Bitcoin anonymity – myth or reality
Cryptocurrency Bitcoin was declared as completely anonymous, but the current implementation of the project is rather pseudo-anonymous. The pseudo-anonymity of bitcoin is due to the open blockchain registry, in which everyone can track the transactions of other users.
Veterans of the crypto community are familiar with the features of bitcoin and know that anonymity of its use is possible until a certain point and only knowing the privacy features of cryptocurrencies, users can prevent the disclosure of identity.
Why is bitcoin considered anonymous
Bitcoin is considered anonymous because it has a number of features that allow users to maintain confidentiality.
Unlike conventional banking and electronic payment systems, cryptocurrency accounts do not require personal data and are not tied to a specific person. Anyone can open a bitcoin address at any time without indicating their full name, passport details, phone number or any other information that is usually requested by financial institutions.
Transactions are also not tied to the identity of users. In order to complete the transfer of bitcoin, it is enough to know the public address of the recipient. When checking transactions, miners only verify the availability of available coins at the sender’s address.
Transfers in the system are checked by randomly selected communication nodes, interconnected via IP addresses. For the communication nodes, it remains unknown which of the communication nodes created the transaction, and which only redirected it.
These differences from the usual financial models make it possible to call bitcoin anonymous, because while the coins operate exclusively on the network, their user remains unknown. It is worth remembering that transaction data is stored in the public domain, which is why bitcoin is called pseudo-anonymous. On the one hand, it does not require or disclose user data, on the other hand, it gives complete information about the movement of coins.
Anonymous cryptocurrency properties
After Bitcoin’s anonymity was called into question, the developers came to the conclusion that it was necessary to solve the problem of pseudo-anonymity and set about developing a new generation of cryptocurrencies with increased privacy.
To date, many completely anonymous cryptocurrencies have already been developed that prevent tracking of the registry blockchain or deliberately confuse transactions, making it difficult to track them. The most famous of them are:
- Monero An anonymous cryptocurrency, in which information is added to the blockchain registry in a distorted form, which significantly complicates the tracking of users.
- Dash Anonymity in the system is achieved by mixing user coins. An anonymous transaction does not go directly to the user, at the beginning it is sent to the masternode, where the transactions are “split” into small parts and mixed together in several stages, after which they are formed into new transactions and sent to the recipients. Thus, the connection between the sender and the receiver is broken.
- Zcash. User privacy in the system is achieved through the use of a zero-disclosure protocol. It works on the principle: to verify a transaction, it is enough to confirm the fact of its existence, but you do not need to know the addresses of the recipient and sender.
Is it possible to track bitcoin
Cryptocurrencies attracted special attention precisely as an anonymous means of calculation. This feature was appreciated by many users who, due to certain circumstances, are not willing to disclose personal data during financial transactions. At the same time, an open blockchain registry is able to transfer to third parties significantly more information than an ordinary user suggests.
Bitcoin anonymity meant only the absence of the need to provide personal data to use the system. But since digital coins operate on the blockchain, which is an open database where everyone can view the list of operations of other users, all actions in the system can be tracked.
To track operations on the blockchain, you do not need to be an advanced programmer or have a financial education. Everyone can track the chain of transaction blocks from the moment a coin was issued to the current transaction in Blockchain Info.
Therefore, in fact, bitcoin is anonymous exactly until the user has associated his personal data with the cryptocurrency address. As a rule, the binding of personal data to cryptocurrencies occurs at the stage of making purchases and when withdrawing funds offline.
The transaction history in the Bitcoin system should remain open for security purposes, but this significantly reduces the level of anonymity.
Let’s say someone made a purchase in an online store and paid with bitcoin. On the seller’s website, it was required to indicate the full name and delivery address. From this moment, the buyer’s address cannot be called anonymous, since there has been a link to personal data and theoretically, based on these data, the owner of the address can already be proved to be involved in all previous and subsequent transactions.
How to conduct transactions anonymously
The cryptocurrency market does not stand still and the presence of coins in which anonymity is given special attention greatly simplifies the concealment of the identity for users. In other systems, user privacy depends on how well thought out his actions are.
In order to protect confidential data and not become a victim of intruders or government bodies, the user must adhere to the following principles of working with them:
- Hide IP address. There is a possibility that the IP address with which the transaction is associated can be tracked, therefore, when conducting operations with cryptocurrencies, it is recommended to use TOR and other services to hide the address.
- A new address for each transaction. Using different addresses for incoming and outgoing transactions significantly complicates the identification of individuals and makes it impossible to calculate the exact number of coins on the user’s wallets. In most wallets, this new address is automatically generated for each transaction.
- Bitcoin mixers. There are special services that allow you to mix coins and complicate their tracking. With their help, the user can send a certain number of coins that will be mixed with coins of other users and as a result, new coins will be credited to the account that are not associated with previous transactions.
- Big transactions. It is recommended that large transactions be avoided, because it is they that primarily attract the attention of regulatory authorities and attackers. If it is necessary to make a large payment, it is recommended to divide the transfer amount into several separate, not very significant transactions and transfer from different addresses.
It should be remembered that the disclosure of identity occurs at the moment when the address of the cryptocurrency wallet is associated with the personal data of the user, therefore, to maintain privacy, you should avoid shopping at marketplaces where you need to specify personal data, and before cashing the cryptocurrency, you need to create a new address and clear old coins.
Bitcoin is not completely anonymous. In case of careless handling, the identity of the coin holder can be established by tracking the blockchain registry.
The problem of the pseudo-anonymity of most cryptocurrencies was decided by many developers. Already, there are many anonymous cryptocurrencies that work on a more advanced algorithm that breaks the connection between the sender and the recipient. In other cryptocurrencies, users must independently take care of their privacy.