You may have heard bitcoin referred to as “layered money” before. And it’s true. Bitcoin’s monetary network works in many layers to make it more scalable for everyone to use. One of the common misconceptions about bitcoin, though, is its anonymity. People may assume that privacy comes naturally just by using bitcoin, but the fact is that Bitcoin privacy comes in many layers too.
You can’t transfer bitcoin to your wallet and assume that the government is unable to track your spending. In reality, it would be even easier for them to. You have to be comprehensive in your privacy efforts to ensure that you have all your bases covered and that you’re truly using bitcoin anonymously.
Tor is one of the best protocols to build that privacy foundation. Let’s break down the basics, learn how to install Tor, and learn why bitcoiners like it.
What Is Tor?
When you log on to the internet every day, without any privacy measures in place, you broadcast your IP address to the world, revealing the location of the computer you’re operating from.
For many people, this isn’t an issue, but for those concerned about their online privacy, mainstream browsers aren’t doing much to protect their users’ identities or the data they are transferring.
Now, in most cases, people opt for VPNs to solve this issue. The problem, however, is that VPNs only mask your online activity, but they don’t necessarily mask who you are.
Tor, short for “The onion router”, aims to solve that.
Tor is a privacy-focused “onion” network that protects your data in layers of encryption, providing greater privacy to your browsing so that it’s much harder for internet service providers (ISPs) or other entities to track your online activity. Essentially, it scrambles your IP address and traffic so that others can’t link them to your identity.
Bitcoin and Tor both share a few similarities.
- Like the Bitcoin network, there are no Tor “accounts”. No executives running things behind the scenes. Users can join entirely anonymously, and the network relies on support from volunteers around the world who run nodes to uphold the network. Hosting is entirely decentralized.
- Like the Bitcoin block reward, Tor also automatically reroutes traffic roughly every 10 minutes or so. When you send data through the Tor network, it completes a “circuit” through three different nodes to arrive at its destination. So after each circuit, Tor redirects your data through three entirely new servers so that no single server collects data that could potentially point back to you.
How Does Tor Work?
On the standard internet, every time you request to open a webpage or some other online action, you generate a packet of data. That data gets encrypted with SSLv3, the standard single layer of encryption for connections over HTTPS.
Tor takes this protection further by adding another two layers of SSL encryption, each of which has its own set of encryption keys wrapped around that packet of data. To route data over Tor, information passes through volunteer nodes, or “relays”. Each relay decrypts one layer of encryption – just enough to learn the IP address of the next relay in the chain – and forwards the data.
This way, the data can arrive at its destination without any single relay learning enough about the data to breach the sender’s privacy.
There are three kinds of relays:
- Entry relays serve as the initial points of contact for users connecting to Tor. They receive user traffic and begin anonymizing and routing it through the Tor network. Entry relays can see the user’s IP address but don’t know where the data is going or where it will end up.
- Middle relays are the intermediaries that receive traffic from entry relays and forward it, either to other middle relays or to exit relays. They have no knowledge of user IP addresses or the data’s final destination since they can only decrypt one layer of encryption.
- Exit relays decrypt the final layer of encryption and deliver the data to its destination. They can see the unencrypted data, but not the user’s original IP address. So the user remains anonymous throughout the process.
You can essentially think of Tor as a VPN service with three hops strung together. Every connection you make first routes through three unique IP addresses from different nodes to scramble and protect your identity.
For Example
Let’s say you open up AgoraDesk to buy some non-KYC bitcoin. Though you may be purchasing bitcoin anonymously, without using a private network like Tor, you expose your actual IP address to AgoraDesk.
To prevent this, you’d connect to AgoraDesk while using the Tor network instead. Tor randomizes the IP addresses that it shows connected websites so that your IP address is never revealed, ensuring that your non-KYC Bitcoin purchases are truly anonymous.
You could use a VPN for this, but unlike a VPN, which routes your traffic through the VPN provider’s single server, the Tor network is decentralized, meaning that your data is always passing through randomized, volunteer-operated relays, making it much more difficult to track. In the event that a government wanted to obtain your IP address information for any reason, centralized VPNs would be legally required within their regional jurisdiction to give up your IP address.
Tor’s decentralization prevents that single point of failure that VPNs inherently have, and thus places a lot more friction between your online activity and outside observers.
Naturally, in the world of bitcoin, there are plenty of interesting applications for Tor.
But first thing’s first. Let’s learn how to install Tor and then discuss how you can use it to improve your Bitcoin privacy.
How To Install Tor
To install Tor, simply head to torproject.org and click “Download Tor Browser”.
Make sure that you select the proper download version for your operating system.
After you download Tor, it will walk you through the basic installation process.
Once everything is set up, you should now have access to Tor on your computer.
When you first open Tor, it will ask to establish a connection for you. You can check “Always connect automatically” to avoid seeing this message, or configure your connection depending on your own situation. We’ll save the nuance for later and let Tor connect automatically.
By default, Tor uses DuckDuckGo, rather than Google, to browse. On the right hand side of the search bar, you may notice an “Onionize” switch.
By turning on “Onionize”, you’ll be able to connect to .onion websites, or “hidden services” that are specifically designed for the Tor browser. Some traditional websites often share their website’s .onion address in case you want to access it more privately with Tor, whereas other websites are only available by knowing the specific .onion address.
Why Use Tor For Bitcoin Privacy?
So as a bitcoiner, why might you want to use Tor for your Bitcoin privacy?
1. Maintain Your Anonymity
If you like to browse the internet, connect Bitcoin wallets, and use your bitcoin on various Bitcoin platforms, it’s a good idea to install Tor and protect your privacy while interacting with these platforms.
This is especially important for bitcoiners who choose to put their voice out there on the internet. Social media figures have a higher likelihood of being targeted if the attacker knows you have bitcoin, so for those posting on X, Nostr, Stacker News, or somewhere else – using protocols like Tor will prevent you from accidentally leaking your IP address or other personal information.
Understand, however, that using Tor does not guarantee full anonymity if you have gaps in your privacy elsewhere, so be sure to cover all your bases.
2. Bypass Geo-Restrictions
In many regions around the world, certain websites online have restrictions that prevent users in that region from accessing them. This is especially prominent in the US, which is subject to much higher regulation than other countries.
To avoid these geo-restrictions, use Tor! By routing your IP address through different servers around the world, those geo-restrictions in place are unable to determine your true location.
3. Prevent Sybil Attacks
Since Tor anonymizes your location, it’s much more difficult for bad actors to use their own computers to conduct sybil attacks and learn information that’s potentially a vulnerability to your Bitcoin holdings, like a cold storage location or a seed phrase (if you made the mistake of leaving your seed phrase on your computer).
4. Buy Non-KYC Sats
One of the best ways to use Tor as a bitcoiner is to buy non-KYC sats.
If you are trying to buy bitcoin anonymously, but connecting to non-KYC exchanges without any privacy protection, then outside observers could link your BTC purchases to your specific IP address. It wouldn’t be very difficult for a government or hacker to then link that address to your identity.
Instead, connecting to non-KYC Bitcoin exchanges over Tor randomizes your IP address, therefore cutting off any chance of linking your Bitcoin purchases to your own IP address.
Here are some great non-KYC bitcoin exchanges that you can connect to over Tor:
5. Run A Bitcoin Node Over Tor
By running a Bitcoin node over Tor, you are mitigating the risk of running into any issues with authorities if you happen to live in a jurisdiction with hostile laws towards bitcoin. By operating on Tor, you can maintain your financial self-sovereignty while living somewhere with a government that tries to prevent you from doing so.
You also have the added benefit of being able to find your own node when away from your local network. This way, you can access your node from anywhere without leaking the local IP address from where you are connecting.
However, if you are to go to such lengths, you may as well install a private operating system or something more comprehensive than just Tor browser, such as Tails OS.
Common Tor Misconceptions
Just because you use Tor, a VPN, or something else, that by no means guarantees totally anonymous browsing.
Tor and VPNs are NOT synonymous. A VPN is an extension that you install directly into your current browser, whereas Tor is an entirely separate, private browser.
By merely installing a VPN onto your browser, you don’t receive the additional layers of privacy that Tor offers over traditional VPN setups.
VPNs hide your online activity from websites, but your VPN provider is able to determine your specific home IP address when connecting, and as previously mentioned, is legally bound to give up that information if government officials demand it.
On the flip side, with Tor, there is no single entity to leak your home IP address, and thus your identity. Entry relays are the only entities that can see the IP address you are connecting from, but it has no knowledge of what you’re wanting to do online.
Of course, if you aren’t careful and comprehensive in your approach to privacy, then you could accidentally leak your information in some other way that ends up doxxing you, despite using Tor.
For example, Silk Road founder Ross Ulbricht unintentionally leaked private information about himself when associating an email with his full name in it to his online forum persona, “Altoid”, who was indirectly marketing Silk Road to the forum members.
Final Thoughts
Now that you know how to install Tor, take advantage of the privacy that it can offer you and your bitcoin. While no single solution provides comprehensive privacy, Tor is an excellent foundational component that upholds your online anonymity.
It’s very easy to get started, but as you’ll come to learn, there’s so much more to privacy than just your browser. Especially in the financial world: you want to be taking extra care of your online footprint so that you don’t end up having your identity, data, or bitcoin stolen from your computer.
Always keep your long-term Bitcoin storage offline and safely in cold storage. Treat online bitcoin like you would cash in your pocket. How much money would you feel comfortable keeping in your pocket? That’s how much bitcoin you should feel okay with leaving online, and no more.
For more education on how to keep you and your bitcoin safe, learn how to introduce hyperbitcoinization to your own life and live financially sovereign.
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