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Thursday, September 19, 2013

ALL ABOUT BITCOINS PART 2-STAYING ANONYMOUS

By necessity the history of all the bitcoins must be highly public. However, if one has bitcoins on paid to address, one can theoretically choose the coins they spend in a way that will minimize the amount of information they leak. Choosing personally generated coins or an address that you know doesn't reveal information would protect you. Unfortunately, the default Bitcoin client doesn't support this currently, so you must assume that your entire balance can identify you if any of the addresses can.
You may consider a bitcoin to be "less-anonymous" when an attacker could feasibly find the true identity of a very recent owner of the bitcoin, perhaps because one of the bitcoin addresses was posted to a website, or because he knows some identifying information through other means.
If your balance has been contaminated by both anonymous and non-anonymous coins, you may take action to make it "clean".
Recommended way of anonymizing your balance:
  • Send however many coins you want to anonymize to a new eWallet account as a lump sum. There are other eWallet services however the more widely used the greater the potential for anonymity. This is not an endorsement of trust in the use of eWallet services. There are no guarantees that any eWallet service won't one day take all your bitcoins and disappear. Use at your own risk.
With this method an attacker will have to gain access to the eWallet service's transaction logs to continue to follow you in the transaction history.
The protection that this method offers is significantly reduced if you are trying to anonymize more than about 10% of the total number of Bitcoins that the eWallet service holds. You'll end up getting your own coins back instead of other users' coins. Withdrawing Bitcoins more slowly and in smaller increments will help reduce this problem. Sending coins to an eWallet service in the largest single transfer possible will also help.
To further enhance your anonymity, you can:
  • Send Bitcoins from one EWallet sevice to another and then to yourself. Each transfer needs to be painstakingly investigated and many transfers will present insurmountable difficulty.
Once you have an anonymous balance set up, be sure to keep your anonymous and non-anonymous balances completely separate.
A future version of the client will have more control which will allow the sender to specify which coins to use in a transaction.
In the future, trusted relay servers operating on the friendly addresses with enhanced privacy protocol could provide bitcoin users strong anonymity with increased convenience, thereby eliminating the need to make a trade-off between privacy and ease of use.

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