The paradox of bitcoin is that it is both public and anonymous. All transactions in the network are easily traceable, but public keys are not linked to their owners' data. The point at which bitcoin might switch from privacy to identification is when a user cashes out, using a wallet or an exchange. There are, however, several ways to protect the anonymity in a blockchain.
A cryptocurrency mixer is a tool for improving the anonymity of cryptocurrencies. The algorithm is rather simple—a user sends their cryptocurrency to a mixer's address which is registered for each user individually. The coins are then mixed with transactions of other people or distributed among hundreds of thousands of wallets that belong to a mixer. Once the process is completed, "clean" bitcoins are transferred to the pre-set storage—either back to the sender or the new owner.
The distribution of funds among numerous wallets makes it impossible to establish a link between a sender and a receiver. A user can also break the transaction input into denominations in order to hide the real amount.
The mixers' owners charge a 0.5–3% transaction fee for their services. It is vital to remember, however, that if you send the coins to another person's wallet, you might never get them back.
Using a mixer is not so different from using an exchange platform. You need to enter the address to which you would like to send the mixed bitcoins, set the service fee (it heavily influences the transaction speed), and press "Continue." Next, you will be redirected to the page with the mixer's address to which you need to send your bitcoins in the first place.
That address is valid for 24 hours. After the time is up, the transaction will no longer be able to get processed. This condition is stated in a letter of guarantee that company provides to its clients.
So, we send bitcoin and wait for the transaction to go through. The team of the service promises instant transactions. As soon as the transaction is confirmed by the service, its speed will depend only on the load on the bitcoin network.
Cryptocurrencies Monero, Zcash, and Dash
Originally, there were two anonymous cryptocurrencies—Monero and Zcash. John McAfee and Edward Snowden said that those are the cryptocurrencies of the future. The coins allow users to hide all traces in a blockchain and exclude the possibility of transactions being observed. Zcash has achieved this by using a cryptographic tool called zk-SNARK (zero-knowledge proofs), and Monero has implemented the ring signatures technology (the message signed with it is endorsed by someone in a particular group of people, but it's computationally infeasible to determine which of the group members' keys was used to produce the signature). Zcash and Monero ensure the anonymity of information on transactions, wallet balances, and movement of coins.
Cryptocurrency Dash is also secure when it comes to untraceable transactions. The PrivateSend technology enables users to mix and break the transaction inputs down into standard denominations. The wallet then sends requests to "masternodes" which are responsible for mixing.
In 2014, Cody Wilson, a crypto enthusiast who has also created a 3D-printed gun, along with Amir Taaki, introduced the Dark Wallet project—a browser plugin and an Ubuntu client.
Dark Wallet is built atop CoinJoin, which implies that all transactions are mixed and it's impossible to find out who was the first to own a cryptocurrency. The more users of the wallet, the better the anonymity.
Wallets in an Anonymous Network
On the Darknetmarkets website, one can find a guide to preserving privacy when sending payments through the Tor network. For that, a user needs several wallets in both anonymous and open networks, the Tor browser, and mixing services supporting Tor.
One of the successful examples of the implementation of anonymous cryptocurrency transfers is Z-Pay, an actively developing anonymous payment system with great potential. The key feature of this payment system is the issuance and transfer of anonymized bills (checks) as payment for goods or services.
A Z-Pay check is an anonymous monetary obligation denominated in cryptocurrency or fiat. A check number is a random combination of 35 digits. By giving the number of such a check to a recipient as payment, you do not disclose your personal data, and the payment itself takes place instantly. The recipient can withdraw the funds in any currency they deem convenient.
With Z-Pay, you can make payments, pay for any kinds of services, and exchange cryptocurrency and fiat funds without verification.
The creators of the Z-Pay.io payment system have also developed a Telegram-bot that fully replicates the functions of the service’s website. Android and iOS applications have also been released for the convenience of users.