Does sending from a green address improve my anonymity? If I am interested in improving my anonymity when dealing with a merchant, does sending from a Green Address help?

My proposed steps for buying from a merchant as anonymously as possible would be: 

1) Send coins to InstaWallet (connecting to InstaWallet through Tor)

2) Send coins from InstaWallet to merchant using InstaWallet's Green Address feature.

My theory is that the Green Address would make it much more difficult for the merchant to determine my identity, compared to sending the coins directly from my personal wallet. If I send the coins directly from my wallet, the merchant could likely trace the coins back to the exchange where I originally purchased them, and possibly issue a subpoena to the exchange (which likely knows my identity). Whereas, if I send the coins via a Green Address, the merchant could not trace the coins upstream at all - even if they issued a subpoena to InstaWallet, there should be no way to determine the original source of the coins.

Is my theory correct? Do Green Addresses help improve anonymity?
No, your theory is incorrect. If anything, the green address makes it easier to trace.

If I see a transaction from an Instawallet green address, I subpoena Instawallet and ask them who commanded them to make that transaction. Boom, they found me.

If I don't use a green address, how can they tell the coins came from Instalwallet at all? How would they even know who to subpoena?


  If I send the coins directly from my wallet, the merchant could likely trace the coins back to the exchange where I originally purchased them, and possibly issue a subpoena to the exchange (which likely knows my identity).


So what? If some dollar bills were used to buy drugs that I withdrew from an ATM machine, what does that tell you? And how would they trace the coins to the exchange exactly?


  Whereas, if I send the coins via a Green Address, the merchant could not trace the coins upstream at all - even if they issued a subpoena to InstaWallet, there should be no way to determine the original source of the coins.


I don't follow your reasoning. They subpoena Instawallet and ask them which user commanded that transaction through their green address. They identify you. They're just saved the hard work of trying to trace the coins to an exchange.

It's pretty much academic anyway. There's no good way to tell a sham transaction (where the sender and recipient accounts are controlled by the same party) from a real one.