How To: Buy Bitcoin Anonymously — A Guide to Investing in Cryptocurrency While Maintaining Privacy

Buy Bitcoin Anonymously — A Guide to Investing in Cryptocurrency While Maintaining Privacy

Just like cash, bitcoin is used for everything from regular day-to-day business to criminal activities. However, unlike physical cash, the blockchain is permanent and immutable, which means anyone from a teen to the US government can follow every single transaction you make without you even knowing about it. However, there are ways to add layers of anonymity to your bitcoin transactions.

Anonymity may seem frivolous to some of you, but bitcoin anonymity is valuable for many reasons, some legitimate and others not so much.

On a personal level, you may not want your friends and family to realize just how much you're investing in cryptocurrency. On a business level, you need asset protection. Bitcoin is particularly valuable and volatile making it a prime target for hackers and scammers and good ol' lawsuits. But, if no one realizes that you have all this bitcoin, then they won't come after it.

Another value of anonymity is the ability to keep your name out of sensitive transactions. Whether that be because you're a businessman handling a delicate merger, some sort of freedom fighter, or a cybercriminal.

The handful of criminals using bitcoin is the reason you have to verify your identity to buy any in the first place. Counterterrorism and anti-money laundering laws, commonly referred to as "know your customer" (KYC), require businesses to attempt to verify the identity of a client and assess their potential risk of illegal activities. This makes it more difficult but not impossible to buy bitcoin anonymously.

Weigh Your Risk & Needs

To begin with, you need to weigh just how much risk you're at and what your needs are. No matter how many precautions you take and layers of anonymity you add, if you paint a big enough target on your back, someone's going to hit you eventually. If you don't believe me, just watch this TED talk by federal prosecutor Kathryn Haun on how she helped bring down two other federal investigators and the administrator of The Silk Road.

They are even startups popping up with the sole intention of tracking down cryptocurrency transactions. So anyone hoping to use bitcoin 100% truly anonymous is out of luck. That being said, anonymity can be viewed as more of a sliding scale. The amount of anonymity you need to be a darknet market admin is vastly different from the amount of anonymity you need to buy an Antminer.

On top of that, anonymity comes at a price. On the conservative side, buying bitcoin anonymously can quickly add an extra 5–10% cost. Possibly, even more, depending on how many layers of obfuscation you add. So set your ego aside and ask yourself, "How do I intend to use this cryptocurrency, and what risk does that put me at?" Then, combine as many of the options we're about to discuss as your risk dictates and budget allows.

To begin, I'm going to assume that you're already using Tor over a VPN. If you're not, then you really should be. Additionally, always use a new wallet address for every transaction and never carry your primary phone with you when doing any of the steps below. That will help hide any patterns in your buying, but it isn't foolproof.

Option 1: Buy Bitcoin with a Prepaid Card

Let's start with the most natural method: using a prepaid debit or credit card and an exchange which allows you to buy without verifying your identity.

This strategy is dead simple. Walk into your local convenience store and purchase a prepaid credit card. Then, get online and register your card. The card companies don't verify the information, so you can input anything. Next, go to an exchange like Coinmama or Virwox and buy some bitcoin without verifying your account.

There are severe limitations to this plan, though. You can only do $150 at a time, due to those know-your-customer laws we discussed before. You can buy a prepaid card up to $500 plus $5 to buy it. However, most exchanges cap you at $150 plus fees without verifying your identity.

Additionally, you have to keep in mind that you're putting yourself on a surveillance camera when you buy the card. The best way around this is just to wait 1–3 months before you use the card as most stores will have deleted the footage by then.

Lastly, you're potentially creating a pattern with your purchases in the stores or on exchanges. This means that the prepaid card option isn't really practical if you're a full-blown cybercriminal with the FBI after you. But, it's good enough if you just want a little extra layer of anonymity without too much cost.

Option 2: Use a Bitcoin ATM

Next up is the bitcoin ATM. It's very similar to the prepaid card method with similar limitations, but usually, with a higher per transaction cap. This means you can do as much as ~$1, 000 per transaction compared to the $150 of the prepaid card method.

Bitcoin ATMs work very similarly to a regular ATM. You go up, put in some money, and it's deposited into an online account. With roughly 2,000 bitcoin ATMs in the US, they aren't nearly as universal as ordinary ATMs. You'll need to consult a map like CoinATMradar or download an app on your iPhone or Android phone to find one near you. Many of the ATMs tend to be concentrated in big cities like Los Angeles, so if you don't live in a big city, then you might have a long drive ahead of you.

Bitcoin ATMs vary by manufacturer and from operator to operator. Some may not accept cash for payment, instead, forcing you to use a credit or debit card, yet others will take cash. CoinATMradar will show some of this information on the ATM listing but you might have to do some scouting of your own. If it requires cash, withdraw the cash from an ATM as far away as posable so you don't create a pattern. Same thing if you have to buy a prepaid card as discussed in the previous step.

The most significant limitation to your anonymity when using a bitcoin ATM is the fact that virtually all of them have a camera and, unlike the cameras in a convenience store, you can't assume that the pictures or video will be deleted after 1–3 months. So if you're a drug lord, this isn't the way to go unless you trust a goon to do the work for you.

I recommend you watch this short piece by Vice on bitcoin ATMs. It shows an example transaction and gives some good insight from both operators and manufacturers of bitcoin ATMs:

Option 3: Local Peer-to-Peer Trading

Prepaid cards and bitcoin ATMs work fine if the most prominent threat you're dealing with is some nosy neighbors and some meddling kids, but if you're serious about cryptocurrency and anonymity, then the best place to start is buying bitcoin from another person in cash. This is referred to as peer-to-peer trading.

How serious do you need to be about this? Well, this is the method that criminals commonly use, and the minimum purchases are higher than the maximum investments of the previous two methods, meaning you need to be talking about thousands of dollars in bitcoin. Also, this is the most expensive as your peers will often charge several hundred dollars over spot for the service.

The oldest and most popular platform for peer-to-peer trading is LocalBitcoins although there are other options such as Paxful and the Bisq Network.

These websites offer a number of options for buying bitcoin from your peers such as exchanging various types of gift cards and initiating wire transfers or cashier's checks. But, the tried-and-true method has always been and will always remain to be taking a briefcase full of cash and meeting someone. Here, you can see a few example listings on LocalBitcoins of people willing to meet and exchange cash for bitcoin in the Los Angeles area (for reference, at the time, the bitcoin price was $7,495.81):

The benefit of buying your bitcoin in this way is that you minimize your online footprint and the amount of personal information the seller has on you. Furthermore, you have much more control of the setting, including location and surveillance cameras. This allows you to wait out the surveillance camera footage and meet at much more random places to prevent patterns from forming.

There are some precautions you need to take when performing this type of transaction. Never forget you're handling thousands or potentially hundreds of thousands of dollars in cash, so the opportunity is ripe for theft, armed robbery, and scamming. You should always meet in a busy but not crowded public place with good Wi-Fi, such as a university, library, or coffee shop. If the seller won't meet you in public, find another safe place.

Next, be wary of anything that's too good to be true. Expect to pay more than what you would spend on an exchange like Coinbase. If they're selling the bitcoin to you underpriced, be immediately suspicious.

You will need to communicate with the seller somehow, so it's recommended that you use a burner phone specifically for the purpose. The best thing would be to leave all of your electronics at home and use a burner phone specifically for this transaction and then never again. If you want to continue working with the same seller, you can always get their number from the listing on LocalBitcoins or get a business card from them when you make the transaction, then contact them from a new burner phone in the future. Avoid giving them any information about yourself.

Option 4: Trade for Altcoins

The best way to use bitcoin securely is not to use bitcoin at all. Bitcoin is the granddaddy of all the coins, but since it's invention, other cryptocurrencies have come along that have a much heavier focus on anonymity and security. So if privacy and anonymity are important to you, then you should be using one of the privacy coins like Dash or Monero.

Unfortunately, these altcoins aren't as familiar as bitcoin, so to get either of them, you need to use bitcoin as a kind of gateway coin. There are some Monero ATMs that exist. However, they're far from common, so the best way is to buy bitcoin as anonymously as possible using one of the three previously mentioned methods, preferably a peer-to-peer cash transaction, then exchange those bitcoins for a privacy coin such as Monero using a service like Changelly.

There are two main limitations to using this method. First, you're going to have more exchange fees as you shift from bitcoin to Monero. Second, these altcoins aren't widely accepted, so there are only a handful of places that will let you buy things with them. Often, these will be places like darknet markets, VPN services, and encrypted emails.

You can, however, use these privacy coins as a way to cloak your bitcoin. You can purchase bitcoin any way you want, then shift into a privacy coin and exchange into a few different wallets, and then move it back into bitcoin, effectively hiding the original purchaser of the bitcoin. This brings us to the bonus step: tumbling.

Bonus: Bitcoin Tumbling

Tumbling is not a way to anonymously buy bitcoin. However, it is something you should always do to anonymize your bitcoin. Tumbling services attempt to anonymize your bitcoin by throwing them into a big pot of other coins and then randomly grabbing out some of the coins to give back to you. This is most effective when you do it multiple times through different providers. Most of the companies that provide these services are on .onion websites, meaning you'll need to be running Tor to find them. One on the clearnet is Privcoin.

What Does It All Mean?

In simple terms, if you're trying to hide from the FBI, the NSA, or the like, your best bet is to buy bitcoin in cash from someone you find on LocalBitcoins, then tumble those bitcoins two or three times. After that, shift them into a privacy coin like Monero, then back out into bitcoin where you can anonymously use them. Even by doing all that, there's no 100% guarantee that the government can't throw enough money and zero-days at the problem to discover you if they want to.

On the other hand, if you just want to add some privacy to your life, use a bitcoin ATM if one is available in your area, simple as that.

If you have any questions, you can ask here or on Twitter @The_Hoid.

Cover photo by Sharon Hahn Darlin/Flickr; Screenshots by Hoid/Null Byte

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