How untraceable is Bitcoin?

Are Bitcoins truly untraceable?

For example:

I want to buy Bitcoins with a Credit Card (e.g. through VirWoX) then I transfer them to a bitcoins address. After that I send them to some service like Bitstamp, which allows me to International Bank Transfer them in real currency to an account.

Can the Credit Card company trace the transactions and follow the trail? Are there precautions I can take to make the transactions untraceable? (e.g. more levels of BTC-address to BTC-address transfers in between)

Thank You,

janniks

Posted 2013-06-11T08:08:29.423

Reputation: 183

Answers

Well, all transaction between Bitcoin addresses are stored forever, and so are fully traceable. What this means in your case is indeed that the credit card company can trace the coins you bought from them.

However, there are a few things to note.

Bitcoin addresses don't have a name assigned. F.e. Bitstamp will not know that the Bitcoins are coming from the credit card company because the credit card company does not have a list with all the addresses they use. An exception would be when you used a green address. This also holds in the opposite way that the credit card company does not know you funded Bitstamp with the coins since they don't know that the address you sent the coins to is owned by Bitstamp.
Bitcoins can move around very fast. When your coins end up somewhere the credit card company can link some person to, it is very likely that they are not spend by you anymore. With as few as 2 hops, the coins could have gone through an exchange and ended up by a totally different person.
The Bitcoin change system gives you better privacy as well. When you only spend a part of the Bitcoins in an address, by default, the change - which is the part that is not spent - is send to a new address. So, when you are spending some coins at different places, the coins you still have yourself also made several hops, so it is hard to tell if they are still in your possession.

Then, when you really want to make sure people cannot trace transactions back to you, you could use Bitcoin laundry systems. These are services that take your coins, shuffle them around among many different addresses they own, and let you receive the coins - minus the commission they take - back at another address for you. When you use a sophisticated Bitcoin laundry service, it is practically impossible to trace your coins. But beware, when dealing with very large amounts of bitcoins, this will be harder to achieve. Consider laundring your coins in smaller chunks.

Steven Roose

Posted 2013-06-11T08:08:29.423

Reputation: 10 855

I dont like the advertisement of third party services to technical novices!

To answer the question. Bitcoin is perfectly transparent. Privacy relies on the steps you take to protect your identity.

Things you can do to make a tracing harder:

Use a VPN or multiple VPN.

Use Proxy or multiple Proxy.

Use Tor (Multiple Tor instances can lead to loops, better avoid that).

Take care to not use the same virtual identity twice or more.

Circulate coins between wallets. (I strongly dis-advice to use third party services for this purpose (like coinlaundry, change systems), you could get in touch with coins that are involved in stuff you dont like or don’t want to be associated in any way.)

Encrypted communication

Use a anonymous access point (hardly applicable in most places) . 8. Never mention your real name or send any document with your name on it.

Additionally to mention is you own PC security. Get fami8liar with truecrypt or similar container/drive encryption.

To circulate coins you could either setup your own PC/network to have multiple wallets (maybe in virtual environments) where each virtual environment uses an own proxy chain / VPN chain, then you can circulate coins pretty effectively.

You could also/additionally get a VPS (maybe even as SSH / VNC proxy (also maybe through bitcoin) or online wallet anonymously, to increase circulation effective.

When using TOR solely, your connection is exactly as safe as the EXIT NODE.

Anyway, always keep in mind, as long as the blockchain exists your transaction history with all available details will be online.

EDIT:

If you intend to use a proxy to hide your identity be aware that your web identity ie IP is known to the proxy - all traffic is plain text if the content visited is not encrypted. Be also aware that proxies are an unencrypted relay which makes man in the middle attacks by the proxy admin or if compromised by the proxy intruder possible. Maligno Alonso outlined man in the middle attacks via proxy and VPN @ DEFCON 20: Owning Bad Guys {And Mafia} With Javascript Botnets .

Since this is an important topic this page is a community wiki as of now.

Aurigae

Posted 2013-06-11T08:08:29.423

Reputation: 633

1Third party services are crucial. Circulating coins between your own wallets does not increase anonymity. A blockchain analysis would show a group of wallets only interacting with each other that are clearly controlled by the same person. Tumblers do more than create extra links in the blockchain. They mix coins in the sense that what goes in and what comes out have no links in the blockchain. Mixing requires other participants, the more the better. Good tumblers also obscure the amount tumbled and the tumbling time. Hiding your IP doesn't hurt but that won't hide what's in the blockchain. – Praxeolitic – 2016-08-15T21:32:51.450

Tor is largely useless for this purpose: it was initially created by the US Navy, and was compromised from its conception. – Matthew Najmon – 2017-03-22T18:04:20.797