Cryptocurrency is an alternative tool that, among other things, allows anonymous transactions. Unfortunately, amid the adaptation of digital assets in the traditional financial system, its privacy has been threatened.
Country regulators, in order to improve the security of crypto transactions, are requiring crypto exchanges and other platforms associated with the tool to de-anonymize users.
In this article:
- Recipes for anonymity from the developer
- How to stay anonymous when dealing with bitcoin and are anonymous crypto-exchanges worth trusting?
- Do bitcoin mixers help maintain anonymity?
- What tools do authorities use to track cryptotransactions?
- Is it possible to maintain complete anonymity in crypto-space and what should be done to do so?
- Alternative View
- Conclusions
Recipes for anonymity from the developer of Gettocat
Blockchain developer, smart contracts auditor, creator of the project to identify scams and developer bugs telescr.in, known in the cryptocommunity under the nickname Gettocat, tells his opinion on how to maintain anonymity when working with cryptocurrencies.
Gettocat noted that he is for anonymity in the field of cryptocurrencies, and he has personal reasons for this. The expert shared a story about facing harassment because of his disregard for privacy rules in the digital asset marketplace and his colleagues’ theft of coins.
“Fraudsters tried to find out my identity and location. They wrote to everyone they knew. This went on for a year, periodically happening until now,” Gettocat noted, adding that he learned a lesson from the situation.
Q: How do you maintain anonymity when dealing with bitcoin? Is it worth trusting anonymous crypto exchanges?
There are two most important rules worth noting right away:
1. Choose for storage wallets, from which you have a private key.
When you transfer coins to storages from which you don’t have a private key (known only to you), you’re not really sending coins to yourself. The trading platform can come up with an excuse to take the coins for itself at any time.
Therefore, it is advisable to use only exchanges that do not offer third-party storage of coins, or to store only an insignificant amount of funds on such platforms. The bulk of the coins should be stored in your wallets.
2. Always remain anonymous.
Don’t tell anyone that you are involved in cryptocurrencies. Not even your relatives. Money likes silence.
The first rule immediately indicates that anonymous exchanges are not safe. When working on such platforms, there is a risk that your funds will be frozen or they will simply disappear.
The same goes for well-known crypto exchanges, which operate under the rules of regulators and require users to disclose their identity. Such platforms are more likely to recover funds. At the same time, the rules of their work contradict the terms of confidentiality.
It would seem that there are no more options. Despite this, market participants still have several options for preserving anonymity. I will tell you about them below.
Q: Do bitcoin mixers help maintain anonymity, or do such platforms create only the appearance of privacy?
Actually, the situation with cryptomixers is a bit more complicated. The principle of their work is simple – they take your coins and exchange them for cryptocurrency that came from other participants. In doing so, the platforms mix up the total mass of assets and divide it into smaller amounts.
It’s worth noting that modern tracking software can reveal the path of these coins to the transaction in which the miners received the cryptocurrency as a reward for their work.
And that raises the question – do you know which coins you’re mixing with your own? There is a chance that they are mixed with fraudulent assets derived from the drug trade or from the creator of another pyramid scheme who cheated his depositors.
To answer the question, yes, mixers help increase anonymity. That said, there is the potential for bigger problems than just de-anonymization as a result of such platforms.
Q: What tools do authorities use to track crypto transactions?
Such software is a custom piece, and it is likely to be created on demand. However, it is possible to describe the principle of its operation.
First, you need to determine the chain of events and the relationship between UTXO (Unspent Transaction Output). In other words, you must determine who has the right to dispose of the unspent coins.
This is not hard to do. Some tools can even track transaction senders by their IP (which isn’t always effective, since you can send from a random network node).
In addition, such tools keep lists of “clean” and “dirty” addresses, so “clean” coins – those that have been idle for a long time and have not been seen in mixers, darknet platforms, and similar venues – are very valuable online. There are even people who buy such assets for more than their value.
Q: Is it possible to maintain complete anonymity in crypto-space and what should be done to do so?
It is possible to maintain full anonymity if you stick to a few rules:
1. use a VPN.
Being in any place there is a risk of exposing the sites you visit, especially if you have a cryptocurrency node turned on (its traffic can be tracked). With this information, you can be identified as a cryptocurrency owner.
2. Do not use unverified mixers, exchanges and services.
I think there is no need to explain this point. It is already clear that in this case there are risks of loss of funds and de-anonymization. In addition, there may be problems with the law.
3. Try not to use centralized exchanges and services related to cryptocurrencies.
Such exchanges will eventually begin to enforce KYC/AML (customer identification and anti-money-laundering measures) procedures, making it difficult to operate and de-anonymizing you.
4. Try to use coins with increased anonymity.
The most privacy cryptocurrency has long been considered to be Dash. However, on January 1, 2021, the official Twitter of Dash stated that the privacy of this coin is no higher than that of Bitcoin. In addition, as early as 2016, Dash was no longer used as a means of payment in the Darknet.
In 2022, the most anonymous cryptocurrencies are Monero, Zcash, Smartcash, Komodo, Pivx.
5. You should not download unverified software to your computer.
Any software may contain a keylogger or other spyware. Some programs scan private keys when you copy them to the clipboard and send them “to the side”.
6. Use only trusted decentralized sites and p2p platforms.
Coinjoin protocol is good for bitcoins mixing. But be careful. Some exchanges will not accept Coinjoin-mixed coins.
For Ethereum there is also a proven service – Tornado.cash. The platform is a decentralized mixer with a proven open source audit.
To work properly and keep full anonymity when working with Tornado.cash it is necessary to keep at least one day between sending coins and receiving them. Better yet, more.
7. Use cash more often.
It is possible to mix several options. For example Coinjoin + conversion to cash and back. In addition, conversion from more secure coins to regular coins through trusted exchange sites is excellent.
For example, there is an effective option with BTC > XMR and XMR > XMR coins exchange, or with another layer of XMR > ETH > BTC between them. In this case, it will be much harder to track you down, but the exchange fees may increase.
Alternative Opinion
To expand on how members of the cryptocurrency community can maintain anonymity in the digital asset market, another expert will talk about his recipes for working confidentially with cryptocurrencies.
Q: How do you maintain anonymity when dealing with bitcoin and should you trust anonymous crypto exchanges?
Bitcoin and other classic cryptocurrency transactions are in the public domain. They only include addresses, not names. Anyone can have an unlimited number of addresses.
Users who do not hide their actions can make addresses public – for example, when collecting donations for creative projects.
At the same time, participants in the cryptocommunity have tools that help maintain anonymity. You can hide addresses and change them regularly. To increase the anonymity of transfers, the expert noted, there are mixers.
As for the anonymous crypto-exchanges, their problem is the lack of tools for reliable protection of funds. In the case of hacking and the desire of the platform’s management to close the business, the client is almost powerless.
Q: Do bitcoin mixers help maintain anonymity, or do such platforms create only the appearance of privacy?
A mixer is opaque to its customers. Its management can share transaction history with third parties if they want to. The criterion by which one can roughly distinguish a truly anonymous mixer from a spy is reputation.
If the mixer has been around for years and no compromising information has been leaked about it then it is probably really anonymous. However, someone who wants to be fully assured of privacy should not transfer funds between publicly known addresses, even through a mixer.
Q: What tools do authorities use to track cryptotransactions?
There is a lot of debate about the authorities’ ability to track transactions. There is a lot of talk about Big Data (big data), which can be used to find all sorts of patterns in the behavior of addresses. This is the reason why scammers usually change addresses regularly to make it more difficult.
There was recently a high-profile case where the FBI recovered funds received by Darkside hackers, but there may well have been purely agent-based work rather than computational.
Q: Is it possible to remain completely anonymous in crypto-space, and how do you achieve that?
The greatest anonymity is promised by cryptocurrencies like Monero, Dash and Zcash. They essentially have the mixing mechanism built in by default.
It is interesting that some developers at first suggested such a mechanism for bitcoin as well, but the BTC team rejected such an upgrade (probably, it would have made cryptocurrencies more difficult for the government to accept, or deprived bitcoin of the first place in the ranking).
Conclusions
Experts agreed that members of the cryptocurrency community can remain anonymous when dealing with cryptocurrencies. At the same time, in order to protect themselves from identity disclosure, it is necessary to focus on transactions with coins, which have an increased level of confidentiality. For example, Monero, Dash and Zcash are suitable.
Also, members of the cryptocurrency community can increase their level of anonymity by using mixers. Choosing a proven platform will be an important prerequisite.
Also Read: Proxies for Cybersecurity Management in Organizations: Why is it Needed?
