Anonymous money transfers and pitfalls of cryptocurrency transactions

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Anonymity is a human right officially recognized by the UN. Despite such a high-profile status, for the layman the word "anonymity" is associated exclusively with crime. Hidden networks, which are an advanced tool of anonymity (we are talking about the "darknet"), in the mass consciousness are also considered the prerogative of illegal actions. Whatever the media say, the need for anonymity at least occasionally appears in the life of any person. If you disagree, think about why tools like TOR and VPN are in great demand, why our compatriot thinks seven times before posting an oppositional reflection on social networks, and in the end why, in some services that do not require binding to a phone number, you do not bind him with pleasure.

Any serious discussion about anonymity rests on the issue of anonymous transfer of funds. Old-school crooks will remember bank transfers to dummies, current lovers of illegal substances will mention bitcoin, and more advanced users will talk about other cryptocurrencies. In our discussion, we will touch on these topics and try to make it wider than the average clickbait article.

Disclaimer. The author of the article does not condone illegal actions and does not call for criminal activity. The material is intended to broaden the horizons of finance and information technology specialists.

How cryptocurrency works​

At the head of any cryptocurrency is a digital signature algorithm, which ensures the reliability of information about transfers within the network with a zero level of trust to other participants. A digital signature is a cryptographic algorithm that assumes that the user has two keys: public and private. The information is signed with a private key, after which the signature can be verified by means of a public key, which is freely distributed to everyone. The key and the signature itself are a small set of bytes. If the signature verification will not be successful, you need to believe that the message is tampered with or damaged, ie not trustworthy.

In the context of cryptocurrency, a digital signature allows each network participant to be confident in the transfers being made in the absence of a central regulatory authority. That is, if subscriber A sends subscriber B a certain amount, ultimately the entire network is sure that user A did it.

Each transfer within the cryptocurrency network is placed in a block that contains not only information about transactions, but also service information that plays an important role in the integrity of the network. Blocks are created by miners - participants who provide other users with their computing power, which ensures the functioning of the network. Smudged blocks form a chain - blockchain. For each calculated block, the miner receives a reward: the amount specified in the program code of the cryptocurrency, as well as commission fees from transfers that fell into his block. Due to the fact that with each block a new coin is born, the total number of coins grows.

Before the transaction is included in the block, the miner checks its truth: it looks at the part of the blockchain, which includes the replenishment of the sender's balance, to make sure that he had the required amount at his disposal. Otherwise, even with a successful combination of circumstances, the block will be thrown away by the rest of the network and the resources spent on mining will be wasted. To be sure of the validity of the received transaction, as a rule, several confirmations are expected, which means that the block that contains information about the transfer of funds has been accepted by other miners and they have included it in their blockchain, to which new blocks are already being added.

Cryptocurrency value​

Despite the fact that the price of one bitcoin on the exchanges has long broken through the mark of 4 million rubles, in fact, its price is not supported by anything. However, the price of other cryptocurrencies is also extremely speculative: the more demand, the higher the price, but everything is extremely volatile. For example, it is obvious that the mood of cryptocurrency brokers is highly dependent on any news, at least somehow related to the topic. Today you may have a thousand rubles worth of cryptocurrencies, and tomorrow, due to the prohibition of cryptocurrency transactions in China, your amount turns into five hundred rubles: there is nothing to be done, the rate has dropped. With the same success, there is not only a fall in the exchange rate, but also an increase.

In fact, all cryptocurrency is a certain amount of information on the hard drives of miners and other network participants who synchronize their local blockchain with the general one. An average transaction weighs one or two kilobytes - for some time after the launch of a cryptocurrency, its entire blockchain will fit even on a home computer. The most expensive thing in cryptocurrency pleasure is paying for electricity and buying powerful computing equipment.

The exchange rate of a reference cryptocurrency, which is regulated exclusively by the community without any intervention from centralized structures, cannot be constant. Due to its volatility, cryptocurrency is poorly suited for storing funds. Unless you are an investor who believes that tomorrow everything will not collapse because of some news and play in the long term, rubbing your sweaty palms with anticipation.

In everyday use, cryptocurrency is a transit authority, which is received in the equivalent of fiat currency (for example, in terms of rubles or dollars), and soon after receiving it is exchanged back for real money.

If you come across a cryptocurrency whose rate is magically always at the same level, know that this is just a second-rate product, falsely calling itself cryptocurrency. In fact, such a coin is the digital embodiment of any asset over which a small group of people have control to ensure its value.

It is the volatility of the cryptocurrency, that is, its unstable price, that makes it virtually unsuitable for putting into circulation as a state currency - you do not want to wake up and find out that today your salary will not even be enough to buy toilet paper.

One can speculate about a single world cryptocurrency that will act as a global means of payment, but let's put aside these wet fantasies: the real economy will not stand on the video cards of mining farms.

Anonymity of cryptocurrency transactions​

The mechanism of digital decentralized means of payment does not imply transfer options by phone number or recipient name, since all the work of cryptocurrency is not on legal agreements, but on cryptography. Owning a cryptocurrency means owning a set of keys that add up to several kilobytes. For uninitiated people, this is just a small file, thanks to which the crypto wallet application opens the desired account and allows transfers.

Bitcoin - the first and most popular cryptocurrency - has no real recipient and sender identifiers, but is considered non-anonymous. Each transaction is visible to all network participants, as it is included in the general blockchain. Any transfer within the bitcoin network is a short description from which account to which account and in what amount the funds were transferred. This specificity makes transactions in the bitcoin network extremely vulnerable to analysis: knowing the account number, you can see both the source of funds received for it and the addresses to which the funds were then sent.

To ensure privacy, it is strongly recommended that you receive each payment to a new address. Unlike a bank card with a fixed number, a bitcoin wallet can generate an almost unlimited number of addresses. However, even such a measure does not provide comprehensive privacy, because when analyzing the blockchain, anyone who wants to see all the wallet addresses from which funds are sent somewhere further. This means that the user will compromise himself if he sends the accumulated funds in one large transaction, because this translation will contain all of its former addresses.

Mixers are in great demand - services that obfuscate the source of funds. The principle of their operation is simple: the mixer receives a large amount from the client, performs a large number of transactions with it, dividing it into smaller and difficult to track pieces, and then displays it back to the client's addresses. If the mixer transfers the entire amount to one address, this will make its work practically useless, since when analyzing the blockchain, it is very easy to compare the dissolution of a large amount of N in small transactions, and then re-materialize it at a new address.

The transparency of the blockchain is a strong damage to the privacy of user payments. This was realized almost immediately after the release of bitcoin to the masses. Therefore, today there are and are multiplying various cryptocurrencies, the architectural basis of which is the privacy of users. The most prominent and actively supported of these is Monero. In short, this cryptocurrency uses a circular signature mechanism that preserves the guarantee of the authenticity of transactions, but provides anonymity thanks to an effect that is comparable to that of a cryptocurrency mixer: analyzing the Monero blockchain, it is almost impossible to match the sender and the recipient.

If you wish, you can find out detailed details of the technical implementation of Monero and other cryptocurrency algorithms from open sources.

This could be stopped if Monero or other anonymous means of payment were accepted in brick-and-mortar stores, but this is not the case. We come to a critical topic that many people do not pay enough attention to: exchanging cryptocurrencies for real money. It is at this stage that the most vulnerable point of the privacy of any cryptocurrency user is located.

Converting cryptocurrency to fiat​

In the late 2010s - early 2020s, the whole world (including the Russian government) was puzzled by the control over the turnover of the cryptocurrency. It was no longer possible to ignore such a tool: everyone recognized the value of virtual assets, and then a series of laws began to limit the cryptocurrency turnover, because cryptocurrency is actively used by criminals. Since then, all major cryptocurrency exchanges have necessarily confirmed the identity of users who manipulate cryptocurrency.

A bread place is never empty, therefore, immediately after the audience outflow from the official exchanges, numerous online exchangers became active. As a rule, such resources work without official registration in any state and do not require client verification for the sake of legislation.

There is an obvious high risk of fraud, since in order to receive funds, you must be the first to make a payment using the details of the exchanger. To solve this problem, you can use aggregators, for example, BestChange. The mechanics of their work lies in the fact that when you select the desired pair of currencies, you will receive a list of suitable exchangers. Positions with the best rate go to the top of the list. To minimize the chance of fraud, statistics are provided for each exchanger in the form of the total number of reviews, indicating their negative part. This motivates exchange services to work in good faith and allows users to find a relatively reliable online exchanger in one to two minutes.

Such exchangers are a convenient tool, but it should be taken into account that, working in a "gray" way, the exchanger will certainly send rubles to your account with not the brightest past. Judging by the latest news, the state is doing a lot to make the dreams of Mrs. Yarovaya and her friends come true. For example, in November 2020, the Ministry of Finance proposed imprisonment for not declaring cryptocurrencies (RBC agency wrote about this), and in September 2021, the Central Bank introduced transactions with cryptocurrency exchangers in recommendations for blocking cards and accounts, the Bits Media portal reported.

Many thousands of cryptocurrency transactions are performed per day, and illegal exchangers, in order to avoid losing funds, regularly change their payment details and do not keep large amounts in one place. Because of this, the current attempts of regulators to somehow fence off citizens from undeclared wealth are unlikely to be crowned with resounding success. The cryptocurrency market - both exchange players and instant exchangers - is a very active and rapidly developing place.

It is necessary to take into account the fact of the necessary trust in cryptocurrency exchangers: no one can guarantee their good faith in relation to clients. If we assume that some of the popular exchange services are controlled by all sorts of cybercriminals, and maintains detailed logs, that is, it records the numbers of cryptocurrency accounts, amounts, dates, addresses of final bank accounts and other information provided by users, then ultimately, every frequenter of digital assets will accumulate good portfolio. As a rule, during an exchange operation, an e-mail address is indicated, and some services also require a phone number (!). Together with the immutable end details for which the user receives funds, this will be an excellent statement for a personal file!

From this reasoning it follows that in order to maintain anonymity when using cryptocurrencies on a regular basis, firstly, you need to look closely at exchangers that do not show excessive interest in the personal data of customers (do not require a phone number), and secondly, do not constantly use one exchanger thirdly, change your details as often as possible, information about which is issued to exchange services.

How to start using cryptocurrency​

A person unfamiliar with the topic of cryptocurrencies is lost in the thought "where to start?" First, everyone comes to accounts on exchanges and exchangers, which allow you to store, receive and send cryptocurrency from an internal wallet. If you are one of the active users of such a service, I hasten to sober you up: a wallet on some site is not your wallet at all! History remembers many cases when cryptocurrency resources disappeared overnight, dissolving the entire capital of gullible users in obscurity. The owner of a cryptocurrency wallet is the one who owns a set of cryptographic keys - the password for the profile on the site clearly does not fit this definition of ownership.

To embark on the path of the Jedi, you need to delve into the topic of wallets. Popular solutions for common coins tend to meet this enthusiasm.

For example, the official Monero wallet can work without downloading the entire blockchain to the user's computer, while maintaining the necessary secrecy of the user's keys and providing a nice interface. Naturally, there can be no question of any binding to e-mail and, moreover, to a phone number.

The official bitcoin wallet cannot boast of such convenience, but an alternative open source client with a decade of history can. Electrum provides complete wallet management, quick access to the Bitcoin network through public nodes and an intuitive interface - in general, the best solution to get started with Bitcoin.

The crypto wallet application requires a password to be set, but this password is just the encryption key for the local master key file. After creating a wallet, first of all, understand the issue of its backup. This is an intuitive operation with a couple of buttons, the neglect of which can play a cruel joke: you may irrevocably lose access to your wallet.

An alternative is a seed phrase ("mnemonic phrase", a sentence of a couple of dozen words), which in human readable form contains the main cryptographic key and is a means of fully restoring access to the wallet. Its danger lies in the fact that if it falls into the hands of an intruder, it will provide full access to your account without the need to enter a password. Only the file on the local disk is password protected! This may seem strange to you, but let's accept reality as it is. Of course, it is important to save the mnemonic phrase, but this must be done with the utmost scrupulousness: firstly, it is recommended to use paper media, and not digital, which can be stolen from thousands of kilometers away from you, and secondly , it should not be an easily accessible notebook, but something

Of course, first of all, you need to proceed from your needs and abilities. Negligence in a professional approach is worse than amateurishness.