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Is Bitcoin Truly Anonymous?

Bitcoin, is it really anonymous? It can appear to be at first look. You won’t find a single name, email address, or other piece of personal information in the bitcoin blockchain. However, bitcoin isn’t completely anonymous or untraceable.

Early on, it was believed that bitcoin was a completely untraceable and anonymous kind of electronic money. But when the public learned to understand blockchain technology, it became clear that the exact opposite is true. A very rich source of data for both researchers and authorities is the blockchain, bitcoin’s public ledger that records details about each and every bitcoin transaction.

Blockchain, the Open Ledger of Bitcoin

Every single bitcoin’s previous and present owners are listed on the blockchain, a continuously expanding public database. Everyone may access and use the blockchain. It is completely transparent. Anyone may view the exchange of bitcoins using straightforward analytical tools called blockchain explorers.

The receiving address for Bitcoin is a distinctive combination of letters and digits. If you share your bitcoin receiving address, everyone who knows it will be able to find out what your balance is due to the blockchain transparency. Additionally, if you repeatedly use the same address to accept money from other people, they will all be able to see that different users have paid you money.

For instance, almost 30,000 bitcoins were taken during the Silk Road seizure and sent to the receiving address 1Ez69SnzzmePmZX3WpEzMKTrcBF2gpNQ55. You may still trace these bitcoins using a blockchain explorer like Blockchain.com even though they were sold at auction by the US government and have changed hands a lot since then.

Therefore, every bitcoin may be linked back to your wallet unless you employ privacy-enhancing techniques or bitcoin anonymization services like Whir.

Foundations of Bitcoin Privacy

Bitcoin addresses are not directly connected to users’ real-world identities, unlike bank accounts, credit cards, and other payment methods. Without having to provide any personal information, anyone may discreetly generate a new, random bitcoin address.

Furthermore, user identities are not connected to bitcoin transactions. Without disclosing any personal information, anyone may send bitcoin from one address to another. As a result, neither the sender nor the recipient needs to know who sent the message.

Finally, nodes on the peer-to-peer network send and transfer bitcoin transaction data to a random assortment of nodes. Nodes may not always be able to tell if the transaction data they got was produced by the node they are connected to or whether that node just transferred the data.

The truth, is bitcoin anonymous?

Regrettably, no. Bitcoin is more pseudo-anonymous than it is anonymous. There aren’t many completely anonymous specialized privacy currencies, like Monero or Zcash. However, bitcoin is not one of them.

Bitcoin transactions are analogous to writing anonymously under a pseudonym. Everything ever written by an author using a pseudonym will now be connected to them if their identity is ever revealed. The bitcoin address serves as the alias in bitcoin. All previous bitcoin transactions might be linked to this identity if the bitcoin address or pseudonym is ever connected to the real-world person.

There are several methods for connecting bitcoin addresses to actual individuals. In particular, Know Your Customer (KYC) and Anti-Money Laundering (AML) laws make it feasible.

It is becoming nearly difficult to acquire or sell digital currencies anonymously without giving proof of ID as lawmakers around the world impose stricter laws on crypto trading.

Yet, there are still some possibilities left like peer-to-peer marketplaces, direct person-to-person transactions, and bitcoin ATMs.

You must submit personal identity information, such as your name, email address, and ID evidence, in order to deposit or withdraw funds from a cryptocurrency exchange.

Many cryptocurrency wallets allow you to link your bank account with their app in order to make buying or withdrawing bitcoin more convenient. You are thereby tying your bitcoin transactions to your identity in the real world.

By making an online purchase and including your physical delivery address or phone number, can also revealed your real-world identity.

Transparency issues with bitcoin

The ability of the previous owner’s activity to pollute bitcoins is a growing problem.

Say someone commits a crime using bitcoins. One can sell their bitcoins at a profit on the person-to-person or peer-to-peer market to get rid of them. Those bitcoins wind up in your possession eventually.

You wish to send them to a bitcoin exchange after receiving them lawfully. You’re shocked when the exchange tells you that your bitcoins have been blacklisted and rejects your funds. In the worst instance, you might even be required to hand over your bitcoins to the law authorities.

Bitcoins may be valued less than “clean” ones due to the possibility of contamination and blacklisting. Even though there have only been a small number of such examples that have been made public, things could soon get lot worse due to the expanding blockchain analytics market.

For blockchain surveillance and the identification of illegal behavior, blockchain analytics firms, like Chainalysis, CipherTrace or Elliptic provide their crypto intelligence services to corporations and agencies.

One of the biggest cryptocurrency exchanges in the world, Coinbase, just bought the contentious blockchain analytics firm Neutrino. Surprisingly, Hacking Team, an Italian company that sells spyware to governments related to human rights violations, was created by the core executives of Neutrino.

It is crucial to keep your bitcoins private due to the expanding number of laws and methods that aid authorities in monitoring compliance with these laws.

How to make bitcoin anonymous?

Fortunately, bitcoin can be made anonymous. Although there are a number of privacy-enhancing solutions available, always adhere to the following guidelines to keep your bitcoin transactions untraceable:

  • Purchase bitcoins anonymously. There are currently very few possibilities for purchasing bitcoin anonymously without providing any identification. These are only peer-to-peer marketplace, a bitcoin ATM, or a person-to-person transaction. Always purchase bitcoin anonymously if you don’t want to associate your digital assets with your identify in the real world.
  • Make and utilize many bitcoin wallets. You are allowed to own as many wallets as you like. For each separate use, you should ideally utilize a different wallet. To save the majority of the bitcoins you don’t use frequently, you should have at least one offline wallet with strong security and long-term storage. You may then use the primary, “clean” wallet for daily transactions. For deals you want to keep private, you may establish an own, anonymous wallet. The major benefit of utilizing several bitcoin wallets is to prevent money from being mixed up, even if you may accomplish anonymity by using various bitcoin addresses.
  • For every bitcoin transaction, use a different receiving address. Reusing addresses is not advised since it weakens anonymity and makes it possible for other users to know how much money you have. On the other hand, users paying you won’t be able to tell for sure how much money you have if you utilize multiple bitcoin addresses for each payments. They also won’t be aware of any other payments made by other users.
  • Use a VPN or the Tor network to reroute your traffic. Use a VPN service to mask your IP address while buying bitcoins. Use Tails, a privacy-focused operating system, which rerouts all of your traffic over the Tor network. Additionally, you may easily utilize the built-in Electrum bitcoin wallet in Tails.
  • Send bitcoins secretly. You may send bitcoins anonymously from your wallet to the wallet with increased secrecy using a bitcoin service like Whir.

 

It’s advisable to assume that you have little to no privacy while using bitcoin unless you know what you’re doing. If this is the case, avoid using bitcoin at all costs and switch to a privacy currency instead, such Zcash or Monero.

 

 

 

 

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