How can I hide my bitcoin transactions to protect anonymity?

Question

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 :)

Answer 1

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.

Answer 2

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.

Answer 3

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.

Answer 4

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).

Answer 5

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.

Answer 6

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