Bitcoin is the first decentralized, open-source, virtual currency. They are digital coins you can send over the internet. Comparing Bitcoins to other currencies, Bitcoin has some favorable advantages. They can be transferred from person to person without the need of passing through bank or a clearinghouse (like a check). This means the fees to use Bitcoin are much lower; they can be used in any country; your account can not be frozen; and there are no prerequisites or arbitrary limits.
Bitcoins are generated over the internet by anybody using a free open-source piece of software called a ‘Bitcoin miner‘. Mining requires a certain amount of work for each block of coins mined. This amount is automatically adjusted by the network such that Bitcoins are always created at a predictable and limited rate.
Bitcoins are not a tangible ‘thing’, but a cryptographic algorithm consisting of both public and private keys (similar to using encrypted email). When you transfer Bitcoins, a digital signature is added. After few minutes, the transaction is verified by a miner, and permanently and anonymously stored on the network.
Bitcoins are stored in a digital wallet. These wallets can be made so they are not linked to your identity. They are free, and you can create as many wallets as you care to. However, a good thing to remember is any transaction made with any particular wallet or address is available to anyone that wants to look. If an address can be traced back to you, then so can the transactions made using that particular wallet. Say for example you want to pay for your VPN service anonymously using Bitcoins. If you use the same wallet to pay for your VPN service, that you have used to make other purchases delivered to your home address, then it’s going to be relatively easy to trace your VPN payment back to you.
To remain anonymous when paying for things using Bitcoins, you might consider:
- Registering your wallets to an anonymous and disposable email address
- Using different wallets for transactions so as to avoid multiple transactions being traced back to you.
Bitcoin transactions are held on a database available to the public (block chain), and so in themselves, Bitcoins are not really anonymous. So, if you use the same address over and over to receive currency from other people, then each of them will be able to see what the others have sent you. This shouldn’t really make any difference if your wallet address can’t be traced back to you, but this assumption should not be made. There are some pretty sophisticated methods which are quite effective at uncovering our identities.
To overcome this issue, we use Bitcoin mixers to ‘launder’ our Bitcoins. In general, Bitcoin mixers help to break the link between Bicoin addresses by:
- Creating a temporary address which get deleted once at the end of the transaction.
- Randomly exchanging Bitcoins with other people many many times, making the chain extremely hard to follow.
Bitcoins are an open-source virtual currency for which anybody can use. They are stored in wallets and are often used to make anonymous transactions. Bitcoins by themselves are not anonymous, so we use anonymous, disposable emails, along with Bitcoin mixers to ‘launder’ our cryptographic currency, to help keep our association with our coins hidden.