Bitcoin cryptocurrency was declared as completely anonymous, but the current implementation of the project is rather pseudo-anonymous. Bitcoin’s pseudo-anonymity is due to the open blockchain registry, in which anyone can track the transactions of other users.
The veterans of the crypto community are familiar with the features of Bitcoin and know that the anonymity of its use is possible until a certain moment and only by 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.
In contrast to the usual banking and electronic payment systems, cryptocurrency accounts do not require the indication of personal data and are not tied to a specific person. Anyone can at any time open a Bitcoin address without specifying a full name, passport data, telephone number or any other information that is usually requested from financial institutions.
Transactions are also not tied to the identity of users. In order to make a Bitcoin translation, it is enough to know the recipient’s public address. When checking transactions, miners check only the presence of available coins on the sender’s address.
Transfers in the system are checked by randomly selected communication nodes interconnected by means of IP addresses. For communication nodes, it remains unknown which of the communication nodes created a transaction, and which only redirected it.
These differences from the usual financial models allow Bitcoin to be called anonymous because while the coins function exclusively in the network, their user remains unknown. It should be remembered that the data on transactions 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, but on the other hand, it gives full information about the movement of coins.
Anonymous Cryptocurrency Properties
After the anonymity of Bitcoin was questioned, the developers came to the conclusion that it was necessary to solve the problem of pseudo-anonymity and began to develop a new generation of cryptocurrency with increased confidentiality.
To date, many completely anonymous cryptocurrencies have been developed that prevent tracking of the registry blockchains or deliberately confuse transactions, complicating their tracking. The most famous of them are:
- Monero. Anonymous cryptocurrency, in which information is added to the blockchain in a distorted form, which significantly complicates the tracking of users.
- Dash. Anonymity in the system is achieved by mixing the coins of users. An anonymous transaction does not go directly to the user, at the beginning it is sent to the master node, where transactions are “broken up” into small parts and mixed together in several stages, after which they are formed into new transactions and sent to recipients. Thus, the connection between the sender and the recipient is broken.
Is it possible to track Bitcoin
Cryptocurrency attracted particular attention as an anonymous means of payment. This feature was appreciated by many users who, due to certain circumstances, do not want to disclose personal data during financial transactions. At the same time, the open blockchain registry is able to transfer to third parties significantly more information than an ordinary user assumes.
Bitcoin anonymity meant only the absence of the need to provide personal data for the use of the system. But since digital coins function in the blockchain, which is an open database where everyone can view a list of other users’ operations, all actions in the system can be tracked.
To track operations in the blockchain you do not need to be an advanced programmer or have a financial education. Anyone in Blockchain Info can track the chain of transaction blocks from the moment a coin is issued to the current transaction.
Therefore, in fact, Bitcoin is exactly as long as the user has not associated his personal data with a 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.
Suppose someone made a purchase in an online store
- Bitcoin
and paid Bitcoin. On the seller’s website, it was required to indicate the full name and delivery address. From this point on, the buyer’s address cannot be called anonymous, since the binding to personal data has occurred and, theoretically, based on this data, the address owner’s involvement in all previous and subsequent transactions can be proved.
How to conduct transactions anonymously?
The cryptocurrency market does not stand still and the presence of coins, in which anonymity was paid particular attention, greatly simplifies the concealment of identity for users. In other systems, the user’s privacy depends on how thoughtful his actions are.
In order to protect confidential data and not become a victim of attackers or government agencies, the user must adhere to the following principles of working with them:
- Hiding IP address. There is a possibility that the IP address with which the transaction is associated may be tracked, so when performing operations with cryptocurrencies, it is recommended to use TOR and other services to hide the address.
- New address for each transaction. Using different addresses for incoming and outgoing transactions significantly complicates the identification of the person and makes it impossible to count the exact number of coins in 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 Bitcoin certain number of coins that will be mixed with coins of other users and as a result, new coins not related to previous transactions will be credited to the account.
- Big transactions. It is recommended to avoid large transactions because they are primarily attracted to the attention of regulatory authorities and intruders. If you need to make a large payment, it is recommended to divide the transfer amount into several separate, not too significant transactions and transfer from different addresses.
It should be remembered that the identity disclosure occurs at the moment when the address of the cryptocurrency wallet is associated with the user’s
- Bitcoin
personal data, therefore, to maintain privacy, you should avoid purchases in marketplaces that require personal data, and before cashing the cryptocurrency, you should create a new address and clear old coins.
Findings
Bitcoin is not completely anonymous. With careless handling, the identity of the coin holder can be identified by tracking the blockchain registry.
The problem of the pseudo-anonymity of the majority of cryptocurrencies began to solve many developers. Already, there are many anonymous cryptocurrencies that work on a more advanced algorithm, breaking the link between the sender and the recipient. In other cryptocurrencies, users should take care of their privacy.
