Anonymize Bitcoin Using Monero

Bitcoin is not completely anonymous as many early adopters believed. All bitcoin transactions are recorded forever in the bitcoin blockchain for anyone to analyse. If you bought bitcoin from an exchange those bitcoin will almost certainly be linked to your identity due to KYC/AML laws. Read on to learn best how to anonymize bitcoin.

Users on reddit have reported that Coinbase is closing accounts when bitcoin bought from them was used at a gambling website. While most consider internet gambling a harmless diversion it is against the Coinbase terms of service.

Not only gambling, but you cannot use bitcoin bought from Coinbase to buy cigarettes or use at an online pharmacy. In locales where medical cannabis is legal some dispensaries will accept bitcoin. A sure way to get your Coinbase account closed would be to buy legal cannabis with bitcoin you purchased at Coinbase.

Coinbase is very good at what they do! It is clear that Coinbase is aware of the bitcoin wallet addresses of services on their prohibited list. They are taking action against customers who violate their rules. Coinbase might use software from Chainalysis or Blockseer. More likely they have their own proprietary software for blockchain analysis.

So How Do I Use Bitcoin Anonymously?

I do not recommend you use the methods discussed here to evade Coinbase terms of service. You can always buy bitcoin in person using LocalBitcoins. I do however believe that people have a right to know how to use bitcoin anonymously.

In order to do so you will have to learn how to break the transaction trail in the bitcoin blockchain so that any bitcoin you use can not easily be traced back to a bitcoin address linked with your identity.

Bitcoin mixing services like bitmixer.io have become popular and are one way to anonymize your bitcoin. While I have not heard of bitmixer.io stealing bitcoin from anyone you do have to trust they will return bitcoin to you.

If you spend any time on Tor you have probably seen ads for the Grams Helix service. Again, this service seems to be legitimate with no customer complaints on social media.

Using exchanges to trade your bitcoin for an altcoin and back has also been recommended as a way to anonymize bitcoin. I would like to outline another method that is simpler and does not require you to open accounts at several bitcoin exchanges.

Monero To The Rescue

Monero is a popular altcoin based on the cryptonote protocol that is recognized as the most anonymous cryptocoin. The method I am outlining involves selling your bitcoin for Monero, then selling Monero to receive bitcoin back that has no connection at all to the original bitcoin. Here are the steps:

1) Create a new local bitcoin wallet on your laptop using a good wallet like Electrum. It is important to remember that you should only ever deposit bitcoin to this wallet that has gone through the anonymizing procedure.

2) You will have to set up a Monero wallet on your laptop. LightWallet2 is a good choice and other options here.

3) Download the Tor browser from the Tor Project. You will use Tor in the following steps.

4) Next open Tor browser and navigate to shapeshift.io. You will have to click the NoScript icon at the top left of the browser, go to NoScript options and add both shapeshift.io and xmr.to to your whitelist so those sites can execute scripts. Otherwise they will not work while you are on Tor.

5) While at shapeshift.io follow the instructions to swap Bitcoin for Monero. You will have to have your local Lightwallet2 open in order to copy and paste the Monero deposit address into shapeshift. Shapeshift will prompt you with instructions to send bitcoin to their receiving address and will return Monero to your Lightwallet2 receiving address. The process only takes a few minutes. However you cannot send your newly received Monero out from Lightwallet2 for about 18 confirmations (10 to 20 minutes.)

6) Once your Monero has been confirmed you are ready to swap back to bitcoin. You are going to use a different service for this step to guarantee the bitcoin you get back has no connection with bitcoin you started with.

7) Now open xmr.to in Tor browser. You will also have to open your local bitcoin wallet to get a receiving address. If you want to stay completely on Tor you can use the Electrum bitcoin wallet connected over Tor. Just follow the instructions at xmr.to and send Monero from your Lightwallet2 to their receiving address. Paste in the bitcoin address you want your anonymous bitcoin sent to and follow instructions. Again the process only takes a few minutes.

If you want to avoid price fluctuations in Monero you can perform the entire process in less than an hour. You will receive back bitcoin that are impossible to link to the bitcoin you started with. In fact you can use the taint analysis tool at blockchain.info to verify there is no relationship (taint) between the starting and ending bitcoin.

Remember never to send bitcoin that has not gone through this process to the Electrum wallet where you store your anonymous bitcoin. If you send bitcoin that can be linked (to you) to your anonymous wallet those bitcoin will taint the bitcoin through the use of change addresses. Keep a separate bitcoin wallet that you only use for anonymous bitcoin you took the effort to obtain.

Occasionally Monero is missing as an option at shapeshift you can use Changelly instead. It is worth comparing exchange rates because you can sometimes get more Monero for your Bitcoin at Changelly. Another new option is CoinVert.

Expect to pay about 5% in fees total to anonymize bitcoin this way. The cost is a bit higher than a bitcoin mixing service but the results are more anonymous. If you follow the Monero price charts you can buy low and then convert to bitcoin after a price increase. By careful timing you could even make extra bitcoin.

Conclusions

This method of anonymizing bitcoin has even been recommended by Bitcoin Core developer Peter Todd. For more information on how Monero protects your privacy you can visit Monerinfo.

The role of Monero in anonymizing your bitcoin will become more important as companies like Elliptic and BitCluster use advanced blockchain analysis that will be able to pierce the veil of obscurity offered by traditional bitcoin mixers. You can find more information on the BitCluster project by viewing this YouTube video and browsing the Mathieu Lavoie repository on Github.

Important Update 20 September

Monero will hardfork from v2 blocks to v3 blocks on September 21, 2016. As long as you are running the 0.9.4 client you will not be affected … but LightWallet2 will be. Simplewallet is being replaced by monero-wallet-cli and bitmonero by monerod. LightWallet2 will not work with the new 0.10.0 Monero client unless updated. Note: LightWallet2 v0.3 has now been released to work with the new Monero client. Just place the new LW2 v0.3 .exe in your Monero working directory and use as outlined in the original LightWallet2 installation instructions.

The promised official GUI has not been released yet so if you want the privacy improvements offered by the new 0.10.0 Monero client you will be limited to using the command line or the new LightWallet2 v0.3 EDIT 10/1/16: LightWallet2 v0.3 is broken will update when working again.

Using the command line should not be a burden, you can browse this article for an introduction. Remember in the new 0.10.0 Monero client Simplewallet is now monero-wallet-cli application and you click on monerod to start Monero. When you generate your Monero wallet you will need to enable copy and paste in the Windows command prompt to copy and save your wallet address, view key and wallet seed words. Another good resource to help you understand Monero is moneroinfo.org highly recommended.

  • Stefanos Ioannou

    Or you just use Monero as your primary currency.

    • aubreykohn

      I would love to do so, but most vendors require BTC escrow, sadly. When will they wake up and smell the fascism?

  • Roeland Creve

    As long as the number of Monero transactions stays relatively low, there is a risk of timing analysis that can connect your shapeshift transaction to your xmr.to transaction. It would be better to just keep a portion of XMR in a wallet and just refill it from time to time.

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  • Hi! Thank you for your article 🙂 I am from Changelly, by the way.
    Just notice, that all the exchanges on Chagnelly are also anonymised.
    We don’t require email confirmation. Unlike other handy exchanges, we don’t limit Monero amount to exchange. And performs the best rates on the market at the moment.

    • henq

      If you want to make your service known, test the URL’s your posting ! 🙂

  • disqus_p05h4KCIG2

    Some good service already doing good exchange without hassles.
    https://bit.ac/?ref=57c0090d53d8f
    Ray

  • Dan Anderson

    CoinVert is a scam. They have no tech. They just use ShapeShift. The help you with small trades to gain your trust and then they steal your larger trades. Happened to me and several others. DON’T USE!

  • Dan