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I read many related questions about the pseudo-anonymity and bitcoin transaction tracking.

So if I understand correctly, bitcoins, or better, transactions can be tracked for their entire lifetime.

Example user case:

  1. I buy bitcoins from Mt.Gox
  2. I send some bitcoins here and there
  3. Now I decide to send 50 BTC to a person (Bob) who did a job for me, in the hope that nobody finds out about my deal.
  4. Bob changes the 50 BTC recently received in dollars through Mt.Gox

Now, if I'm right, it is possible to track back the transaction to me, since all transactions are public. And so everyone knows that part of the money changed by Mt.Gox was used to pay Bob and that he changed them back to dollars.

This is true as long as my address and Bob's address is also known.

Is there some way to break the transaction history of the bitcoins from Mt.Gox? I mean, for example, would it be possible for Bob to transfer the 50 BTC to Mt.Gox from an unknown address that was never used, so it can't be associated to my address? Or is it possible to send bitcoins only from the reveicer address?

Situation when using the same address to receive and send bitcoins:
[Mt.Gox] ==> [Me] == [Bob] ==> [Mt.Gox]

Situation with new generated addresses:
1. [Mt.Gox] ==> [Me]
2. [Me] == [Bob]
3. [Bob] ==> [Mt.Gox]

In short, how to hide where bitcoins came from? I read there is a way to generate new addresses and send through them. Is that true?

Thanks :)

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9 Answers 9

up vote 8 down vote accepted

It is possible to trace Bitcoins all the way back to the blocks they were mined, although it might be a hard task. Similarly, one can also trace them back to any withdrawal from MtGox, as long as we know which transaction to look for. No matter how many times you send them from one address to another, it is still possible to trace them back to that transaction, especially if you send the full amount each time.

If you want to make it way harder for someone to trace the transaction, you'd need some service that would take your Bitcoins, send them to some address that is used in many transactions and send them back to some other address you own. There have been many services like this started, but I don't know of any that had the traffic volume necessary to obscure anything. This option assumes that the service would not keep track of the finished transactions, thus not being able to reveal information about you.

You can also try "laundering" your Bitcoins by paying someone to send you Bitcoins from another address. Similarly, you could pay someone to mine a fresh block of Bitcoins for you. Similar as above, it only works if the person would not keep information about you.

Lastly, you could just order some physical Bitcoins. Trading them is completely offline, so nobody can trace who you gave the coins to. I'm not sure though if Casascius keeps any order data, which could be later linked to the person that redeemed the coins at some point in the future.

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2  
also you could use a litecoin exchange. then whoever is tracking your transactions will need to use two different blockchains and the exchange's logs (if they keep them). do this with a few different exchanges and the chances of anyone tracking you aproach zero –  mulllhausen Apr 11 '13 at 6:30
    
Laundering services are a big gamble - you never know if they'll really give you a different coin or just run away with your money. Casascius were a great option, but its minting has stopped as of Xmas/2013 due to Uncle Sam sending letters to its owner. Already minted coins will now become highly valued collectibles. –  Joe Pineda Dec 25 '13 at 10:12

All you need to do is send your bitcoins to MtGox and withdraw them to a new address. MtGox processes so many bitcoin deposits and withdrawals that you've very unlikely to get the same coins back, and so nobody (other than MtGox and anyone with access to their database) would be able to tie your deposit together with your withdrawal. Alternatively, make 2 MtGox accounts, deposit into one, use a 'redeemable code' to transfer the coins to the other account, and withdraw from there. Then even MtGox can't be sure the coins didn't change hands.

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Every person owns several addresses, and for most addresses keeps the association with himself private. In your scenario coins move from address A of Mtgox, to your address B, to Bob's address C, back to Mtgox address D. The only people who know that address B belongs to you and address C belongs to Bob - and hence deduce that you paid Bob - are you, Bob and Mtgox.

Any large eWallet can double as a mixing service, and there are also dedicated mixing services. You can bounce your funds through several such services, and then all of them will have to release your info in order to associate you with an address.

To avoid some weaknesses of using a centralized mixing service, it is also possible to perform peer-to-peer oblivious mixing transactions, as discussed here.

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thanks for the link! –  giowck Mar 6 '12 at 19:05

Don't send money from your own wallet to Bob.

Send it directly from MtGox.

That way, it is not associated with your wallet (just with MtGox, whose wallet is shared by half of the Bitcoin world).

All these online wallet services are essentially anonymizing mixers.

On might argue that then MtGox knows that you sent money to Bob, but a) they don't care, b) if they care, they could track it in the chain anyway, as you point out above, c) they don't know that the address you sent to belongs to Bob.

One thing you must make clear to Bob, however, is that under no circumstances is he supposed to send anything back to the address where his coins came from (because then MtGox has no idea what to do with them). But this is a general principle of Bitcoin that a sending address cannot just be used as a receiving address as well. If there are any refunds or the like, you need to give Bob another address for that (preferably a completely new one).

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There are great amount of gambling's sites. Just go with TOR(onion routing) to poker room, and wash your money in one of rooms. Your fantasy is your friend.

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Okay, A wants to send to B, but wants to hide the chain. Enter a matching service. The matching service makes a record of A wanting to send to B and waits until C wants to send to D. Then it tells A to send to D and C to send to B and charges a commission. Then everyone is happy and there is no link from A to B.

However in practice this may be a little dicey. Suppose A and B are in the Green mafia and C and D are in the Blue mafia. So now the police are investigating a link between the Green and the Blue mafias.

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  1. Download Torr web browser took kit
  2. get onto internet via Torr
  3. Via torr, open a new hushmail account, lets call this hush1, use random name info.
  4. use that new email to open a new wallet at blockchain.info
  5. Log back onto hushmail and create a second hushmail account, call this hush 2, use random info to create this account as well.
  6. Use that to create a second blockchain.info wallet
  7. using the wallets at blockchain info is a problem due to email verification of attempts to log in, if you have time use a Yubikey as second verification. If you don't have time then just use the email verification of each log in attempt.
  8. Empty your wallet from mt gox into Hush1,
  9. pay the fee to mix and send to Hush 2
  10. Pay the fee again, and mix and send to bob.

Draw this on a peice of paper to see it and understand the flow.

There would be little or no way to tell for sure anything except that you got rid of your bitcoins. There would be no way to tell who ended up with them, or even tell that you own the account called hush2.

bob is in the clear, if he created his wallet anonymously like a paper wallet from bitaddress.org then he is totally clean. You however have to understand that someone (mt gox) knows you had some bitcoins and that you sent them off into the world.

You could also use the hush2 account to open an account at BTC-E and trade your bitcoins almost totally anonymously. ( I have checked this out, and it seems possible, they don't have much in the way of verification of identity, but they will log your IP address ( torr takes care of this) and they will know your contact info like email, (Hushmail takes care of this)

The Yubikey is a good tool to use for second verification, I have one on order to try this set up, but have not done it yet.

YOU ALSO MUST PRINT OUT A PAPER COPY OF YOUR WALLET FROM YOUR ACCOUNTS, JUST AS A BACKUP, BUT NOW YOU HAVE TO HIDE THAT PAPER, AND NOT SOMEWHERE OBVIOUS LIKE YOUR SAFE.

You can keep it pretty safe, if you are willing to try.

There doesn't need to be a bob, you can just clean your coins to yourself this way. you end up with clean coins in an anonymous account.

Mt Gox is the weak link, they are the ones in this senario that need your info.

(torr hides who you are, and your IP) (hushmail gains you access to open accounts via anonymous email) (remember not to pay for your hushmail accounts, use the free service so they can't track who you are through you payment for a premium service)

by using Torr to create anonymous emial addresses, then using those emails to create anonymous wallets, then using the mix features at blockchain.info, you have pretty well covered your tracks.

is it alot of work?? yes.

is it actually better than pretending you threw away 7 million dollars worth of bitcoins on a hard drive at the landfill??? certainly.

what % of "stolen" bitcoins are not really stolen??? sounds to me like you can avoid some taxes pretty easy by claiming you lost your coins, then someday just take a vacation somewhere sunny and show up and claim your wallet and never come back. 7 million would be a pretty long vacation.

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Note sure if this helps anyone, but I can imagine a scenario, similar to @larry1265's, wherein you encrypt your connection to the web, use a proxy (relatively easy to set up) and then create emails addresses from a provider not associated with you. Then, use this process to download and set up your wallet, eg, Armory, and follow the best practices. Wouldn't this secure a fair bit of anonymity? –  nicorellius Feb 9 at 16:38

The main problem with Bitcoin anonymity is that every transaction is publicly logged by design. Anyone can view the flow of Bitcoins from address to address in the blockchain. This data alone cannot be used to identify you because the addresses are just random numbers, but if any of the addresses in a transaction's future or past history can be backtraced to a real identity, it may be possible to find out who owns all the other addresses. Such identity information could be derived from network analysis, surveillance, or a quick google search for the bitcoin address.

here is the list of mixing servises, use them to avoid compromising of privacy and security. Mixing services provide to periodically exchange your bitcoins for different ones which cannot be associated with the original owner. https://en.bitcoin.it/wiki/Mixing_service

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Bitcoin is not anonymous. Don't expect it to be.

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Right. Privacy and anonymity are seperate issues. You can make a transaction very private so that Bob will know who sent the Bitcoin, but very few others would be able to trace it to you. Law enforcement should have tools to trace transactions, but even for them it should not be easy. –  cbeast Mar 6 '12 at 4:20
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anonymous != pseudo-anonymity –  giowck Mar 6 '12 at 9:39
    
True, but... this is not an answer. –  Lohoris Mar 6 '12 at 15:18
1  
This does not provide an answer to the question. To critique or request clarification from an author, leave a comment below their post. –  kirian Nov 25 '12 at 0:34

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