How to jailbreak or use blacklisted iPhone 5 as ipod?

I have a blacklisted iPhone that I without knowing bought off craigslist and I can't do anything with it. It connected to my Wi-Fi but won't go past the sim required stage.
Anyone know what to do?

You'll need a SIM card to continue. You can't get past that. It used to be possible to "hacktivate" the phone, which allowed you to bypass that requirement, but it came with costs: No Wi-Fi (If I remember correctly), battery drains faster, no MMS, and a few other things.

You'll need a SIM card from the carrier that the phone is locked to. Quite honestly, I wouldn't use a blacklisted phone. What if it's stolen? In most places, being in possession of stolen property is a crime in most places, so keep that in mind…