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Let's image a scenario where I buy (or trade) BTC on a regular basis and have a large number of coins in my wallet. Of course I'd like to be able to use my coins whenever possible, exchange with friends or strangers locally. So, I move part of my cryptos to another wallet for petty purchases, exchanges, etc.

My concern is, suppose I have a transaction with a malicious person, they can trace back with relatively high certainty to my account. Now I know this is debatable as they couldn't really tell with certainty but maybe they just don't care. All it matters is they know or I may have cryptos. In this scenario I am left at their mercy. They could threaten me, there's cases of kidnapping, etc.

My question is, is there a reasonable way to go around this problem? Bear in mind I'm talking about local exchanges in a relatively small towns, where people know my face and name, not online where I could keep anonymity.

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    I'm not sure your question is relevant here but I have fresh answer from Casa. – Ilya Evdokimov Feb 12 at 17:00
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If you are worried about physical security and using the above setup (using two wallets, one for savings and one for petty cash), one way to protect anonymity is to CoinJoin the coins when you move them from Savings -> Petty Cash.

In theory, CoinJoining makes it impossible to determine where the coins originated from. It

More information on CoinJoin: https://en.bitcoin.it/wiki/CoinJoin

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A reasonable level of general obfuscation can be achieved by cycling amounts through intermediate exchanges, cryptos and wallets.

Send Crypto1 from WalletA to ExchangeA

Convert Crypto1 to Crypto2

Send Crypto2 from ExchangeA to WalletB

Send Crypto2 from WalletB to ExchangeB

Convert Crypto2 to Crypto1

Send Crypto1 from ExchangeB to WalletC

If someone can get exchanges A and B to disclose your transactions, they might be able to connect WalletA and WalletC, this would however require a very determined actor with the law enforcement or hacking power to unravel all that data.

Oh remember to manage your UTXOs as well, dont taint.

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