A long sought-after quest for transparent people on minecraft might have just been answered. How to make your skin transparent: 

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heartless

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Firstly a little anecdote. 

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first extract both 'char.png' and '2char.png' to wherever you want. (I use winrar for its awesomeness.) then make a backup copy of them somewhere else. 

next open the 'char.png' and make your skin as you please 

now open '2char.png' in another SE window (It doesn't have to be in another window, but you might need it to find the pixels) and mark all the parts you want transparent with an unused color. 

now here is the step everyone is missing: open the '2char.png' with gimp or *cough*photoshop*cough* and make the marked parts transparent with the erase tool.

ctrl + s

Finally open the 'minecraft.jar' with winrar and use the big 'add' button to add the modified 'char.png' and '2char.png' 

Now I have no clue whether or not this works online. I know it will only change what you see, not anyone else. It might make everyone else have holes in them where the transparent parts are. The transparent parts of you might have the colors you used to mark instead of nothing. I really don't know... I don't play it online. 

This DOES make parts of you transparent offline and has worked so far for I. 

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But yeah. This is just here as a guide to those searching for answers. 

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Edited 5 minutes later: In my haste to share this newfound knowledge with the world, I seem to have posted in the wrong topic. If you mods can move this up a directory that would be awesome. I actually just signed up to post this...