In this article, we will discuss what Onion routing is, how it helps Bitcoin, and how you can implement it.
Even if you’ve never heard of Onion routing before today, this article is for you. As long as you’re someone who uses Bitcoin or Cryptocurrency in general, you’ll benefit from this piece.
And no, no special skills or technical expertise is required. Tor handles Bitcoin perfectly well on its own. You simply need to learn how to implement it.
Table of Contents
What is Onion routing?
Onion Routing is just routing your internet traffic (activities) via the Onion network. The onion network is just a part of the internet that routes your connection via several “nodes”.
This makes your entry and exit points very distant and disconnected. So, the node that connects to you when you initiate your activities knows you (your IP address), but doesn’t know your end goal. The end goal (wallet/withdrawal or anything else) doesn’t know who you are.
In short, there’s no way your end-goal/wallet/partner or anyone else knows where your transaction originated from.
In simpler words, each node only knows its immediate predecessor and subsequent node, not the other involved nodes. Each circuit most definitely consists of at least 3 nodes.
Also, these nodes are volunteer-run. This means it’s decentralised and Tor can’t just one day randomly decide to unmask you.
Limitations of Bitcoin in terms of privacy (why you need Tor)
Bitcoin is very often considered an anonymous Cryptocurrency. Well, it’s not. That’s the opposite of why Bitcoin was invented. It’s the most transparent form of payment on the planet as of now. Every payment that you make, is recorded on the Blockchain which is a public ledger.
Anyone can check everywhere the money has passed through without any special skills.
The benefit Bitcoin offers is that it can’t very easily be linked to “individuals” or the “people” who make the payments.
It’s like you can see the money move but you don’t know who’s making the payments, or to whom.
The problem is, that this privacy can be ripped apart with a bit of analysis, given the other party is motivated enough.
This is why you need to use Tor with Bitcoin.
How does Tor help?
Let’s first understand how your identity may be unmasked without Tor.
So, let’s say you somehow managed to get Bitcoins without submitting any documents or personally identifiable information.
Even with all your precautions, your IP address can still be linked to your purchase. The IP address can then be used to identify your location, all web activities, and everything else.
This means, that even if I don’t know who made transaction X, I know which IP address did. The IP is like your phone number on the internet and reveals everything about you.
That’s exactly the problem Tor solves.
When you use Tor to make your transactions, considering there are no other identity leaks (documentation/ personal names, etc.) it becomes very hard, if not impossible to link a transaction to you.
You still need to be careful
Just implementing Tor isn’t enough. You need to be careful when initially getting your coins. If you use any source that has your identity (such as a KYC-compliant exchange) your coins are already linked to you.
The point is, to use an exchange that doesn’t require your identity to let you purchase Bitcoins. It’s best if you use cash/gift cards or others while acquiring your first coins.
Tor can only hide your “IP address”. It can’t protect you if you leak your identity through documentation or some other means.
Other ways to add privacy and security to your Bitcoins
Tor sure adds privacy but it’s just one solution out of many. There are other ways you can keep your coins more secure and private.
- Exchange vs. wallets: Try not to use exchanges as they generally require more KYC formalities. Exchanges also often do not let you keep the keys to your coins. This is a major security risk. Try to move your coins to a wallet where you hold your keys. Wallets also are more anonymous than exchanges.
- Use tumblers/mixers: When making transactions, it’s wise to spend a bit extra and use a reputed mixer/tumbler. This adds your coins to a coin pool and sends a different set of coins to your destination. This makes sure that the coins you sent can’t be linked to your destination payment anyway.
Conclusion- Enhancing Privacy with Onion Routing: Bitcoin in the Tor Network
I hope you’ve got some idea of what Onion routing is, how it helps Tor, and how to implement it. You can always use tools like ImmidiatePeak that help you make more informed decisions as far as Cryptocurrency is concerned.
In simpler words, using Tor hides your IP address and when combined with other privacy-enhancing tactics, this can make you and your transactions nearly invisible.
Everything in this article is meant to be used for research and educational purposes. No illegal use is endorsed or supported. Please do your research before investing in, or using Cryptocurrencies in any way.
