Bitcoin is neither transparent nor perfectly anonymous. Privacy in both the old and the new models of finance force us to rethink how identity works online and how we can control that information. With Bitcoin, we can choose to become fully transparent by issuing cryptographic proofs of our funds, our identities, and our transactions. Or we may choose to hide our funds behind multiple pseudonyms that say little to nothing about who we are and what we do.
Creating pseudonyms is easy in Bitcoin, but making and accepting payments or donations can be very difficult if we want to prevent others from knowing too much about the pseudonyms we use. There are many ways which our pseudonyms could be compromised. Bitcoins can be traced on the Blockchain, your name might be linked to a Bitcoin address, or you IP might be linked to a transaction. You can even be traced by inquiring blockchain.info or any other block explorer about your own balance, or even by keeping backups of your wallet file.
To protect yourself from being de-anonymized a holistic approach to encryption techniques is required. You will need to hide your identities with VPN services and, most importantly, Tor. Communicate through messaging standards such as OTR and PGP and double-encrypt your backups so that even your public keys are not revealed when a third party accesses to your wallet files.
The most difficult aspect of maintaining anonymity when using Bitcoin happens when you acquire them or exchange them into the currency of your choice, as the established banking system requires ID. Buying Bitcoins in person or at ATMs helps, but it is not always possible to do so. Accepting Bitcoin is ideal, but it may de-anonymize your identity.
An alternative is to buy or accept Bitcoins under a different identity, and obfuscate the transfer between the two wallets. This can be costly and difficult, but many options exist that can accomplish this goal. However, these services differ greatly in convenience and some require you to place a great deal of trust in them. This is a summary of ExpressVPN’s comprehensive guide to Bitcoin. For a more detailed guide checkout this article.