Part 1 An Introduction
The subject of Bitcoins can be very confusing, and probably the only way to fully understand it is to get your hands dirty, buy some Bitcoins, and then buy some stuff anonymously with them. Fortunately for our good readers, you don’t have to do this as we’ll do it for you! In this series of articles you can follow us, step by step, as we buy Bitcoins, and then spend them anonymously on a VPN service.
Why pay for VPN using Bitcoins?
For many, the main reason for using VPN is to stay anonymous when online. Any decent provider keeps no usage logs (and a very few promise to keep no logs at all), and many also use shared IP addresses, which should make identifying individual user accounts with an individual’s online behavior extremely difficult, as it is almost impossible to tell which of the many individuals using an IP address is responsible for any particular actions.
These measures go a long way towards ensuring that a user cannot be identified by his or her actions when online, but another important link in the chain which can go back to individual is how a VPN service is paid for. Most VPN providers keep payment records (even when they don’t keep usage logs), and most payments can ultimately be traced through the payment providers’ by a determined investigator even if no logs are kept. The only payments that cannot be reliably traced in this way are ones made using ‘virtual currency’, the most popular and widely accepted of which is Bitcoin.
So what are Bitcoins exactly then?
We have all heard of this virtual currency, but getting our heads around what it is can be something of a challenge.
Bitcoin (BTC or XBT) is a decentralized and open source virtual currency that operates using peer-to peer technology (much as BitTorrent and Skype do). Like traditional money, Bitcoins can be traded for goods or services (such as VPN) and exchanged with other currencies, but unlike traditional currencies there is no ‘middle man’ (such a state controlled bank).
Bitcoins are instead generated using a free computer program, and are created at a predictable rate based on the amount of processing power dedicated to their generation. This process is known as Bitcoin mining, and in theory anyone can do it, but in practice it requires such a large amount of processing power that it is impractical for most individuals, although it is possible to join a Bitcoin mining pool (or similar organization) to help spread the costs (and rewards). Bitcoin mining is not the focus of this article, but if you are interested then there is an excellent article on the subject here.
A Bitcoin is not a physical thing; it is a cryptographic algorithm consisting of a public key and private key. Some vendors do sell physically notes and coins denominated in Bitcoins, but what they are really selling is a private key (usually protected by a seal which must broken) together with a public key which can be used to verify the balance.
There are two side to the Bitcoin… er … coin. The first is that Bitcoin wallets can be held without anything to link them back to you. This is all well and good, but the flipside is that all Bitcoin transactions are trackable…
Bitcoins are generally stored in a software program known as a Bitcoin wallet, which is identified by a Bitcoin address. These wallets are readily available, free, and as many can be created as desired. An important thing to remember is that all transactions associated with a particular wallet or address are visible to everyone who cares to look, and if the address can be traced back to you, then so can all transactions made using that address. So for example, if you use Bitcoins to pay for a VPN service, and then use Bitcoins from the same wallet to order goods for delivery to your door, connecting the VPN payment to you personally is trivially easy.
If you wish to remain anonymous when paying for something then, you should:
- Use a wallet registered to an anonymous and disposable email address
- Use a different wallet for each transaction to avoid multiple transactions being traced back to you
Bitcoins are not, in and of themselves, anonymous. Quite the opposite in fact, as every transaction is logged on a Bitcoin’s blockchain (a publically available database that holds information on all transactions). This means that on one level, there is a very high level of transparency when paying for things using Bitcoins.
‘Privacy is not enforced by the Bitcoin protocol design,’ says Sergio Lerner, CEO of Argentinian company Certimix, “If you re-use the same address over and over to receive money from other users, then every one of them will detect that the others have sent you money.”
In theory this shouldn’t really matter if your Bitcoin address cannot be personally identified with you. However such an assumption is not safe, as sophisticated data mining and metadata analysis techniques can be surprisingly effective at uncovering the identities of individuals. Also, if a recent owner of a Bitcoin can be identified, then an investigator is much closer to uncovering your identity.
In order to address this problem you can use a Bitcoin mixer service (also known as a tumbler service or Bitcoin washing). The details of how these work can vary, but they basically help break the link between Bitcoin addresses by either creating a temporary address that gets deleted once the transaction is done, or by randomly swapping coins with other users (often multiple times), making the chain very hard to follow.
An important factor in mixer services is that the more people who use them, the greater the level anonymity they afford.
The aim of this series of articles is to show in a clear, step by step way, how to buy Bitcoins anonymously, and then use them to anonymously pay for a VPN service. There are at almost every stage of the process an almost bewildering number of options available, all offering a slightly different balance between convenience, level of anonymity, and level of risk involved.
We have therefore taken as our guiding principle the concept of ‘maximum reward for minimum effort’, seeking to gain a high level of anonymity without the need for real cloak-and-dagger shenanigans (after all, we are law abiding citizens who simply wish to exercise our right to privacy).
A final point is that we do not actually endorse any of the services mentioned in these articles. We have endeavored to use and discuss popular services that have a good reputation, but we cannot guarantee any of them will not simply disappear one night, taking all their customers untraceable money with them. This is we hope unlikely, but the possibility always exists.
Check out the rest of this Guide:
Part 3: Buying Bitcoins
Part 4: Mixing your Bitcoins
Part 5: Paying for VPN with Bitcoins