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How to Buy Bitcoin Anonymously

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As we have previously written about on Hacked.com, many people hold the false belief that bitcoin, by its very nature, is anonymous. However, as transactions recorded on the blockchain are available for anyone to see, this is not entirely true.

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Still, the biggest issue when it comes to privacy arises when someone wants to buy or sell his or her bitcoins for fiat currency. Going through an exchange requires an often lengthy verification process where you need to upload things like your passport, proof of residence, bank statements, etc. It is really a far cry from the privacy that bitcoin and cryptocurrencies were envisioned to offer.

Fortunately, we do have a few solutions to this problem. In this article, we will guide you through four of the ways that exists for buying bitcoin anonymously, either online or offline.

1. Using a bitcoin ATM

With the number of bitcoin ATMs currently exploding, buying bitcoins through an ATM is perhaps the most obvious option for anyone wanting to avoid all the requirements that come with traditional fiat to bitcoin trading.

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The catch with this option, though, is that there is usually a buying limit of around USD 750 before you need to present your ID. However, as long as you stay below this amount for each transaction, your purchase will be completely anonymous.

As bitcoin ATMs are still not very commonly found, you do depend on having one nearby. Currently, about 75% of all bitcoin ATMs in the world are located in North America, with some also found in major European cities.

2. Buying bitcoin peer-to-peer

By far the most popular peer-to-peer bitcoin trading platform out there is LocalBitcoins. Using this platform, you often have the option of meeting up in person with a specific seller who is willing to trade is bitcoin for cash in your local currency. LocalBitcoins have sellers listed in more than 10,000 cities across the world, so there are good chances you will find someone not too far from your location.

All you need to do to start using LocalBitcoins is to sign up on their website with an email address and username, and then start looking for people who are willing to sell bitcoin to you in your area.

Make sure to check the reviews of a seller before you agree to make a trade. Sellers with plenty of good reviews are safe to use, but you should be careful buying from sellers with few or no reviews. There have even been cases where people have been fooled into traps by undercover police officers posing as sellers in countries where crypto trading is illegal or requires a license.

3. Use a prepaid debit card

In the US and some other countries, it is possible to walk into any convenience store and buy a prepaid debit card that you can load up with cash over the counter. You can then use the same card to buy bitcoin on any fiat-to-bitcoin exchange such as Coinbase or Kraken in just the same way as you would have done if you used a debit or credit card from your bank.

This may be a less convenient option, but if there is no bitcoin ATM or LocalBitcoins sellers nearby, using a prepaid card may be your best shot.

4. Using a decentralized exchange (DEX)

Perhaps the most anonymous way to buy bitcoin online is to use a decentralized exchange, something most people in the world of cryptocurrencies are not very familiar with yet.

Decentralized exchanges are largely a new concept, but they are by many seen as the future of bitcoin and cryptocurrency trading. However, current platforms are still a bit complex for non-technical users, but this is a field that is quickly moving forward. Binance, one of the biggest cryptocurrency exchanges today, has even said that they are working on a decentralized exchange expected to be launched in the not-too-distant future.

One such platform already in operation is Bisq, and another option is AirSwap. Both are early players among decentralized exchanges, which is an area that is inevitably set for growth in 2018.

When using Bisq, no ID verification is necessary and the exchange does not hold any of the user’s funds, which also makes it a much safer choice than traditional centralized exchanges. To buy bitcoin using this service, you would make a cash deposit equal to the amount of bitcoin you wish to buy, and then contact a seller directly. Lastly, an escrow service is used to ensure sellers get paid the cash and buyers receive their bitcoin.

Featured image from Pixabay.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 33 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He closely follows stocks, forex and cryptocurrencies, and is always looking for the next great alternative investment opportunity.




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Understanding the Lightning Network: Where We Stand

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The scaling of bitcoin’s network has long been a source of strife among supporters and detractors alike. As the network gained momentum over the last few years, users have seen both the transaction fees and wait times increase significantly.

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Other cryptocurrencies have spawned based on this weakness, but bitcoin’s development community is hard at work on the scalability problem. The most promising project at the moment is the Lightning Network.

The Shortcomings of Bitcoin

Bitcoin’s original promise of being able to create a trustless network that enabled immutable financial transactions is still true to this day. With the implementation of SegWit on August 24th, 2017, it was hoped that the issues could be solved by finding a roundabout way to increase the block size. However, the protocol has not been widely adopted, and as such, a new solution is required.

This is where the need for the Lightning Network arose from, and it has been in development since 2015. The simplest way to understand the network is that it helps manage bitcoin transactions without executing them directly on the Bitcoin blockchain.

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The Basics of the Technology

The core idea behind the Lightning Network is that you can create small “bidirectional payment channels” that act as a running tab between two accounts. The smart contracts determine how much is owed to who, but none of this is stored directly on the blockchain until a payment is rendered. Basically, it is a running tab system that allows for microtransactions. Allocations are made between parties off-blockchain, with all the confidence of performing commerce on-blockchain.

Multi-signature wallets are the connecting force that acts as a running tab in a safety deposit box for the two parties. Their cryptocurrency sits in the wallet and is debited and credited according to the pre-existing agreement.

The result is that all of the different payment channels connect multi-sig wallets to create a network of two-party ledger entries. This means you don’t need to have a wallet between every duo that wishes to do transfer money. The connections can occur across a network of users with the same effect.

The Benefits of Lightning

The most salient benefit of the Lightning Network are the faster payments at a lower cost. The presence of instant payments will increase the usability of the entire network, and the smart contracts used will still be secure enough to prevent tampering.

As we mentioned before, the Bitcoin network was previously limited by its lack of scalability, so on a meta-level, the lightning network is enabling the network to continue its expansion.

The presence of the Lightning Network will also enable cross blockchain transactions (also known as atomic swaps), even with heterogeneous blockchain consensus rules. The enablement of these instant transactions between blockchains will eliminate the need for third party custodians and change the way the networks interact.

Where We Are Now

In order for Bitcoin to be a viable payment option in the future, something like the lightning network is absolutely essential. Scaling requires the ability for small payments to be made quickly, otherwise it will never be feasible to make everyday purchases like coffee or lunch with bitcoin.

Looking at all the potential benefits listed above, it is clear that the lightning network will have a drastic effect not only on the Bitcoin network, but the entire cryptocurrency ecosystem. As such, the protocol is not only being developed for the Bitcoin network, but many other of the top cryptocurrencies (Litecoin, Stellar, zcash, Ethereum, and Ripple). The test results are starting to come in, however, none of the implementations are ready for launch yet. Lightning Labs has released a beta version, but before this technology can change the industry, a lot more work must be done.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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What is Proof of Stake?

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Newbies to the cryptocurrency space often struggle to understand how the mining mechanism works. The idea of having a cryptographic algorithm that mints new coins to reward those who help maintain the blockchain isn’t exactly a natural one, and a long explanation is usually required.

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But once this group understands how the traditional proof of work theorem functions, they often find out that there are algorithms different than the one implemented by Satoshi in the beginning.

Where Proof of Work Falls Short

News stories keep surfacing about the growing energy requirements of networks using proof of work algorithms. The enforced scarcity of coins means that as more miners join the network, the amount of computation required continues to increase. Not only is this not sustainable in the future, but it also prices out smaller mining pools that don’t have the capital required, leaving a market structure similar to the oligopoly of the banking industry.

Additionally, from an economic standpoint, the proof of work theorem is vulnerable to the tragedy of the commons. This is an economic scenario where users are incentivized to act in accordance with what is best for them, rather than what is best for the group. Profitability on mining coins like Bitcoin will begin to fall, and that will drive miners out of the market, hurting the whole network.

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Proof of Stake as an Alternative

So if proof of work rewards you for the amount of work you do, proof of stake will reward you for the amount of coins you hold. You will mine coins in proportion to the amount you hold, which is much like the traditional interest rate structure.

Our previously described tragedy of the commons issue is solved, because people now have reason to continue holding the coin and are rewarded for it. Additionally, the centralization risks are minimized, as those with the most mining power or capital are no longer in control.

51% attacks are hardly a worry on the Bitcoin network, because you’d need to gain access to more than 51% of the computing power of the network. However, with PoS there is an even smaller risk because of how expensive it would be to buy 51% of a coin, only to devalue it.

Many Cryptocurrencies Using It

Since the incentives are different, proof of stake algorithms essentially change the entire structure of the market for a cryptocurrency. The fact you can earn coins just by holding cryptocurrency would be very appealing as an alternative to using tons of electricity.

Dash, or digital cash, may be the best known cryptocurrency using PoS, but NEO, PIVX, and many more are currently using it. The incentives change when you use these coins, because of all the additional benefits of just holding them. Often the only way to gain this interest is by joining a masternode or having a significant amount of coins yourself, but it is still something worth looking into.

Finally, we are finally starting to see larger cryptocurrencies like Ethereum considering a move to a hybrid algorithm that uses proof of stake as well, it is clear the consensus method will finally get tested at scale.

The Risks of PoS

As with any solution, there are risks involved with the potential implementation of proof of stake algorithms. The biggest risk inherent in a proof of stake system is that the bad actors aren’t pruned out in the same way as with a proof of work system. They can continue to collect “interest” while they vote for “invalid” blocks, and not be harmed in any way. For the proof of stake system to work, this problem will eventually need to be solved, but at the same time, it shows a lot of potential.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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How to Convert Your Cryptocurrency Back to Fiat Currency

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It is possible that at some point in your cryptocurrency investing journey, you feel the need to sell off some of your crypto. Most of the time, this means you are just converting it back into the USD of cryptocurrency, bitcoin, but you could also be trying to get your money out of cryptocurrency entirely.

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If your goal is to convert back into fiat currency, then there are a few paths you can take. As you might remember when you were first putting your money into cryptocurrency, it isn’t nearly as simple as using a regular brokerage account, but it is getting easier.

Simplest Possible Method

This sort of goes without saying, but if you did acquire your cryptocurrency on an exchange that allows for fiat deposits, you are likely going to be able to convert your money back into fiat with that same exchange. Exchanges known to do this are Gemini, Coinbase, Kraken, and Coinmama, although there are many others that do and it is worth checking yourself.

Exchanges are generally motivated to increase their revenue, and as a result, they tend to have fees set for withdrawal. Not only does this make them money when you withdraw your money, but it also makes it more likely you will keep your money in the exchange and continue trade it, which will also make them more money.

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The final thing you should realize here are that the exchanges may put actual limits on the amount you can withdraw or the time period you must wait before withdrawing. Both of these serve to the same effect as high withdrawal fees, and help them control their liquidity in a way very similar to a bank.

Using Services and Vendors

It is possible you have already moved your money to a separate hardware or software wallet, in which case, it might not make sense to move it back to an exchange, just to pay fees on the withdrawal. There are other ways of getting your cryptocurrency back into fiat, and some of them work out to be quite a bit cheaper.

In fact, websites like LocalBitcoins.com make it possible you to actually sell your cryptocurrency at a premium because of the extra effort. LocalBitcoins does take a fee, but it still works out quite nicely for the seller in the end.

Another option you may find appealing is using your money to directly pay for goods or services. There are an increasing amount of companies that accept cryptocurrency, and this saves you a lot of hassle, as it is working very similarly to LocalBitcoins.com. You are bartering with each other rather than have a third party act as market maker, and the costs are reduced as a result.

Similar to this is the idea of using your cryptocurrency to purchase a prepaid debit card. Services like Monaco and Tenx are making this easier than ever, and it minimized the number of times your money needs to change hands before it is spent.

What to Do About Your Altcoins

If you are trying to convert your altcoins back into cryptocurrency, you will have one extra step. Since most altcoins transact on a different exchange than those that convert into fiat, you will need to sell your altcoin for a more well-known cryptocurrency, and then convert it to fiat.

Generally, users choose to do this using Ethereum, because of the significantly lower network fee. You would sell your altcoin for Ethereum, transfer that Ethereum to your fiat exchange, and then sell back to your fiat currency.

No matter why you’re choosing to convert your crypto back to fiat, it is even nice to know how you would if you were in a pinch or were worried about potential crashes. The best way to think of it is having an escape plan, just in case.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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