With continually increasing cryptocurrency regulations, it is almost impossible to exchange fiat-to-crypto or crypto-to-crypto anonymously, without revealing your identity. So, is there still a way to anonymously exchange Bitcoin? Even though the options are limited, there are still a few options left.
What is a Bitcoin exchange
Before we look at Bitcoin trading options, let's take a look at Bitcoin exchange in general. A Bitcoin exchange is an online marketplace where traders can buy and sell Bitcoins using fiat currencies or cryptocurrencies.
To use a Bitcoin exchange, a user has to register and authenticate their identity by going through a verification process. Once complete, a Bitcoin exchange opens an account, and the user can deposit their funds into their account. The most common payment methods for both account deposits and withdrawals are bank transfers, credit card payments, and cryptocurrency payments.
Cryptocurrency purchases and sales on a Bitcoin exchange are based on an ordering system equivalent to the one used by stock exchanges. A buyer (taker) places a market order or limit order, which is executed when an identical cryptocurrency is available from the seller (maker). A Bitcoin exchange acts as an intermediary between the buyer and seller and charges a fee for their service.
Centralized and decentralized exchanges
There are two types of a cryptocurrency exchange — centralized and decentralized (peer-to-peer) exchange.
While the centralized exchange has a central authority to facilitate the transactions, the decentralized exchange is operated on a peer-to-peer model.
The advantage of decentralized cryptocurrency exchanges is that they usually require less personal information from the users. The funds are transferred from one user to another directly without transferring them to the exchange, and thus minimizing the risk associated with exchange hacks or other fraud. Additionally, decentralized exchanges are less sensitive to price manipulation.
However, decentralized exchanges must sustain a fundamental level of user engagement in terms of trading volume and liquidity. Additionally, users of a decentralized exchange may have little to no support if they become victims of fraud.
Unfortunately, neither centralized nor decentralized Bitcoin exchanges are anonymous, as they need to comply with today's anti-money laundering rules (AML) and especially the Know Your Customer requirements (KYC).
Therefore, if you want to keep your transaction history hidden from the prying eyes of your Bitcoin exchange, you should always mix or anonymize your coins before sending, and after withdrawing them from the exchange.
So, with the above being said, is the anonymous Bitcoin exchange a myth? Not really. There's still one option left — person-to-person exchange.
Person-to-person exchange is convenient, yet one of the most underused ways to buy Bitcoin anonymously, without revealing the identity. With the growing popularity of Bitcoin, you likely know someone, who holds Bitcoin, or other cryptocurrencies.
If you do, you can ask them to trade Bitcoins directly. Since the seller might save money on taxation, you can try to negotiate a better selling price. If the seller does not want to sell, you might need to offer them a special deal for a higher-than-trading price. Still, the higher cost might be worth the extra anonymity you get.
If you don't know someone who owns Bitcoins, then you might check out sites such as Reddit or BitcoinTalk and find highly trusted users, open for an anonymous Bitcoin exchange.
Person-to-person exchange, executed with highly trusted users of online forums, is one of the best anonymous Bitcoin exchanges in the world.
When buying Bitcoin from another person, however, make sure to give send him the money only after receiving at least one confirmation.
No matter whether you used a decentralized or centralized Bitcoin exchange or a person-to-person marketplace, it's always recommended to shuffle your Bitcoins, using Bitcoin mixer or anonymizer services such as Tumbler. Only then, the transaction history will be erased, giving you privacy and peace of mind.