This post was inspired by a user who posted the following on the Silk Road forums.
BEST WAY TO OBTAIN BTC’S? AND HOW DO YOU PROTECT IDENTIY DONIG SO? i just would like to know so i can get over this bump i been learning all this stuff to do shit on these sites for a month now and this is my last obsticle i think?!!
We have talked about a large amount of ways to maintain your security, but we have not really talked about how to actually exchange currency. First thing I want to say as a disclaimer, is that I am not advocating that you do anything illegal. This is for educational purposes only and my recommendations are made assuming you are exchanging currencies anonymously as a means to protect your own privacy.
So you have found something online that you want to buy, and they are asking for Bitcoins as payment. How do you get the Bitcoins, and how do you get the Bitcoins to them? We are going to explore these options to a degree and hopefully by then you can make an educated decision on which method is best for your situation.
The options of buying Bitcoins are as follows.
1. Sign up at an exchange online. Some popular exchanges are MT Gox, BTC-E, BitStamp and Coinbase
The downside of purchasing Bitcoins at these exchanges, are that you need to verify your identity with them by means of submitting documents such as a driver’s license or passport and a utility bill. If you are able to get past this first obstacle, then you need to find a way to get money into the account. Exchanges generally only accept wire transfers as a way to fund your account, but some of them offer a way of transferring money directly from your bank account. You can obviously see that by doing this you are exposing your true identity to the exchanges in one way or another, if not at the very least your location.
LocalBitcoins offers a way for you to find a person in your local area, or if you want to go to another state or province to meet up with someone further away from you, you can choose where to look for people in that area selling Bitcoins either online (bank transfer or cash deposit) or meet them for cash in person. Traders have reputation lists, similar to a feedback score on eBay and you can find a trader who has a good reputation to buy off of. You send in a trade request and once the seller has received the money, he can release the Bitcoins from LocalBitcoins and they are sent to your wallet. Some people have expressed concern that law enforcement may act as buyers and sellers on LocalBitCoins, but it does not matter if this is the case in my opinion as long as you are not looking to buy large amounts. You can also, if you want, communicate with the buyer over email, arrive from public transportation, wear a hat, and all sorts of secret agent type tricks to try and conceal your identity. Wear a wig if you are super paranoid.
3. Use a Bitcoin ATM
Currently there is only one ATM in the world that I am aware of, and it is located in Canada. If you do not live in Canada then this does not help you. Luckily according to the an article, the company who is rolling out these ATMs called Robocoin is launching ATMs in other countries as well coming soon.
The first shipping bitcoin ATM, Robocoin, is landing in Hong Kong and Taiwan as the company expands its reach this January. They are planning further releases in Europe, Canada, and the US but, given Asia’s clout in the BTC markets, this is definitely an interesting development.
There will likely be some way to try and cut down on money laundering by getting you to verify your identification, but from what I understand, they currently only do this if you are selling Bitcoins for cash using the ATM, and not buying them for cash. The way that it works, is you choose the amount of BTC you want to buy, and you feed your cash into the ATM machine. You can at that point either print out a generated paper wallet, or choose a wallet of your own to send the Bitcoins to. This method may be another good way because it takes dealing with another human out of the transaction. Something you may need to be aware of is surveillance cameras, so maybe wear a hood, hat, wig, sunglasses, and so forth to disguise yourself if you are worried about your identity.
Believe it or not, there are a decent amount of people on Craigslist that you can meet up with in person and buy Bitcoins off of with cash. Your local area may not have a large number of listings, but you can always search in other nearby metropolitan areas and make a day trip out of it if you want. The same considerations about protecting your identity apply here as above.
5. Mine your own Bitcoins
I am not going to get into how to mine Bitcoins, or whether or not you should, but if you want to get Bitcoins without dealing with other people, this is one of the ways you can do it. Run your miners over Tor, stay anonymous and you will have yourself some untainted Bitcoins.
Okay, so now you have yourself some Bitcoins, how can you get them to somebody else that you want to buy something off of or trade with? As you probably know by now, every single transaction is tracked on BlockChain.info. My wallet address that I have set up for donations for the hours I have spent working on this thread is 1PkJ928QWC5BuQAsHoNQzRV5wfnveJSRCp. You can check out the transactions related to it by going to the following address.
So you have Bitcoins sitting in your wallet, and if you send them to somebody else, it will show up on BlockcChain exactly where you sent them. A couple of things to keep in mind.
1. You purchased your Bitcoins from somebody or something. They may have kept a record of the wallet those coins were sent to.
2. If you dealt with a law enforcement or somebody trying to track you, then they can track where the coins are sent after you forward them to somebody else.
Right now the best method of trying to lose this trail is using something called a mixer or a tumbler. You can think of this like throwing your Bitcoins into a giant pile of coins with other users and then withdrawing them at a later time from the mixer. If you threw in 1 Bitcoin and pulled out 1 Bitcoin, think of all the other people who did the exact same thing. Possibly thousands of others withdrawing 1 Bitcoin from the exact same pile of coins. It has now become much harder for you to be linked to those coins. Then on top of that, maybe you do not withdraw 1 Bitcoin, maybe you only withdraw 0.5 Bitcoin right now and leave the other 0.5 Bitcoin in the pile. It becomes even harder to link those Bitcoins to you.
One website that does this is called BitcoinFog and can be found on a clearnet URL and a hidden services URL.
BitcoinFog has been around for a while now and most people seem happy with the service they provide, so I would come to think that they are a trustworthy service. The way they work is as I mentioned above, and on top of that the service takes 1%-3% (randomized for obscurity) fee on each deposit. So you may put in 1.0 Bitcoins and take out 0.97 Bitcoin after fees and it mixes things up. You can also decide when you might want to withdraw it, whether it is in a month, week, days, and so forth. This is a good service to use and definitely mixes things up for you. The only thing you need to keep in mind, is that there is a trail of you sending your coins into BitcoinFog, which some people may or may not find suspicious. But what you do with your coins after BitcoinFog is going to be extremely difficult to track, if not impossible due to the vast number of transactions that are occuring in and out of BitcoinFog.
When you withdraw your coins from BitcoinFog, please make sure you send them to a new wallet, and not the same wallet that you used to deposit them into BitcoinFog. Another option you can have when withdrawing the coins from BitcoinFog, is to get BitcoinFog to withdraw the coins directly to the person you want to buy something from. This takes the step of creating a new wallet and then having to forward it on and will keep things again extremely hard to track. Just keep their transaction fees in mind to make sure your desired seller is going to receive the correct amount of Bitcoins needed for the purchase or exchange.
Two other options you can use are provided by Blockchain.info and can be accessed by creating a wallet and logging in to it. Send Shared and Shared Coin. Send Shared is another way of mixing up coins, the way that it works is, you send your money into the giant pot and it gets matched up with somebody else who is sending the same amount. An example of this is let us say we have 4 people. A, B and X, Y. Person A is sending 1 Bitcoin to person B and person X is sending 1 Bitcoin to person Y. Send Shared will match these amounts together, and it will mix them so that person A sends their 1 Bitcoin to person Y and person X sends their Bitcoin to person B. This way you are breaking the chain that links person A to person B because there is no record of person A ever sending anything to person B. This is a very good option to use, and one that many people prefer. Of course, there are many people using Send Shared, so the likelihood of there just being 4 people mixing up transaction is going to be more like 10,000 or more, making it pretty much impossible to track.
Shared coin uses a different method called coinjoin. Shared coin hosts a coinjoin server which acts as a meeting point for multiple people to join together in a single transaction. Having multiple people in a transaction improves privacy by making transactions more difficult to analyse. The important distinction between traditional mixing services is the server cannot confiscate or steal your coins. A sharedcoin transaction will look something like the following.
As you can see multiple inputs and outputs make the determining the actual sender and receiver more difficult. Basically it sends the coins in and out of many different wallets that are participating in Shared coin at the time and it does this to throw hundreds or thousands of transactions in all the wallets participating making it extremely difficult to track. The downside though is that coinjoin can never completely sever the link between the input and destination address, there will always be a connection between them, it is just more difficult to analyse. The benefit to Shared Coin is that while this processing is happening, you can hit cancel and get your coins back. When you send your coins into a traditional mixing service, an untrustworthy mixing service could potentially steal your coins.
Now that you have the knowledge to make an educated decision on how to mix up your coins en route to your intended destination, I feel that you can now put your mind at ease when looking to buy something with Bitcoins. It should be noted that you can reverse the process if you want to cash out your Bitcoins as well.