Bitcoin anonymity and the exchanges

[jag2k2]

My understanding is that Bitcoin can be anonymous until your actual name is associated with an address.  After that coins can be attached to your name through the block chain and it is very difficult to break that association.

If that is the case then wouldn't any coin purchased off the exchange break my anonymity?  Anyone (government) conceivable look at an exchange's transaction history and see that a person with the name of X sent coins to an address of Y.  Therefore jag2k2 must've owned these 10 bitcoins and the movement of the coins can always be traced back to me.

There may come a time when simply owning bitcoins is considered illegal in this country and I would prefer to keep my bitcoin balances private.

[Birdy]

It's not that easy to attach your name, ok you've bought 10 BTC on the exchange and we assume the exchange saves your name+your BTC address:
But once you've sent the Bitcoins to another address, they don't know what happened. Did you sell them? Did you buy something with them? Is that a paper wallet? You would need more information than just the name+1 address.

Of course if you move all your bought coins to the same adress, it's obvious that this is yours.

[Jace]

And there's also coin mixing services.

Instead of sending your coins from A to B, you send them from A to X, and the same amount (minus a small fee) is sent from Y to B. There is no chain of transactions between X and Y whatsoever (and therefore neither is there between A and B). Result: nobody can connect your coins at address B to your identity.

[Birdy]

You could also buy Bitcoins privatly (e.g. localbitcoins.com)

[BitcoinAshley]

Coin control is an add-on that is currently available for testing and may be added to a future client. It makes anonymity much easier because you can control which addresses you SEND coins from in the GUI (as opposed to right now when (in the GUI) you can only control which coins you receive. I think you can also control which addresses get change sent to them...

Also there is ZeroCoin which is a proposed bitcoin extension in the works that makes anonymity much easier. That is a ways in the future, though.

Currently in development (and functioning) is an I2P patch for bitcoin-qt. It doesn't do much for privacy of addresses, but it does allow you connection over I2P.

If any of you are interested in anonymity of bitcoin I suggest you read in the development/technical section regularly, there is a lot of very interesting stuff going on there.

[J35st3r]

Of course you could just mine your coins. Pools don't insist on any contact details, and provided they don't log your IP address, your coin is completely untraceable. (Tinfoil hat alert: Of course the NSA could be sniffing all your packets for bitcoin transactions, but they're not going to admit to that so you'll probably get away with it providing you don't do anything really, really bad).

I have a little theory about why mining is so popular even though the ROI on eg new ASIC kit is negative ... its just a coin laundromat: USD -> MtGox -> BTC -> buy ASICs/FPGAs/GPUs -> mine -> shiny clean untraceable BTC

Just my 0.02BTC