One of the biggest attributes that make a blockchain ledger like no other is the transparency and honesty of it. Anyone with access to that particular ledger is able to see when a transaction took place, what address it traveled from and to, and many other details. However, in an age where privacy is of the utmost importance, consumers may want to find a way to hide their own actions on the blockchain.

Most people would first try transferring the transaction through multiple addresses to lose the trail, but that will not work. Consumers may enjoy the ability to have their name or pseudonym attached to their transactions, but keeping privacy is important. With forensics tools around that can easily be applied to any exchange, no one wants to be at risk for having “tainted” coins. Even if someone does not participate in illegal activities, the coins can be tracked back to a wallet that contains them, which means the entire wallet would end up frozen.

The whole point of Bitcoin is to have flexibility and interchangeability, but the problem is that there is so much corruption in the industry that it is impossible to get a freshly mined bitcoin with absolutely no history. In Jameson Lopp’s research, he said, “There are several surveillance companies now that track funds and apply ‘taint analysis’ to them to tell services how likely it is that funds are from an ‘illegitimate’ source. Of course, these are generally probabilistic educated guesses and can result in innocent users getting caught up in an algorithm’s dragnet. These tools have clearly resulted in many Bitcoin users being deplatformed from various services because they were deemed to be risky customers.”

Considering how hard it is to purchase Bitcoin without any attachment to it, Lopp believes that the only way to conceal identity is by somehow hiding the origins of the funds. One of the ideas reported by Bitcoin.com is the concept of a tumbler, which combines the information of multiple senders to create a single address. That address is then used for the distribution before it is split and sent to another recipient. Both Bestmixer and Bitblender offer these services, concealing the source of a transaction. However, using a service like this could come up as a red flag for exchanges like Coinbase, which would believe that the user is hiding the origins as a result of criminal activity.

Encryption is entirely legal, so the issue would not so much be about being allowed to conceal a transaction. Rather, the act of concealing high amounts or an excessive number of transactions could make the cold wallet worth investigating, in the eyes of the platform itself or even the NSA.

Bitcoin lists another option for consumers that are concerned about their anonymity, saying,

“One of the simplest but most effective ways is by using a service such as Electrum to create a new bitcoin wallet. Send your coins to this address, then connect to the web using the Tor browser, create a new wallet and then send the coins on to this new address. For added privacy, you can repeat this step, sending coins between multiple wallets, while changing the transaction amount and delay between sending each time.”

However, they are clear that the process is more for select transactions, rather than for each one.

On the website, Bitcoin.com further states that consumers should choose an exchange without compliance with KYC protocols. However, many countries are establishing laws that require certain kinds of crypto assets to be subjected to KYC anyway. That considered, the ability to find exchanges that are running legally without KYC may prove to be difficult as regulatory measures are established more clearly. Right now, non-custodial coin exchanges sometimes don’t require this protocol, though Bitcoin.com also recommends gambling sites as an alternative or as a solution or mixing the coins.

Even though it seems that much of this advice and research is from Lopp, anyone that may have “tainted” coins, as he suggests, should be able to use the other activity in their wallet to show that they have not pursued the illegal activity. The private key of the user does not often have a specific name that is publicly available, so the risk of being targeted by someone with their name is highly unlikely.

While the concept of hackers discovering and hacking an account on an exchange could happen, this has nothing to do with privacy at all. Still, considering that many people like to keep their actions private online, some of these tips found through Lopp might be helpful.

Source: Bitcoin Exchange Guide