Digital Cash - A Beginner's Guide to Anonymous Digital Currency
Bitcoin and Anonymous Digital Cash
Since the early days of Bitcoin when it became popular as the payment option of choice on the 'darknet' and amongst the merchants of marketplaces such as Silk Road, where buyers could browse through listings for a wide range of illegal drugs and firearms, digital currency - and Bitcoin in particular - has earned a reputation amongst the general public as a way to pay for things anonymously over the internet.
In many ways Bitcoin came to be viewed as if it were a kind of digital cash. Of course cash payments have always been the preferred payment method of choice amongst criminals because of its anonymity, but for the same reason it is also valued by regular members of the public who value their privacy and find the constant monitoring and recording of everything we do on the internet by both governments and corporations to be creepy and unpleasant. There are also other similarities between Bitcoin and cash, as with a wallet installed on your own computer you control your own coins and spend them without needing to have an account with a third party like a bank who can then impose charges on you for using your own money or risk your hard earned money on risky 'casino banking' trades.
But in actual fact Bitcoin is not as anonymous as its reputation suggests. You can create a Bitcoin wallet on your computer as anonymously as you can download any other piece of software from the internet (i.e. superficially anonymous, but fairly easily tracked and associated with your identity by either governments, hackers, or tech firms involved in things like advertising or selling data). But once you have your wallet, every transaction that you make with it - both money received and money spent - is a matter of public record. In this way Bitcoin is not really the shadowy anonymous money it is made out to be, but rather it is characterized by a kind of radical transparency. Bitcoin transactions can be viewed by anyone with access to the internet - you just need to go to a blockchain explorer website; this is not something which you can do for transactions from a bank account, let along cash transactions.
If you want to use Bitcoin anonymously then you must take some extra measures to protect your privacy, or alternatively you can use one of the new breed of anonymous digital currency projects which offer improved privacy.
Using Bitcoin for Anonymous Payments
If you are serious about protecting your privacy when using Bitcoin then you need to start thinking about it right from the start when you create your new wallet. Using a darknet service such as TOR, and even a proxy service too, can help to make sure that the wallet you are using cannot be associated with your identity in any way.
Once you have your wallet set up and you want to send a payment to someone without taking the risk that it could be tracked and recorded by someone, you need to start using a 'coin mixing' service. Basically these services work by mixing your payment up with those of other customers of the service, so that your actual coins get bounced around between different addresses and merged with coins from other transactions before being sent on to their eventual destination. For small and medium sized payments this can be very effective, although it does not work so well for larger payments because it is hard for the mixing service to get enough coins from other transactions to effectively mix up your payment.
If you want to buy Bitcoins anonymously for fiat then services such as eNumbered will provide you with everything you need. In fact, that particular website even offers an anonymous ATM card to withdraw cash from almost any ATM worldwide with complete anonymity!
Anoncoin was the first digital currency to focus its development completely on providing the maximum possible privacy to its users. This alternative to Bitcoin aims to be the first to provide complete anonymity by integrating its own software as closely as possible into 'darknet' services such as TOR and I2P.
If you use Anoncoin, with its built in coin mixer and the upcoming implementation of 'zerocoin' technology, to make payments over the darknet its creators claim that "even if the blockchain is studied in detail there will be no way to tell which coins belong to what wallet, nor any kind of ID".
Darkcoin markets itself as digital cash, and users can choose whether to make payments publicly or anonymously from their wallet.
Currently Darkcoin is the most popular of all the privacy centric digital currencies. In addition to mining, you can earn darkcoins by running a 'masternode' for the network.
Darkcoin claims to be the 'first anonymous digital currency'. This claim has always made me distrustful of this coin, as I haven't been able to find out what facts they back up their claim with. They weren't the first coin to focus on anonymous payments, as that was anoncoin, and they weren't the first coin to integrate a built in coin mixer into the wallet, as that was FedoraCoin TiPS.
Their 'dark send' feature is, however, undoubtedly one of the best products on the market.
Fedoracoin TiPS is not specifically built with privacy or anonymity as the main function. It is actually a tipping currency, designed for sending 'micropayments', or small tips, to people over the internet.
It is well worth mentioning, however, as they were the first coin to integrate a coin mixer directly into their wallet and still to this day offer a solid privacy service to anyone who wishes to use it.
Cloak Coin (and others built on same protocol)
Cloakcoin has introduced a more decentralized way to provide anonymous transactions, which does not require 'masternodes' but instead uses every node - every wallet - on the system. This could potentially make cloakcoin less suscpetible to privacy breaches by determined agencies such as governments.