Can Crypto Investors Buy & Sell Anonymously?
Buying and selling cryptocurrencies without revealing your identity. Can it be done? Yes. Is it difficult for the average person to pull off? Yes, increasingly so.
In this explainer, we tell you what you need to know about the anonymous buying and selling of cryptocurrencies. If you want to know why it’s so hard to buy and sell cryptocurrency anonymously, keep reading.
Why Is Exchanging Cryptocurrency Anonymously So Hard?
The answer basically comes down to the following pair of acronyms: anti-money laundering (AML) and know your customer (KYC).
AML is a set of laws, regulations, and procedures designed to prevent and combat financial crimes such as money laundering. KYC is a process of identifying and verifying the identities of customers.
In most developed nations, AML and KYC regulations mandate crypto exchange operators and wallet service providers verify user identity.
Want to buy cryptocurrency from a legitimate exchange? Before you can, that exchange must collect your personal data. That includes things like your name, address, email address, date of birth, and identity verification information (e.g. driver license number). If the exchange doesn’t do this, it’ll likely become non-compliant with the AML and KYC regulations of its jurisdiction.
Throughout the 2010s, governments from all over the world started regulating crypto exchange operators and wallet service providers. As the decade progressed, more and more of these crypto businesses started implementing KYC policies.
This trend is by far the biggest reason why it’s now very hard to buy and sell cryptocurrency anonymously. Yes, there are many ways to buy and sell cryptocurrency without getting your identity officially verified. But this isn’t the same as buying and selling cryptocurrency anonymously.
That’s because you’ll still need to provide these businesses with at least some personal data (e.g., email address, phone number). At the end of the day, providing just one snippet of personal information has the effect of de-anonymising you. Examples here include exchanges that have a tiered system of account verification, crypto debit card issuers, and crypto ATM operators.
Tip: One of the most common misconceptions about Bitcoin is that anyone who uses it is anonymous. This is incorrect. Bitcoin is pseudonymous. Linking Bitcoin addresses to identities is easier than many think.
Read: Identifying Where to Buy Cryptocurrencies
Where To Buy & Sell Cryptocurrency Anonymously
Aside from face-to-face meet-ups, the last remaining avenue for buying and selling cryptocurrency anonymously are peer-to-peer marketplaces. These are websites that let you trade cryptocurrency using a variety of payment methods.
Typically, you do this by posting an ad to buy or sell a given cryptocurrency. Once matched with an approved buyer or seller, you go ahead and execute the exchange.
Note that peer-to-peer marketplaces are under threat of losing their status as a place for anonymous cryptocurrency buying and selling. In 2019, the most popular peer-to-peer marketplace, LocalBitcoins, announced it would be enforcing KYC requirements. Some other examples of peer-to-peer marketplaces are LocalCryptos, Bisq, and Paxful.
Tips For Preserving Your Pseudonymity
As you can see, the number of ways to buy and sell cryptocurrency anonymously is extremely limited. However, there are steps you can take to preserve your pseudonymity. By that we mean you can keep it difficult to link your identity to your blockchain address(es).
- Using a new address per transaction. This is the most straightforward way to preserve the pseudonymity provided by blockchain technology. In fact, this is an in-built feature of several crypto hardware wallets, such as the Ledger Nano S.
- Using multiple crypto wallets. Many reputable crypto wallet providers exist. By using a number of them, you can increase your anonymity when transacting with crypto.
- Using decentralised mixing services. If you value your privacy and are looking to exchange cryptocurrency, run it through a mixing service before it reaches the payee.