You might have heard that Bitcoin and other cryptocurrencies are anonymous and untraceable. This early misconception about Bitcoin, unfortunately, continues to reverberate across the echo chambers of the internet.
In fact, Bitcoin is only pseudonymous and it is a very much traceable asset, due to its underlying blockchain technology. There are many ways Bitcoin transactions can be traced back to a person due to how the cryptocurrency market ecosystem has developed.
That said, converting Bitcoin to cash anonymously is not impossible. It is definitely trickier – and less profitable – than the usual pseudonymous methods. Converting Bitcoin to cash while concealing your digital footprints requires going the extra mile, but if you are committed to protecting your anonymity, you can definitely do it.
We prepared a short guide to explain how pseudonymity works with Bitcoin and to explore some of the methods you can use to sell Bitcoin anonymously.
Are Bitcoin Transactions Anonymous?
All Bitcoin transactions are pseudonymous. This means that every BTC that has ever been mined and every BTC transaction that has taken place can be accounted for on the Bitcoin blockchain.
Bitcoin’s blockchain is the underlying technology behind digital currency. It is an immutable public ledger that records every transaction. It can’t be tampered with, nor can it be hidden, which means that all Bitcoin transactions are available for public viewing, at least as long as Bitcoin exists.
Now, these transactions are not public in every way. No user’s name ever goes on the blockchain – there are only Bitcoin addresses on the ledger that are a bit like bank account numbers. So, while a viewer can trace transactions from one address to another, it is not immediately clear who is behind those addresses.
However, there are several ways a user’s name can be matched with addresses on the Bitcoin blockchain. The most obvious and thus easy way to avoid getting tracked down like this is not sharing a Bitcoin address with people on the internet. Once you share an address, people could track the address on the blockchain and find out about your other addresses and transactions. It is usually considered good practice to change your address with each transaction and not share any of them online.
The other ways your pseudonymity can be broken include using cryptocurrency exchanges that collect ID information in compliance with Know Your Customer (KYC) policy against money laundering or using online wallets that collect personal information along with your IP address. In fact, your internet service provider can easily identify your transactions on the Bitcoin network if you don’t take preventative measures like using a VPN service and/or the Tor Browser.
Can You Sell Bitcoin Anonymously?
Once upon a time, when cryptocurrency exchanges were no man’s or woman’s land but only frontiers of digital asset markets, you could have easily converted Bitcoin and altcoins to fiat currency (like euros or dollars) and vice-versa. But those days are long gone and there is a new sheriff in town going by the name of regulations, Anti Money Laundering (AML) and Know Your Customer (KYC) regulations to be exact.
While these regulations are a good step towards preventing scams and dealing with crypto-related crimes, they also make it impossible to buy and sell Bitcoin anonymously. Most cryptocurrency exchanges, like Coinbase and Binance, have to comply with these regulations and verify your identity in order to continue to offer services. Binance used to offer some leeway and let users trade up to 2 BTC a day without validating their identities but those days have passed, too, as the limit has been set to 0.06 BTC a day, and a 300 USD payout for the duration of the account.
That doesn’t mean you can’t convert Bitcoin to cash anonymously, but it definitely means you should avoid exchanges that require you to confirm your ID.
How to Cash Out Bitcoin Anonymously
All in all, there are many ways your pseudonymity can be compromised when buying and selling Bitcoin and other altcoins. On the bright side, most of these, like your IP address records, can only be accessed by law enforcement during an investigation and you are mostly safe from bad-faith actors. However, if you still want to take steps to make sure you can convert BTC to cash anonymously, we have you covered.
A peer-to-peer exchange is a cryptocurrency market for buying and selling digital assets. These platforms introduce buyers and sellers through ad placements, and transactions can be done using various methods. The best part is that you will not have to give out personal information to sign up with a P2P exchange. The worst part is that P2P deals are more limited and less profitable than what you would find on other cryptocurrency exchanges.
You can use LocalBitcoins and Paxful to exchange Bitcoin for cash. Paxful lets you buy and sell Bitcoin, listing 400 payout options including PayPal (less anonymous) or gift cards (quite anonymous). You can sell BTC in exchange for gift cards from Amazon and other big retail sellers.
Local Bitcoins is another option that will connect you with buyers in your area. They both offer escrow services that guarantee buyers will receive BTC once the transaction is completed, so they are popular choices for those who wish to buy Bitcoin anonymously.
Unfortunately, LocalBitcoins lets you access better deals and higher trading volumes only when you verify your account. Still, it can be a good option for those who wish to convert BTC to cash while staying anonymous.
In-Person BTC Sales
Just like there are people who wish to sell Bitcoin anonymously, there are also people who are looking to buy BTC anonymously. While P2P exchanges can facilitate the initial contact, they are not the only way to meet a fellow cryptocurrency enthusiast. You can try to find a buyer using social media and sell bitcoins in person without paying extra fees or giving out personal information.
The only problem with this method is that it requires a lot of human interaction. You will have to find a buyer, set up a meeting, and take safety measures in case of stranger danger. Not to mention you need to rinse and repeat if you have a lot of bitcoins to sell, as it might be hard to find a single buyer with enough cash to buy all your Bitcoin.
Bitcoin ATM (BATM)
Bitcoin ATMs are a great way of converting BTC to cash, as long as you are not trading large amounts. While most Bitcoin ATMs don’t require identification, you aren’t able to sell more than 100-200 USD worth of Bitcoin within a day. That means you will have to portion out your transactions if you are looking to sell higher amounts of BTC.
While it is a quick and safe option that requires no human interaction, there are some drawbacks to this method. The first is that there are only so many Bitcoin ATMs in the world, so it might be hard to find one especially if you are not in North America. You can check if there is a Bitcoin ATM near you using this map. Bitcoin ATMs also charge higher fees than cryptocurrency exchanges (up to 8%) so you will have to accept that you won’t profit as much with this option.
Private Crypto Wallets
Another way of selling Bitcoin anonymously is using a private wallet that provides more anonymity than regular wallet apps. Incognito Wallet is a popular option that helps you sell Bitcoin anonymously by converting your BTC to another currency off the Bitcoin blockchain. For example, you can convert 1 BTC to 1 pBTC (privacy bitcoin) and then cash it out anonymously without anyone knowing because you will no longer be using the Bitcoin blockchain. The nice thing about pBTC is that it is always equal to BTC, so you don’t have to worry about conversion losses.
Another great feature of Incognito Wallet is that it is not limited to Bitcoin. You can use it for Ethereum, Litecoin, Monero, and many other popular digital currencies. Incognito Wallet is available for iOS and Android.
A Few Words Before You Go…
Converting Bitcoin to cash anonymously requires effort and patience. A good rule of thumb is to follow good security practices regardless of which method you pick to cash out your BTC. These include keeping your Bitcoin addresses off the internet, as well as using a VPN and the Tor Browser whenever you can. Private crypto wallets might be your best bet when it comes to establishing a balance between convenience and anonymity, as Bitcoin ATMs charge high fees, and P2P exchanges have begun to require ID validation. As cryptocurrency regulations ramp up, it will no doubt get harder for Bitcoin users to stay anonymous or even pseudonymous.