“Unless you are very careful in the way you use Bitcoin (and you have the technical know-how to use it with other anonymizing technologies like Tor or i2p), you should assume that a persistent, motivated attacker will be able to associate your IP address with your bitcoin transactions.”
How to use bitcoin with optimum privacy
Start with a Bitcoin Core full node connected through Tor. Use a coin-join wallet such as Whirlpool or Wasabi, before sending, and after receiving, bitcoin. Do not link your private Bitcoins to your real identity. Use different wallets, or different passphrases, to prevent UTXOs (unspent transaction outputs) from commingling. (E.g. One wallet for in-person transactions, and another wallet for online transactions.) Use the Lightning Network, because transactions inside the lightning network are Onion Routed (coincidentally the same technology behind Tor!).
Even after taking all of these precautions, assume the bitcoins will be de-anonymized! The Bitcoin Blockchain is an immutable ledger, and your transactions will only become less private over time.
You’re not Completely Anonymous while Sending Bitcoin
An attacker operating a large number of bitcoin nodes may be able to triangulate the IP address of the broadcasting node. Your IP address is usually a static number that is tied to your internet connection. However, if a bitcoin sender uses a client-server wallet (such as a Blockchain.com, Coinbase.com, or Trezor.io wallet) then the transaction is ipso facto shared with a regulated entity, who likely sells that information to blockchain analytic companies such as Chainalysis. Even worse, when a person connects their hardware wallet to a web-interface wallet, the server has a copy of all their transaction history associated with that passphrase. Different websites do blockchain analysis and reveal this information.
What is Tails OS?
Tails is an open source distribution of Linux that has built in features that are supposed to give the user more anonymity on the internet. It routes everything through the Tor automatically. The most recent release of Tails OS even has native Trezor support. Tails is useful in that it routes all incoming and outgoing communication through the Tor, allowing only for anonymous connections. The OS can only be used as a live boot, thus leaving no digital traces.
What is the Tor Network?
The Tor network helps conceal your IP address which also conceals your identity. The network is a project for anonymity via peer routing. The name is an acronym standing for The Onion Router. To achieve anonymity, the Tor network routes your connection through a relay of stations around the world. There are many stations in the relay, and connections can be routed in any number of ways. It is worth noting that although your IP address is concealed you still must not access any personal accounts tied to your identity or communicate information that could reveal your identity if you want to maintain your anonymity.
The Tor network is similar to a VPN in the sense that it allows you to mask your IP address when using the internet. The difference is that instead of being masked by one centralized company’s servers, you are being masked by several different nodes setup by altruistic people who want respect the privacy of others. The network of nodes is so large that connections can be routed via any sequence of random nodes, thus allowing for an additional layer of security.
Many people make use of the network for accessing the Dark Web. The international anonymity of the Tor removes the restrictions that block people from accessing the Dark web with other OSs and IP addresses. Additionally, because of the nature of the Dark Web, anyone who browses it needs complete anonymity and security. This security is offered through Tor’s multilayered encryption.
Onion sites are called “onion” sites because the Tor offers several “layers” of protection. When using the Tor, your information is routed through several different nodes that are setup by volunteers who value your privacy. Your information is encrypted while traveling through each node. This is important because VPNs could stop working at any time and when they stop, the moment you access anything in your browser, your anonymity disappears. Tails OS is one of the best ways of using the Tor if you want anonymity because everything is routed through the Tor automatically. Within 15 seconds of the OS being booted, your network becomes routed through the Tor Network.
Why should a Prudent Bitcoiner use Tails OS?
Tails OS is the optimal OS for every bitcoiner to use for a variety of reasons. The latest Tails OS has native Trezor support. Native support makes it easier to use a trezor wallet, making the combination Tails-trezor security method more practical. If you still use traditional bitcoin wallets, accessing your Bitcoin wallets on Tails OS is safer than on other OSs. Another contrast to other OSs is the fact that each time you boot from Tails OS, you are booting a completely new operating system. This ensures that your bitcoin cannot be compromised by trojan viruses or malware that has the intent to steal your Bitcoin. For file security, tails gives you the option of using “encrypted persistence.” This gives you a separate partition that is encrypted which you can store your files on (Maybe your private key if you don’t have access to a Trezor). Tails will not modify data on your computer, unless it is specifically commanded to do so. Additionally, it only operates in RAM, and erases any tracks of it being used.
IP Address Protection
One of the many appeals of bitcoin is it’s anonymity. Most users are attracted to the cryptocurrency because they value their privacy, however, you are not truly anonymous when making bitcoin exchanges, as your IP address can be traced when making transactions. A VPN should solve this issue, minimally, as your VPN address is published instead of your true address. Unfortunately, a VPN is not the end-all-be-all of internet identity protection. VPNs that keep logs are vulnerable to government subpoena, they can disconnect sporadically, and can be compromised by hackers, such as NordVPN. Plus, VPNs are a centralized means of protecting your identity. As a Bitcoiner, I am weary of any type of centralization and I prefer de-centralized means of interacting on the internet.
The Bitcoin Network is not anonymous. It is pseudonymous. Commonly, users have multiple “addresses.” A bitcoin address looks like a string of characters. For example: “bc1qh7dcyhrewa2wm6xdmght45uzgrg2dz592aluwt.” To see how this works, imagine A buys 0.05 bitcoin from B. A generates a bitcoin address: 327xs5QfCfbkk4foEEjPxrtLNNCw29t9Nh. B sends 5,000,000 satoshis (100,000,000 satoshi is 1 bitcoin) to that address. Later, that very same bitcoin address will send that bitcoin to another address. A, and third-parties, can see which bitcoin addresses preceded and succeeded A’s purchase. When bitcoin is sent from one address to another, the receiving address can send that coin to another address. The most basic way to link transactions can be done by anyone. Take a look at this example of a “Block Explorer,” or an index of the Blockchain: https://blockstream.info/block/0000000000000000000fb493ce59b64bebbe1e482d8d88dacdc15fb2c0f60ece (Bitcoin Blockchain, Block 617911).
Be careful! Searching your own address on a website like Blockchain.info will link that address with your IP Address!
Multiple Bitcoin Addresses are commonly linked in a transaction. Some businesses sell blockchain data. They analyze the blockchain, and sell identifying information to other businesses, or governments. Once your identity is linked to bitcoin addresses, the taint is permanent.
Your IP Address is Revealed When Sending Bitcoin
When transacting Bitcoin, you have to post the transaction (unless you are using an exchange of course). When posting the transaction, you reveal your IP address. As you may know, your IP address is a static (usually) number that can personally identify your general location. With enough cause, someone could not only reveal your identity using your IP address, but they can even perform a denial of service (DoS) attack on you thus disconnecting you from the internet. There are websites that can provide this information to the public. Finding out someone’s ip address from a Bitcoin transaction is possible due to block chain analysis companies like Chainalysis. The typical person isn’t going to contract a company like this to find your IP address, but with enough of an incentive anything is possible.
How does Tails Keep you Anonymous?
The Tails natively routes all internet data through the “Tor network.”
The Tor network encryption has perfect forward secrecy, meaning that compromised data cannot allow a hacker to identify the encryption key, thus allowing the rest of the data to be protected. Essentially, the TOR is very similar to Bitcoin in the sense that you rely on your peers instead of a centralized entity. Plus the Tor network is open source and is validated by main expert software developers as being a safe way of traveling through the world wide web.
Note: Although your IP address is concealed you still must not access any personal accounts tied to your identity or communicate information that could reveal your identity if you want to maintain your anonymity
Why you should access the Tor Network through Tails
Since Tails OS routes all traffic through the TOR, we can mitigate the risk of revealing our identities to a potential harmful person.
When using a VPN, you run the risk of the program crashing or disconnecting for whatever reason.
The instant you click to the next page or you click a “submit” button, you will be accessing that page with your own IP address. This puts you in a potentially unsafe situation where you did not want to communicate your IP address.
The Security Concerns of Tails OS
Tails is not iron-clad, though it is close to it. The only way someone can compromise a user’s anonymity is at the terminal points of the TOR network. That is, the access point and the exit point. Aside from this, security compromises can only arise from user fault such as negligence.
Protect Your Privacy – and Money
Information is money. Companies pour millions of dollars into marketing and research – consumer’s personal information. Some companies risk legal repercussions for the sake of information gathering. Famously, Mark Zuckerberg went to court to defend his methods of data gathering. Other companies will pay individuals to voluntarily surrender their information to them for money. These are the people who claim to make hundreds of dollars per day doing surveys. Truly, they give their valuable data to companies so that those companies can market to them and everyone else more effectively. The data that companies target varies. There are user locations, ages, amazon purchasing history, interest forums, music tastes, etc. This full range of consumer information can be used for precision marketing.
You may have heard anecdotes of people on the internet who think about a product, and later see ads for those types of products. In reality, You make associations through your browser history. Companies see your history and piece together what products will most likely interest you. By browsing the internet without a VPN or any sort of protection, you are giving your information, which is worth money, away to companies that risk legal trouble to harvest it.
Any worthwhile VPN will charge you per month for their services. Using Tails OS removes any need to subscribe to a VPN service, saving you money directly, and also keeps you from giving away your money (via information) to data mining companies.
Like any other Linux distribution, Tails OS can be downloaded for free from a variety of sites with a torrent software, such as uTorrent, and then loaded onto a USB. It is recommended that you boot Tails OS from a USB as a live program, rather than keeping it on your hard drive. By running Tails off of a USB, you maximize the anonymity potential offered by Tails. The OS leaves no trace on a computer unless specifically commanded to do so. Downloading Linux distributions is often an arduous task, and can take hours of your time. The most cost-effective method of obtaining a copy of Tails OS, or any Linux distribution is to buy live boot USB from an online store.
Software protection is not the only security that a mindful bitcoiner needs. Bitcoin wallets, the stores that hold the codes that represent bitcoins, can be stolen and accessed by hackers. The information needed to carry out this type of thievery is gathered from monitoring bitcoin transactions. IP and wallet addresses can be seen and traced if you do not use Tails and a trezor wallet. Trezor is a company that manufactures special computers that house your bitcoin wallets offline. This offline wallet address storage is called cold storage. The term cold storage is used in contrast to normal storage, which is maintaining a wallet live. Keeping your valuable bitcoin wallets online instead of cold storage is lazy and risky. Cold storage is totally protected from any software threats, as it stores wallets offline on a hardware device.
As bitcoin continues to grow in popularity, it is important to protect your hard-earned bitcoin wallets from an ever growing community of bitcoin bandits. By using Tails OS for internet anonymity and a trezor wallet, you will have high level security for little cost and low effort.