wallets, Tor, peer-to-peer trading). Mycelium is a software wallet that is
encrypted and routed through Tor to ensure privacy, but also functions as a
trade finder for face-to-face meetups. It shows traders in your locality who
you can meet up with and trade. All communication on the app is encrypted and
routed through Tor. The rates of exchange ar usually more competitive than the
other p2p platforms listed above.
Challenges Of Buying Bitcoin Anonymously
1. Location
Before you start buying Bitcoin anonymously, bear in mind
that things will vary widely depending on location. EU countries, the US and
Canada have the stricter KYC (know your customer)/AML (anti-money laundering)
laws and hence exchanges there will have lower thresholds for anonymous
transactions. In other place like China, India and Russia there has even been
persistent recurring scares about Bitcoin being outlawed altogether. These
conditions fluctuate a lot, so make certain that you do a quick Google search
about your country before beginning the Bitcoin purchase process.
2. Amount
More important to your anonymity is the amount you want to
buy. The nature of the T’s and C’s of all platforms (as well as legal
regulation) is obviously that the more you buy the less anonymous you can be.
The big loophole here is that this applies to one purchase at a time. Most
platforms will limit anonymous purchases to one per day or week. If you know
this limit and are willing to spread your Bitcoin purchase over a longer
period, then you can protect your anonymity easily.
Conclusion
To wrap up, we’ll present a rundown of the most secure
methods to buy Bitcoin anonymously. First of all, the cash->Bitcoin ease of
an ATM is the most secure and anonymous (as well as convenient) method for
amounts up to a couple of thousand dollars. In combination with a wallet
installed on a separate, unused, and anonymously purchased device like a cheap
smartphone and using TAILS (see appendix 1) is a sure-fire way to guard
anonymity. The only point of reference is your physical presence in the ATM
location, which can be mitigated with nondescript clothing. For another layer
of anonymity (probably not necessary), tumbling the Bitcoins or converting to
Monero and back to Bitcoin will guarantee anonymity. However, this will incur a
loss of up to 25% on the market rate of the coin purchase.
Next in line would be local trades like Localbitcoins or,
even better, the use of the mycelium local search described above. The
downsides are obvious, you need to meet with and converse with someone who may
be able to identify you. Again, there is also the premium paid which will be
about 15% more than market rates.
Finally, the Bisq platform is very promising, despite the
relatively low amount of trades available. It is also more difficult to get set
up and to learn how to use the platform. However, it should become more and
more popular in coming months, and the effort the team have put in to making it
anonymous is quite impressive.
Glossary Of Important Terms
1. Exchanges
Cryptocurrency exchanges are probably the most instrumental
part of the ecosystem after the miners themselves. They are privately owned
platforms which allow you to log in and sell coins for fiat (regular money) and
vice versa, and in most cases exchange different types of cryptocurrencies
also. The exchange profits by charging you a cut of the amount exchanged (which
is standard for all crypto exchange and also for conventional money).
They nearly always function with a proprietary wallet setup,
meaning that you actually store your funds in the cloud on their site. While
you technically own the address and the public and private key data needed to
use the address, this data is also stored on the exchanges’ servers for
convenience sake, meaning you don’t have to know your keys or even your adress
of you don’t want to.
This means they have access to your wallet and you trust
them not to misappropriate your funds. While this makes the whole setup as
convenient as using online banking, it presents concerns for the purpose of
buying bitcoin anonymously.
Firstly, there is the fact that the vast majority of
exchanges require ID verification to make most transactions. Usually an SMS
confirmation at least, or a video call with your ID on display or a scan of
your ID is necessary also.
Secondly, even if you avoid this ID check there is the fact
that the exchange knows the addresses and fiat sources you have used. Imagine
someone was trying to track your crytpo transactions and discover your
identity. If they had access to even an “anonymous” profile on an exchange with
a false name they could still find out who you are via done detective work.
They could cross reference the addresses you have used with other known users
(since all Bitcoin addresses and transactions are public), and also simply look
up the name on any fiat payment methods you use such as bank transfer or credit
card. This would make it extremely easy to identify you.
The final problem is security. Even if the exchange itself
doesn’t allow anyone to sleuth around your transaction details, there is always
the chance that a hacker could access not only your funds but also your data.
There have been multiple high profile exchange hacks consistently over the past
few years.
2. Tor
The Onion Router (TOR) is an encrypted way to go online that
makes it extremely difficult to track who is doing the browsing. The history of
TOR is closely linked to that of Bitcoin, but it is not a means of getting
Bitcoin in itself. At best, it provides another layer of secrecy while you
pursue the other options mentioned here. There are plenty of guides online for
how to install and use TOR.
3. Fees/Mining Fees
If you are technically minded, one of the most secure and
anonymous ways to get Bitcoin is to mine them yourself. Miners devote computing
resources to help create new blocks on the blockchain that makes Bitcoin
function. Transaction fees and some of the mined Bitcoin goes to the
participating miners as pay, naturally in the form of Bitcoin. The upside is
that this method is completely anonymous.
The downside as you can imagine is that it requires
expertise and resources to get started, and since you are competing with vast
mining operations in developing countries where energy and hardware is cheaper.
This means that most non-professional miners will operate at a loss, but
considering that you will have to pay an exchange/seller to get Bitcoin
otherwise it can work out about the same price depending on how efficient you
are. We’ll discuss this more in the next part.
4. P2P exchanges
Peer-to-peer exchanges are online platforms that put you in
touch with other private individuals who sell you Bitcoin directly. Depending
on how you go about this, it can be very anonymous. Most of the time however
either the exchange or the seller will want some form of ID, but in many cases
this is not necessary. Even when a seller asks for ID, most are professionals
with a reputation for confidentiality to protect so might be trusted not to
divulge your identity to a third party. We will discuss these considerations
and the main P2P platforms in the next part also.
5. Wallets
A wallet is a tech solution that makes it easy to manage the
keys and addresses needed to hold and exchange your funds. While addresses and
keys are cryptographical entities part of the Bitcoin network itself, the
wallet is a software/hardware tool that makes spending easy. It is like the
distinction between a bank account number (address) and an online banking
account (wallet, in this case).
The type of wallet you use can have an indirect impact on
anonymity, which we will discuss in appendix 1.
Appendix 1: Tor, TAILS, and VPN
Most users won’t need this level of privacy, but using a Tor
(the Onion router) browser and a TAILS operating system give an added layer of
anonymity. Tor is a way to keep your connection to the internet completely
private. The software works like a browser, and it describes itself as
“software that protects you by bouncing your communications around a
distributed network of relays run by volunteers all around the world.” It is
fairly easy to set up.
However, Tor can cause issues when using other services,
such as LocalBitcoins. In this case, it might be wiser to use a Virtual Private
Network (VPN) service, which uses private servers to mask the source of your
internet activity. It is like a paid version of Tor in many respects.
Finally, for those who need the highest level of privacy,
the TAILS operating system can be used live from a USB or DVD, and prevents
records of your computer use being saved on your machine or sent to others via
the internet. Operating Systems like windows are a minefield of tracking,
creating detailed reports on your internet usage. TAILS avoids this issue.
TAILS actually uses Tor when connecting to the internet, so it includes the
benefits of Tor.
A combination of the above 3 tools (especially Tor and
TAILS) can guarantee that your connection and machine are not trackable when
buying Bitcoin.
Appendix 2: Secure Wallets
Some wallets (the software used to manage Bitcoin addresses
and passwords) are more private than others. There are two in particular that
stand out. Electrum is a highly-regarded wallet solution, and many users
recommend using the Electrum app with TAILS as the height of security and
anonymity. The second is the Android app Samourai, which uses darknet
encryption. Either option will serve you well.
References
Here are the sources I’m working from, if I’ve missed any
then let me know:
https://99bitcoins.com/complete-guide-using-bitcoin-anonymously/
https://www.buybitcoinworldwide.com/kb/buy-bitcoin-without-verification-id/
https://coinsutra.com/best-ways-buy-bitcoins-without-id-buy-bitcoins-anonymously/
https://blockonomi.com/buy-bitcoin-anonymously/
https://www.finder.com/ca/buy-bitcoin-without-id
https://www.techbullion.com/buy-bitcoins-anonymously-usa/
https://coincentral.com/anonymous-bitcoin-wallets/
https://www.24hchina.com/buy-bitcoins-in-china/
https://coinatmradar.com/blog/how-to-buy-bitcoins-with-bitcoin-atm/
