If you are a newbie in cryptocurrency looking for how to buy bitcoins anonymously, then you need to know that bitcoin and other cryptocurrencies are not anonymous, but, somewhat, pseudo-anonymous. By now, this is no longer a secret to most bitcoin veterans.
What is still not clear to most people is why bitcoin is not entirely anonymous by default, and what Bitcoin users can do to enhance their privacy.
How anonymous is Bitcoin?
To have a better understanding of Bitcoin’s anonymity, it’s essential to first understand the basics of how Bitcoin works.
The Bitcoin protocol efficiently consists of a series of transactions. Basically, these transactions are packages of several kinds of data, including transaction inputs and transaction outputs. Inputs are Bitcoin addresses used to receive bitcoin, and can only be spent using the private key associated with that address.
Outputs, on the other hand, are the addresses used to send bitcoin. Each Bitcoin transaction transfers bitcoin from one or several inputs to one or several outputs.
Sending and receiving bitcoins is like writing a book or article using a pseudonym. If an author’s alias is ever linked to their real identity, all the books they ever published under that particular pseudonym will now be associated with them.
Your pseudonym in bitcoin is your input address. Every transaction that address is used for is stored forever in the blockchain. If your address is ever linked to your identity, every exchange or trade you make will be linked to you.
It was suggested in the original Satoshi whitepaper that Bitcoin users use a new address for each transaction to avoid the transactions being linked to them. This would be just like publishing several books under separate pseudonyms. Even though this remains a valid practice, it is not enough to ensure full anonymity because of multi-input transactions.
A multi-input transaction is when payments are made to your wallet using separate addresses, but then you send a payment from your digital wallet which pulls bitcoins from many addresses. The outgoing transaction will combine multiple addresses as inputs, showing that they are in the same wallet and are owned by the same user. If your identity is ever connected to any of these addresses, then none of the addresses will keep their anonymity.
One of the best methods to increase your anonymity if you’re trying to find out how to buy bitcoins online anonymously is to use multiple wallets. Using multiple wallets is like maintaining numerous separate identities.
The most comfortable way to manage multiple wallets is to use MultiBit. MultiBit is a lightweight and straightforward software wallet for Windows, MacOS, and Linux that allows you to maintain multiple wallets from a single program.
Web-hosted wallets can be used as an efficient way of disguising the real owner of bitcoins. Many online wallet services will jumble the bitcoins on their platform together, therefore every time you withdraw; you get a different bitcoin. The only condition this would work is if your web wallet service is an active one and has other active withdrawals and if you make up only less than 10% of the service’s Bitcoin balance. Most web-based wallets also keep accounts of incoming and outgoing coins, so whatever anonymity you get here is wholly dependent upon the service provider.