1.) I am trying to make a payment to an online business that accepts bitcoin but want it so that my personal identity is totally untraceable.
I was told that to do this I need something like instawallet but now instawallet is not there anymore.
Can someone please clear this up for me on how exactly to do this.
You can pay with a bitcoin address, wich is a random string, therefore anonymous. The problem is : can someone discover that this address belongs to you ? In example, if you are signing for an online wallet from your own computer, and someone can access the logs, he may be able to discover your identity through your ip.
Same goes for the transaction : if your doing the transaction from your home pc, then your ip wil be logged and bound to the transaction.
If you want to be anonymous one has to :
- use anonymous vpn while doing your things online
- use TOR
...
You're correct for the first clause, where the logs in an online wallet could be traced to you. AFAIK blockchain.info only keeps hashed IP addresses though. If you're using a client based wallet like Bitcoin-QT, the transaction is never bound to your IP.