How to Make Anonymous Payments with Bitcoin: A Step-by-Step Guide

The internet is the perfect place for maintaining several anonymous identities. You can run an anonymous blog, parody Twitter account, or workers’ NGO—all without associating your real, offline identity with your online accounts.

But administering these identities might require you to handle funds. How do you make financial transactions online without compromising your identity?

The answer is Bitcoin. When used correctly, Bitcoin can safeguard your anonymity so nobody can link your offline identity to your online presence.

This guide will show you how to build a safe environment in which you can anonymously communicate, browse the web, and send and receive bitcoins. You will start by following simple instructions to set up a separate operating system equipped with privacy software. You will then set up encryption keys and a Bitcoin wallet to communicate and transact in private.

How to Make Anonymous Payments with Bitcoin

Jump to…

• Set Yourself Up
  • Step 1: Get Tails
  • Step 2: Start Tails
  • Step 3: Enable persistence
  • Step 4: Set up KeePassX
  • Step 5: Get a PGP key
  • Step 6: Set Up Electrum
  • Step 7: Communicate via XMPP and OTR
  • Step 8: Back Everything Up With PGP
  • Step 9: Repeat the Above Steps for Each Identity You Have
• Acquire Bitcoins
  • Buy Bitcoins In Person
  • Get Bitcoin From an ATM
  • Accept Bitcoins as a Payment or Donation
  • Mine Bitcoins
• Obfuscate Transfers Between Identities
  • Helix
  • Joinmarket
  • Darkwallet
  • Sharedcoin
  • Altcoins

Set Yourself Up

Step 1: Get Tails

Tails is a Linux operating system that you run from a DVD or USB stick. You do not need to install it on your computer. It comes with all important software pre-installed and routes all your traffic through the Tor network.

The easiest way to get Tails is to ask somebody who already has it to write a copy onto your USB stick using the Tails Installer program found inside the operating system.

Another option is to download Tails from its official website, verify it, and install it manually using the step-by-step instructions on the site. While the instructions may seem confusing at first, they’re well written and not difficult if you follow them carefully.

Step 2: Start Tails

Find a computer, plug your USB stick into it or put the DVD into the drive, and then start it up. Some computers will automatically detect the drive and start running Tails, but in most cases you will have to enter the BIOS setup. This guide will help you use BIOS. If you run into any trouble, try searching online to find out how to enter BIOS for your particular computer.

Everything you do around a particular identity should be done within Tails, whether you’re browsing, chatting, making Bitcoin transactions, or typing documents. Keep your browsing focused, and do not log into your personal Facebook or the blog associated with another one of your identities at the same time.

Step 3: Enable persistence

Without persistence enabled, you won’t be able to save any data in Tails.

Under Applications > Tails, select Configure persistent volume. To use this option, your USB stick must have been created using the Tails Installer program. If you created your USB stick manually (as described above), you need to copy Tails over using another USB stick. The Tails installer is under Applications > Tails > Tails installer.

You will be asked to create a passphrase. Check out our blog post about Diceware to learn how to create secure passwords. Length is more important than complexity. You will be asked for this passphrase every time you start Tails.

You will also have to select which information you want Tails to remember. The less Tails remembers, the more secure you are, but you’ll have to remember more things yourself and set them up again each time you start Tails.

To seamlessly run all the features you will need in this guide we recommend selecting Personal Data, GnuPG, Pidgin, Network Connections, Browser Bookmarks, Bitcoin client, and Icedove.

Restart Tails with persistence and enter your passphrase. Remember that only the files in the folder named “Persistence” will be saved when you shut down your computer.

Step 4: Set up KeePassX

KeePassX is a password manager that requires you to remember only a few passwords and still have secure, unique passwords. Access KeePassX under Applications > Accessories > KeePassX. Create a new password database by selecting  File > Create New Database.

Use Diceware to set a long but memorable password to access KeePassX. This will be the second of maximally two or three passwords you need to remember. All other passwords can be created and accessed with KeePassX.

Save your database in the “Persistent” folder in your home folder.

To create a new password, click on the button with the yellow key called Add New Entry.

Give it a title and fill in the other information as well if you like. The most important button is labeled Gen. You find it right of the field “Repeat.”

Click the button Gen to the right of the field “Repeat.” This will generate a random password. You can define its length and whether it should contain numbers or special characters. For maximum security, don’t even look at it. There is no need for you to see it. And, in the unlikely event that something or someone is capturing your screen, all they will see are stars instead of the password. Just generate it and copy and paste it over to the site you need it for.

A screenshot of KeePassX. Your password shows up as dots.

Step 5: Get a PGP key

Once you are inside Tails you can create a new PGP key under Applications > Utilities > Passwords and Keys.

Create a PGP key.

Click on the blue “plus” symbol under GnuPG keys and enter a name and email address. You can make this information up, but if you plan to use this key later to send and receive encrypted emails, you should enter an email address that you control.

Enter a name and email address.

Enter a password for your PGP key. You can create a password using Diceware, KeePassX, or another trusted random password generator. You will need this password every time you send an email or decrypt a file.

After a few seconds, your PGP key will appear in the GnuPG keys list. Congratulations! You can now use it to back up your own data or securely send yourself files that only you can access. More on this in Step 8: Back Everything Up With PGP.

This is what your PGP signature might look like.

Step 6: Set Up Electrum

The Bitcoin Wallet is under Applications > Internet > Bitcoin Wallet.

Electrum is a lightweight Bitcoin wallet. That means it does not rely on its own copy of the Blockchain (the immutable record of all Bitcoin transactions that ever took place), but instead relies on several other nodes.

A screenshot of the lightweight Bitcoin wallet Electrum.

To find out your balance, enter your Bitcoin address into a Blockexplorer.

For example, this is the Bitcoin address of the Edward Snowden Defense Fund:

1snowqQP5VmZgU47i5AWwz9fsgHQg94Fa

You can enter it into a Blockexplorer like Blockcypher (many more exist) to see its balance and all transactions associated with it.

The Edward Snowden Defense Fund in Blockcypher.

Create a new wallet by opening Electrum. A “standard wallet” will do fine. You will see 13 English words, which represent your wallet seed. This seed is more than just a password to your wallet. Anybody who has this seed can take your Bitcoins, so be careful about where you store these words.

To store your wallet seed words safely, you can create a new entry in your KeePassX database and paste them into the comment field, or you can write them on a piece of paper and lock it away. Either way, do not save it in a text file anywhere on an unencrypted drive.

Press proceed and enter your wallet seed into the next window, then choose a password, ideally by creating one with KeePassX. You will need this password every time you make a transaction.

Great! You can now receive and make Bitcoin payments. You can find your Bitcoin addresses and their balances under “Addresses.”

You can set up multiple wallets for your identity. You can create a new wallet for a single transaction if you so wish. Having separate wallets makes it easier to keep funds separate for accounting or privacy purposes.

Step 7: Communicate via XMPP and OTR

Pidgin is a chat program. As anonymous email accounts are hard to come by, it might be easier to chat with your contacts using this tool. The only downside is that you cannot receive messages when you’re offline.

Pidgin is under Applications > Internet > Pidgin.

Launch Pidgin. Add an account and choose XMPP as your protocol.

There are many public XMPP servers. Here is a comprehensive guide to anonymous chatting. We chose the server provided by the privacy-friendly search engine DuckDuckGo.

Pick a username, enter dukgo.com as the domain and pick a password, then tick the box Create this new account on the server. Close the window and connect to enable the new chat account in Pidgin. You may be prompted again to enter your username and password. Use KeePassX to create a secure and unique password.

Add a new pidgin chat account is simple as a round of duck duck goose.

Your username@dukgo.com address can now be given out to your contacts. You will need to approve all your contacts individually before you can initiate a conversation with them. You have now set up XMPP Chat (also called Jabber). Note: Even though username@dukgo.com looks like an email address, it is not an email address and cannot be used to receive messages while offline.

To chat securely, you need to use OTR encryption. Click on OTR > Start private conversation.

You can verify the integrity of the conversation by clicking on OTR > Authenticate Buddy.

The easiest way to reliably verify your contacts is to exchange fingerprints outside the chat, which you can see under Manual authentication. To share your fingerprint with other individuals, you can paste it into the signature on a message board, or publish it on your website.

Step 8: Back Everything Up With PGP

The trickiest part of a secure and yet private backup process is to back up the PGP Key. The more effort you undertake to lock your key away, the less accessible the key becomes to you in case you need it.

We recommend the following: Choose a very strong password with Diceware when you create your PGP Key. Load the key onto a USB stick and leave the stick with your family, friends, or a lawyer.

You can also make more than one copy of the backup if you fear your first copy could get damaged or lost.

If your password is long enough (more than 25 characters), it should not be possible for anybody to read your communications or access your backups even in case they get a hold of the key, because the key is still encrypted with your password.

We highly recommend making regular backups of the documents that you cannot afford to lose, as well as your KeePassX password database and Bitcoin wallets.

Select all the files and folders that you want to back up. You can, for example, select the entire “Persistence” folder. Right-click the selection and select Encrypt. A window will ask you which keys you want to encrypt your selection with. Select only your own PGP key. Do not tick the sign option unless you want it to be verifiable that this backup was made by you. If you don’t sign it and somebody finds the backup, they will only know that this backup was made for you, not by you.

If you selected multiple files, you will be asked how you want them packaged. We recommend encrypting them packed together because this leaves the least metadata and creates one single file that will be easy to keep track of, instead of multiple small files. The process might take a while. After they’ve been packaged, you will have two files: one ending in .tar.gz (the unencrypted package) and the other in .tar.gz.gpg (the encrypted backup). The .gpg file is the file you are interested in. Load it onto a CD or USB and store it away.

When it comes time to decrypt the file, just double-click on the .gpg file, enter the password to your PGP key, and let the computer do its work. It is wise to test this process out before you rely on it for restoring your backups.

Step 9: Repeat the Above Steps for Each Identity You Have

Repeat steps 1 to 8 for each of the identities that you have. You should have a separate USB stick with Tails for each pseudonym, company, activity that you control and want to keep separate. Each of these sticks should have its own passwords, PGP keys, and KeePassX databases.

Keep all your identities separate!

Don’t label all of this too obviously, and consider keeping everything in separate locations.

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Acquire Bitcoins

No matter how you acquire Bitcoins, it will likely not be anonymous. This section highlights a few options for acquiring Bitcoins that are relatively private, or at least not overwhelmingly invasive. To increase your privacy, do not carry devices with you that have SIM cards in them, and never log your location with GPS.

Buy Bitcoins In Person

You can buy bitcoins in person at Bitcoin meetups, through the “marketplace” option of the Mycelium wallet (the marketplace exists on the Android version only), or by finding traders on the localbitcoins platform.

The best place to meet traders in person is in a busy but not crowded place that offers free Wi-Fi. Public libraries or cafes are great venues for these appointments.

Both parties should allow enough time to wait for at least one confirmation of the Bitcoin transaction. To make sure your Bitcoin transaction gets confirmed by the network, you don’t need to bring a Bitcoin wallet with you; just knowing your address is enough. Enter the address into the search field on Blockcypher or any other Blockchain explorer and watch as the transaction comes in and confirms.

Get Bitcoin From an ATM

Bitcoin ATMs are common in some countries but rare in others. Check Coin ATM Radar to see if there’s one near you. Make sure to check the “other services” box in the bottom-left corner, or you might be missing out on some places where bitcoins are sold as vouchers.

Each machine differs in how it handles your personal information. Some might not ask for anything other than your Bitcoin address and cash, while others might want your phone number, fingerprint or passport. Just try the machine out with a small amount. Asking the machine’s operator can be tricky, because there’s a risk they might file a suspicious activity report.

If there is video surveillance at the Bitcoin ATM, you might not be able to hide from it. Even still, showing up at a Bitcoin ATM with a ski mask would make you look too suspicious, no matter how much you value your privacy.

Accept Bitcoins as a Payment or Donation

If you’re regularly spending bitcoins, it makes perfect sense to accept them as payment, too, as you will no longer need to worry about how to acquire them. The bitcoins you accept will not be anonymous, either, since there might be a record somewhere that they were paid to you, but they are likely already more difficult to link to you for a passive observer than the bitcoins you buy at an exchange, where records are kept in detail and made available to several parties.

Mine Bitcoins

Mining Bitcoin is not profitable for hobbyists, but if you need a steady flow of Bitcoin and have access to cheap electricity and free cold air, along with excess capital lying around, it can be an interesting alternative for acquiring bitcoins.

To mine Bitcoin, get yourself a Bitcoin mining machine, paid with cash or credit card, plug it in, point it to a mining pool, and watch the earnings come in daily.

Be aware, though: You are making an immense bet on the Bitcoin network, and there are many ways you might lose your investment. Make sure to read a lot about this topic before you start!

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Obfuscate Transfers Between Identities

Every time you move funds between your identities, you will need to obfuscate them. To do that, you can “obfuscate,” “tumble,” or “mix” your bitcoins. There are many ways to do that, many of which are described in our comprehensive guide on protecting your financial privacy with Bitcoin. In this section we recommend services that use the concept of “Coinjoin,” in which the transactions of many users are combined into one transaction to obfuscate which user controls which funds.

Helix

Helix uses a long chain of coinjoin transactions to tumble your bitcoins.

Grams, the makers of Helix, is trying to be the Google of the dark web by indexing dark websites, building reviews, and allowing users to mix and tumble their coins.

Using Helix requires a membership, but you can use Helix Light without a membership. Just navigate to http://grams7enufi7jmdl.onion/helix/light and enter the recipient address (or the address of your identity that you want to send bitcoins to). You can add a random delay (which might be a few hours) and ask for more layers of transactions to make your payment more anonymous.

You can record your Helix status ID or the URL if you want to come back later to check your transaction status. The fee per transaction is 2.5% and a 0.01 Bitcoin minimum transaction amount.

If you are a member, Grams allows you to use the regular Helix service, which supposedly differs from Helix Light by handing you coins that have never been used on a dark market before. Of course, this is difficult to verify, as Grams has no way knowing where the funds come from, either. A membership will cost you  0.01 BTC as an entry fee, although this fee will be applied to your balance.

Joinmarket

Joinmarket is a decentralized network that allows you to use Coinjoin with other users without the need for a centralized party and without requiring you to put trust in the other users. Unlike using a centralized service, when you use Joinmarket, your bitcoins never leave an address that you control, and you don’t run the risk of the service shutting down during your transaction, or the service maliciously stealing your bitcoins.

Installing and using Joinmarket requires a considerable amount of technical knowledge. Despite this, we encourage you to read the guides and try it out, because the lower risks and fees are worth climbing the learning curve!

Darkwallet

Darkwallet was developed by Peter Todd, Amir Taaki, and other distinguished privacy advocates. Unfortunately, it’s still in alpha version and has been for a while, which means it is untested software that likely contains a few bugs. It is not recommended to use it on a day-to-day basis, as unexpected behavior might even lead you to lose your Bitcoin.

Sharedcoin

Sharedcoin is the mixing service integrated into wallet provider Blockchain.info. You can create and reach your wallet at https://blockchainbdgpzk.onion/ via Tor.

Open the page in Tor and create a new wallet. The only thing you need to use Sharedcoin is a password. Create your password with KeePassX, record the wallet identifier and back up your database. If you lose the password, you will lose access to these funds!

You can find the option Shared Coin under Send Money > Shared Coin. Enter the recipient’s address (the address of the identity you want to send money to), select what level of privacy you desire, and make the payment. The process will take a while, but you can see the status bar in the window in which you initiate the transaction.

Altcoins

Altcoins (alternative cryptocurrencies) are the most popular way to anonymize Bitcoin transactions. Users exchange their Bitcoins for the altcoin of their choice, then swap the altcoin back into Bitcoin. If users use the right altcoin, it’s tough to correlate and track user accounts.

How to pick a good Altcoin:

• The altcoin must be popular enough that your transaction won’t stick out.
• The altcoin should provide additional privacy guarantees.
• The first and second exchange should not be the same, or else someone could try to link your two transactions through technologies like browser fingerprinting.

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How to Make Anonymous Payments with Bitcoin