Source: Nym Technologies SA

Bitcoin was initially thought by many to be anonymous digital cash due to the fact that all transactions are conducted as peer-to-peer transfers between wallet addresses which serve as pseudonyms. However, the public nature of Bitcoins ledger of transactions (the blockchain) means anyone can observe the flow of coins. This means that pseudonymous addresses do not provide any meaningful level of anonymity, since anyone can harvest the counterparty addresses of any given transaction and reconstruct the chain of transactions.

This lack of privacy in Bitcoin has led to an important stream of work to make Bitcoins blockchain ledger itself private: ranging from centralized tumblers that mix coins in order to obscure their origin for a small service fee and extra delay; to sidechains with Confidential Transactions (as deployed by Blockstreams Liquid) that hide the amount of a transaction on-chain using homomorphic encryption; to non-custodial mixing softwares like CoinJoin, in which a large group of users cooperates to combine multiple Bitcoin payments into a single transaction, to obfuscate the information of which spender paid to whom.

One simple solution is to get rid of self-surveillance of transactions by getting rid of the blockchain as much as possible. So another solution are the Layer 2 protocols, like the Lightning Network, a payment channel network where users can make, arbitrarily, many off-chain payments between themselves without the need to broadcast these individual transactions to blocks included in the Bitcoin blockchain.

However, the Achilles heel of Bitcoin privacy is actually its peer-to-peer broadcast. In detail, Bitcoin is built on top of a peer-to-peer broadcast at the level of TCP/IP packets, where both new transactions and blocks are announced to the rest of the Bitcoin network, making Bitcoin resilient against censorship. Yet, being resilient against censorship does not make one resistant against surveillance. Your IP (Internet Protocol) address leaks your approximate geolocation with every packet.

When a Bitcoin transaction is broadcast by a full node, an attacker can link transactions to the IP addresses of the originating user, as well as the timing and size of the transactions of the user. Anyone can do this by simply running a full supernode that connects to all of the thousands of Bitcoin nodes as well and simply observing the network traffic. Randomized delays in the P2P traffic as implemented by Bitcoin help a bit, but ultimately are capable of being defeated.

Similarly, an IP footprint is left at crypto exchanges and bitcoin payment providers. In fact, this kind of traffic analysis can even be applied to the Lightning Network. Not only can government agencies like the NSA commit these kinds of attacks, but even a local Internet Service Provider (ISP) can do traffic analysis on your connection to the internet from your home.

Without the network-level privacy of the peer-to-peer broadcast, any privacy solution for Bitcoin is like building a castle on top of sand, using fancy cryptography on the blockchain itself including through so-called privacy coins like Zcash, and even Monero when the fundamental peer-to-peer broadcast of Bitcoin is exposed for the whole world to see.

What can be done to provide privacy for your peer-to-peer broadcast on Bitcoin?

One solution to obfuscate the IP address is to use a VPN (Virtual Private Network, but better thought of as an encrypted internet proxy). In a nutshell, VPN software builds an encrypted tunnel between a client device and a server run by a VPN provider, which acts as a proxy that forwards the network communications. Thus, your local IP address doesnt get linked to your wallet address or your identity on a KYC-supporting crypto exchange.

Yet, weve pointed out that VPNs are not actually anonymous. Although VPNs can hide your IP address, they suffer from inherent weaknesses due to their centralized trust model. A VPN provider acts as a trusted proxy and hence can easily link all of your activities at the network layer. The VPN itself also doesnt need to monitor you, as anyone watching a VPN carefully can also link your transactions. Such network eavesdroppers can observe the network traffic flowing to and from the VPN proxy and simply track the routed network traffic based on the size and timing of the data packets, and thus easily infer your IP address even when the VPN is hiding your IP address from the website or Bitcoin full node you are accessing.

Most people dont run a full Bitcoin node. Many people use exchanges, and even hardcore Bitcoin users who tend to use self-custodial wallets run light clients, where a full node acts like a trusted proxy like a VPN. However, dont be fooled into thinking this full node provides privacy. The full node, and anyone watching the full node, can correlate your Bitcoin broadcasts and your transactions with your light wallet and thus your IP address and transactions to you!

In contrast to centralized VPNs, Tor builds a decentralized network of nodes so that no single node knows both the sender and receiver of any network packet. Tor forwards traffic via a long-lived multi-hop circuit as follows: Each connected user opens a long-lived circuit, comprising three successive, randomly-selected relays: entry guard, middle relay and exit relay, and negotiates symmetric keys which are then used to encrypt each of the communication packets. While the message travels along the circuit, each relay strips off its layer of encryption, giving Tor its name as The Onion Router. If a Bitcoin transaction was sent over Tor, it appears to have the IP address of the last Tor exit relay.

Although much better than any VPN, Tor was designed to defeat local adversaries that observe only small parts of the network. Since packets still come out of Tor in the same order they came in, a more powerful adversary that can watch the entire network can use machine-learning to successfully correlate the pattern of internet traffic so the sender and receiver of a transaction can be discovered. This kind of attack can easily be applied to Bitcoin transactions over Tor, and recently, there has been evidence that large amounts of exit nodes have been compromised by a single entity. In fact, early Bitcoin developers preferred a pure peer-to-peer broadcast over using Tor for precisely this reason. Circuits in Tor also last ten minutes, so if more than one Bitcoin transaction is sent via Tor in this period, these transactions will all have the same IP address of the last Tor exit relay. New circuits can be built with every transaction, but this behavior stands out from Tors default and so is easily identified using machine learning.

Techniques like Dandelion that are used by Bitcoin resemble Tor, with each new packet being sent a multiple number of hops before being broadcast, where the hops are a stem and the broadcast are the flower, and so resembling a dandelion. Although it is much better to use Dandelion than to not use it, a powerful adversary can simply observe the building of the randomized Dandelion circuit and use that to de-anonymize the sender and receiver.

Unlike Tor and VPNs, a mixnet mixes packets. This means that, rather than packets coming out of a node in the mixnet in the same order the packets came in, packets are delayed and then mixed with other packets, so the packets leave the mixnet in a different order.

As pioneered by David Chaum in his pre-Tor paper that invented mixnets in 1981, one way to think about them is that at each hop in the mix network, the mix node shuffles the packets like a deck of cards. Like Tor, a form of onion encryption is used and the packets are all made the same size using the Sphinx packet format. This is the same Sphinx packet that is used in the Lightning Network, but was originally built for mixnets.

Nym is a kind of mixnet where the packets are delayed using a statistical process that both allows an estimate of the average delay of a packet but provides maximum anonymity as it is unknown when any given packet is finished mixing. Packets are sent from a program like a Bitcoin wallet through a gateway, then three mix nodes, and finally out of a gateway. Unlike Tor and VPNs, the packets are each sent routed through the network individually. With Nym, dummy packets are added to increase the anonymity of packets.

Compared to Tor and VPNs, mixnets are well-suited for Bitcoin. Bitcoin packets naturally fit within Sphinx packets, as weve seen with the Lightning Network, and it makes more sense to route Bitcoin packets individually rather than through a circuit needed for a webpage.

Like VPNs and Tor, mixnets hide the IP address of the packet, but unlike Tor and VPN, each packet can be given a new route and exit IP address. Due to packets being sent out of order and fake packets being added, it is likely harder for machine learning to identify the sender and receiver of a packet. Bitcoin connections from wallets to full nodes would benefit from using a mixnet, as the broadcast would be much more thoroughly defended against attackers than just using Dandelion.

Although the re-ordering of packets naturally tends to make mixnets like Nym slower than Tor, the delay can still achieve reasonable anonymity as long as enough people are using the mixnet! within seconds to minutes. One way to view mixnets is as a slower, but more anonymous version of the Lightning Network.

Lastly, mixnets are not only for Bitcoin. Just as Tor is suitable for web browsing using synchronous circuits, mixnets are suitable for any kind of traffic that naturally fits into asynchronous messages such as instant messaging. One killer use-case of mixnets before Bitcoin was email remailers that forwarded email anonymously.

Early cypherpunks like Adam Back tried to bring mixnets to market to allow anonymous email in the Freedom Network. Back invented proof of work via Hashcash in part to prevent anonymous email spam, where even a small amount of work like solving a hash puzzle would prevent a malicious spammer from flooding people with anonymous email.

Cypherpunks ended up using mixnets like Mixmaster, co-created by Len Sassman, and Mixminion, co-created by George Danezis and the founders of Tor (before they started working on Tor), in order to hide their identities online. So, it should come as no surprise that concepts like proof of work that originated with attempts to create anonymous email with mixnets ended up in Bitcoin. It would not be surprising at all if Satoshi Nakamoto used a mixnet to hide their own identity on email discussion lists when releasing Bitcoin.

Right now, Tor and Dandelion are the best solutions we have for network-level privacy for Bitcoin, yet the return of mixnets will be necessary in order to allow Bitcoin to achieve true privacy and security against powerful even nation-state level adversaries.

Len Sassaman, cypherpunk co-creator of Mixmaster mixnet, immortalized in the blockchain. Source.

This is a guest post by Harry Halpin And Ania Piotrowska. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Achieving Network Privacy In Bitcoin: VPNs And Tor Help, But Mixnets Are Needed - Bitcoin Magazine

So, youve made your millions, and now you want to know how to cash out Bitcoin? Well, this guide will tell you everything you need to know!

This guide will include methods of how to turn Bitcoin into cash such as bank transfer, PayPal and even through cash deposit! I will show you how to withdraw Bitcoins to cash using a broker (namely, Coinbase) and through a peer-to-peer exchange. And to make it easier for you, I will also include some helpful images.

By the end of this guide, you will be able to decide which method is best for you.

Cool fact: Did you know that more than $2 billion worth of Bitcoin transactions happen every day?!

There are many things to consider when cashing out Bitcoin. Here are a few:

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These are some of the questions that you will need to ask yourself. So, read through the following methods on how to cash out bitcoin and then decide which is best for you.

A third-party broker is just another name for an exchange. Most cryptocurrency exchanges do not allow you to deposit funds using fiat money - however, some do.

This is how it works: you deposit your Bitcoin into the exchange, then, once the exchange has received your Bitcoin, you can request a fiat currency withdrawal. The most common way to do this via a bank (wire) transfer.

To make sure brokers do not break money laundering laws, you will need to withdraw to the same bank account that you deposited with. If you have never deposited fiat on to a broker exchange, then you will more than likely need to make (at least) one deposit first.

This can be annoying, I know but thats the way it goes.

If you decide to cash out your Bitcoin using a broker exchange (such as Coinbase), then it will normally take about 1-5 days for the money to reach your account. For EU customers, payments are made via SEPA (withdrawals paid in Euros). However, if you want to sell Bitcoin for USD, brokers normally use the SWIFT payment method.

And thats how to cash out Bitcoin using a broker exchange skip the next section to follow instructions on how to do this.

However, if youd prefer the more anonymous & less time-consuming approach, lets look at how to sell Bitcoin for cash using a peer-to-peer platform!

If you dont like the thought of having to wait three days for cashing out Bitcoin, you should consider using a peer-to-peer selling platform like LocalBitcoins.

When selling Bitcoins to other people on LocalBitcoins, you can decide which payment method you want the buyers to use. These include:

P2P selling is safe if you know what youre doing. However, its important to be aware of fraudsters. LocalBitcoins offer a good level of safety because of their escrow service. This keeps your Bitcoins locked until you confirm the payment has been received from the buyer.

I bet youre still a little confused as to what an escrow is, so lets use an example:

Thats it! Now you know how to sell Bitcoin for cash using a P2P exchange!

So, now that you know the difference between the two favored methods, I will now show you how to withdraw Bitcoins to cash using broker exchanges!

Coinbase

Coinbase is the most popular broker exchange for buying and selling Bitcoin. They process more Bitcoin transactions than any other broker and have a massive customer base of 13 million.

Looking for more in-depth information on related topics? We have gathered similar articles for you to spare your time. Take a look!

To make things a little easier for you, I will now show you how to cash out Bitcoin at Coinbase.

1. First, you will need to open an account with Coinbase, link your bank account, and make a deposit. If you need help on how to do this, view our guide here. If you have already done this, proceed to step 2!

2. Once you have set up your account, you will need to send your Bitcoin to your Coinbase Bitcoin address! To do this, click on the accounts tab, open your Bitcoin wallet, and click Receive. You will then be shown your Bitcoin Coinbase wallet address. This is the address you need to send your Bitcoin to.

3. Once you are all set up, click on Buy/Sell at the top of the page.

4. Next, click on Sell.

5. The next step on how to cash out Bitcoin is in the wallet. Assuming you have now sent your Bitcoin to your Coinbase wallet, you should see your Bitcoin wallet and your default fiat currency here. In the example image below, I opened an account from the EU, so my deposit wallet is in Euros (EUR).

This will change depending on where you are located. For example, U.S customers have the option to withdraw to USD, and Japanese users can withdraw to JPY.

You will also see your withdrawal limit. If you have already verified your account, your limits will be quite high. However, if you need to increase this, click on See Limits and follow the additional verification instructions!

6. Before you can withdraw, you need to exchange your Bitcoin to your local currency. In my example, I am exchanging Bitcoin to Euro (EUR). Enter the amount of Bitcoin that you wish to sell, and the fiat currency equivalent will update.

7. Once you click on Sell Bitcoin Instantly, your funds will now be in your fiat currency wallet.

8. Ok, so we are at the final step on how to cash out Bitcoin to your bank account. Click on your fiat currency wallet (for example, EUR/USD/YEN), and click on withdraw.Your bank account details will already be saved from when you set it up earlier.

Congratulations! You now know how to turn Bitcoin into USD, EUR, and other fiat currencies using Coinbase! Dont forget, there are many other brokers that you can use. Another popular choice for Bitcoin sellers is Kraken!

Kraken

Kraken is another popular exchange that allows fiat currency deposits and withdrawals. It has been around since 2011, and processes the most Bitcoin to Euro transactions. However, they also support other major currencies like USD, CAD, and JPY!

Now that you know how to cash out Bitcoin using a broker, let me show you how to do it using a peer-to-peer exchange.There are a few to choose from, however, the one I most recommend is Local Bitcoins.

LocalBitcoins was created in 2012 and now supports almost every country in the world. So, no matter where you are from, you should be able to find buyers to sell your Bitcoin to.

The great thing about P2P is that you can request any payment method you want. Here are some examples of the different payment methods available on LocalBitcoins:

Sellers who know how to cash out Bitcoin can also choose the price they would like to sell their Bitcoin for. You can do this by creating an advertisement, which will charge you a fee of 1% of the total sale.

However, if you sell to a buyer that has listed the price they want to pay, there are no fees.

There is also a rating system like eBay, where you can leave feedback for the buyer or seller. This helps you to remain safe when choosing a buyer. If you are a beginner, I only recommend selling to buyers who have 100% positive feedback.

Local Bitcoins allows you to stay anonymous, too (when choosing such payment methods as web money or gift vouchers), especially if you also use a reliable and safe VPN to secure your connection. However, some sellers decide to ask new buyers (those who have no feedback) to supply identification.

Heres a step-by-step guide on how to turn Bitcoin into cash using a peer-to-peer exchange:

1. First, you will need to open an account at Local Bitcoins. You can do this by clicking here.

2. Choose a username and a strong password. You also need to enter and confirm your email address.

3. Once you are logged in, click on Sell Bitcoins at the top of the page.

4. Then you need to choose the country where your ideal buyers are located. I recommend using your own country (of course), however, this is up to you. In this example, I have selected the UK. You also need to enter the amount of Bitcoin you wish to sell.

5. As you will see below, there are many different ways to cash out your Bitcoin.

6. In this example, I will show you how to cash out Bitcoin using PayPal. As you can see, the buyer has a 100% feedback rating, and has completed more than 1000 trades! This is a sign of a serious, legitimate buyer.

7. Confirm the amount of Bitcoin you want to sell and enter your PayPal email address. Then click on Send Trade Request.

8. Your buyer will then receive a notification to say that you would like to sell your Bitcoins to them. Once they accept, you will then send your Bitcoins to the LocalBitcoins escrow (I explained an escrow earlier, remember?). So, the buyer will not receive your Bitcoins until they have paid you, and you confirm they have done so.

9. The buyer should contact you to let you know that the funds have been sent. Check that the funds have arrived in your PayPal, then click on Payment Received, and you're finished.

Congratulations! You now know how to cash out Bitcoin using a P2P exchange.

Once you become more experienced with Local Bitcoins, you can practice selling using different payment methods. The good thing is, some payment methods allow you to sell your Bitcoins at a higher price so its worth getting used to.

It is also a good idea to set up an advertisement. Even though it will cost you 1% in fees, you can set up your own price and choose your own payment method. In this case, you will receive a notification from buyers when they want to buy from you.

LocalBitcoins is just one of the P2P exchanges that allow you to cash out your Bitcoin there are many others. The important thing to remember is that the exchange has an escrow, and NEVER send your Bitcoin to a buyer before they have paid!

Browse our collection of the most thorough Crypto Exchange related articles, guides & tutorials. Always be in the know & make informed decisions!

If you have read this guide from start to finish, you should now know how to cash out Bitcoin! We have shown you two different methods the broker exchange way (Coinbase), and also the peer-to-peer way.

They both have their advantages and disadvantages. Coinbase can be more convenient and safe for beginners, whilst LocalBitcoins allows you to remain anonymous and sell at a higher price.

So, which did you prefer? Are you going to use a broker for cashing out Bitcoin, or a P2P exchange?

Leave your genuine opinion & help thousands of people to choose the best crypto exchange. All feedback, either positive or negative, are accepted as long as theyre honest. We do not publish biased feedback or spam. So if you want to share your experience, opinion or give advice - the scene is yours!

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How to Cash Out Bitcoin: Complete Guide

Bitcoin (BTC) is the first decentralized digital currency, created in 2009. It was invented by Satoshi Nakamoto based upon open source software and allows users to make peer-to-peer transactions via the Internet that are recorded in a decentralized, public ledger. Bitcoin has the largest market capitalization by far of all cryptocurrencies, 19 times larger than the runner up Ethereum. The number of units is capped at 21 million, 16 million of which are available. The cap ensures that inflation won't decrease their value.

When users allocate computer processing power towards the mining of Bitcoins, they are rewarded with transaction fees and newly created coins. Units can be bought or sold against other cryptocurrencies or against fiat currencies like the USD or the EUR at many exchanges, which operate like physical currency exchanges. Units can also be saved or obtained in exchange for goods or services. TradingView, for example, accepts Bitcoin for annual plan payments, as one of many companies that allow their online products or services to be bought with Bitcoin.

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The vulnerability of Kazakhstans bitcoin mining industry was put on full display last week, when the country's internet shut down in the midst of anti-government protests, sparked by rising energy prices.

The world's second largest miner saw its hash rate or computing power that secures bitcoin, fall by double digits, in a dramatic pullback from the 18.1% it's estimated to contribute, according to Cambridge Center for Alternative Finance.

The disruption marked a big setback for a market that has looked to capitalize on a mining ban in neighboring China. Its hash rate has increased more than 10% since China's ban last June.

A lot of the older Chinese mining operations shifted to Kazakhstan,John Warren, CEO of GEM Mining, a U.S.-based company reiterated. Before launching GEMs mining operation in the U.S., Warren told Yahoo Finance he was approached about setting up operations in Kazakhstan with promoters touting its cheap power supply.

While cheap, the country's electrical grid hasn't been stable. In October, the Kazakhstan Electricity Grid Operating Company (KEGOC), which operates the national power grid, faced an energy supply crunch, citing both "a higher number of emergencies at power plants" as well as the "sharp increase in consumption of digital miners."

The limited power supply is likely to prompt another mining migration this time, out West.

In an interview with Yahoo Finance, Xive Mining co-founder Dibar Bekbauov said that many of the countrys mining companies are increasingly looking to the U.S. as "one of the top priorities" for expansion, largely because of the availability of cheaper electricity.

"I believe that U.S. will be the biggest mining hub in the world," he said. "More than 60% of the total hash rate will be in the United States within two years."

Such a move would not come cheap or easy, according to Colin Harper, head of content and research at Luxor, a bitcoin mining pool and software company.

Story continues

A worker fills out a form at the Whinstone US Bitcoin mining facility in Rockdale, Texas, on October 10, 2021. (Photo by Mark Felix / AFP) (Photo by MARK FELIX/AFP /AFP via Getty Images)

The U.S. is now estimated to account for 35.4% of bitcoins hash rate. Harper told Yahoo Finance that because the country provides both abundant power and a more robust rule of law compared to other mining hotspots, competition for materials to build a mining facility or space to lease has compounded over the last year.

Adding to the hangover are China-based bitcoin miners that relocated to the U.S. and North American companies expanding. As a result, Kazakhstan-based miners thinking of moving to the U.S. could face a sizable hit to their bottom lines.

Sizable enough, especially if they just settled in the country after migrating from China that, according to Harper, some of them might throw in the towel.

'Green' in the U.S.A

The favorable condition the U.S. offers bitcoin miners is higher access to renewable energy sources.

Bitcoin minings energy intensity remains a hotly debated topic between climate activists, academics and miners themselves. Miners arent necessarily incentivized to seek renewable energy but it's become a major focus as the price of bitcoin has skyrocketed in 2020 and 2021.

According to an annual report from Luxor, publicly traded miners (and those seeking to go public) will continue to green" their operations by seeking renewables directly or purchasing carbon credits/offsets for two main reasons. First, companies will choose to do so voluntarily to mollify criticism. Second, ESG mandates from U.S. regulators will demand it.

Alex de Vries, founder of Digiconomist, an economics blog, is a staunch critic of the industrys energy consumption. De Vries told Yahoo Finance in late August that miners need cheap and stable power; and (obsolete) fossil fuels are simply better at delivering both.

On Jan. 20, the U.S. House Energy and Commerce Committee will hold a hearing on the energy impacts of cryptocurrency, and bitcoin mining is expected to take a central focus.

In total Cambridge Center for Alternative Finance, clocks the industry as consuming 126 Terra watts hours (TWh) per year, which is more electricity than the Ukraine consumes and more than the electricity consumed by residential lighting and television in the U.S. However, these comparisons are not 1-to-1.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

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Kazakhstan bitcoin miner: US will make up 60% of the worlds computing power in 2 years - Yahoo Finance