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I'm new to Bitcoin and I have a few questions about Bitcoin Exchange and how the transactions work. To be more specific, the question is related about the level of anonymity of these transactions.

1) When I want to sell bitcoin through a Bitcoin Exchange, do I have to transfer the bitcoin to a Bitcoin Wallet created by the Exchange and related to my account on the Exchange, or I have just to "connect" my Bitcoin wallet to the account on the exchanger?

2) And when I will sell the bitcoin, the transaction will be displayed on the Blockchain right? But can this transaction be identified as a transaction made on a Bitcoin Exchange or not? (So that someone can know that I've just sold my bitcoin through an Exchange).

3) Last question: It would be a good idea to access to a Bitcoin Exchange through a proxy chain (Or just a proxy server) to gain more anonymity?

Thanks in advance for any answer! :)

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1) When I want to sell bitcoin through a Bitcoin Exchange, do I have to transfer the bitcoin to a Bitcoin Wallet created by the Exchange and related to my account on the Exchange, or I have just to "connect" my Bitcoin wallet to the account on the exchanger?

You'll have to transfer the bitcoins you want to sell to the wallet of the exchange. Each exchange implements a bitcoin wallet for every user within their system, and you can transfer money in and out of this wallet as if it were yours - please be cautious about storing large sums of bitcoins on the exchange wallet, because most exchanges have the private key of this wallet and could do whatever they want with the money on it. You have to trust the exchange to store your bitcoins.

2) And when I will sell the bitcoin, the transaction will be displayed on the Blockchain right? But can this transaction be identified as a transaction made on a Bitcoin Exchange or not? (So that someone can know that I've just sold my bitcoin through an Exchange).

Since it's a bitcoin transaction, it will appear on the blockchain. A third-party can't tell it came from your specific exchange wallet. A third-party can probably only tell it came from your exchange, but can't tell it came specifically from you. Only the exchange knows you sold those coins. Obviously if the exchange database is breached (hint: NSA) then they can tell that you've sold those bitcoins.

3) Last question: It would be a good idea to access to a Bitcoin Exchange through a proxy chain (Or just a proxy server) to gain more anonymity?

Not really. The exchange has your bank information and knows your identity. They don't expose the information to the public as I said earlier, but if someone gains access to their database, they can still tell that you've sold those bitcoins. Therefore accessing the exchange website through a proxy won't gain you much anonymity because they still have your banking details and know who you are.

I understand you're trying to sell bitcoins anonymously, but with the current way exchanges work (they need to prove your identity) this is actually quite hard to achieve. At least full-anonymity. If you're just worried about a third-party seeing that you've made a transaction, it will be quite hard for them to understand your identity unless they have access to the exchange database.

  • Thanks for the answers! :) About the exchange, well, not all the Bitcoin exchanges ask for ID confirmation: some of them offer Accounts without ID confirmation, but of course they have some limits for withdraw and deposit. – Paper May 15 '14 at 16:36
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    2) Transaction won't be in the Blockchain when you sell the bitcoins. It will only be in Trade history of your Exchange. Only Bitcoin deposits / withdrawals are recorded in the Blockchain, because only these are real Bitcoin transactions. Trades are not. – Jozef May 17 '14 at 11:28
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What Luca Matteis said pretty much holds (but see my comment below his answer). If you're looking for anonymity, Bitcoin exchanges are not really the place to go, at least not directly. You can however use a Bitcoin mixing service (e.g. bitmixer.io) before you deposit your coins to the Exchange.

As an alternative, you can use LocalBitcoins to find somebody to exchange the coins with you anonymously.

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http://anonymity.co.in/

Bitcoin is a decentralized peer-to-peer currency, but many people mistakenly believe that Bitcoin is fully anonymous.

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.

If you buy bitcoins using an exchanger, the bitcoins you purchase can be traced back to the exchanger, which may have your real identity information on file, including banking data. All exchanges require the user to scan ID documents, and large transactions must be reported to the proper governmental authority. When you use Bitcoin to pay for goods and services, you will of course need to provide your name and address to the seller for delivery purposes.

A mixing service can be used to mix one's funds with others' or with MIXER's reserve, with the intention of confusing the trail back to the funds' original source. Mixing helps protect privacy, but can also be used for money laundering - mixing illegally obtained funds. After laundering, the funds appear legitimate. Mixing large amounts of money may be illegal, being in violation of anti-structuring laws.

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