Bitcoin (BTC) is often described as an anonymous cryptocurrency that enables payments on the dark web. Bitcoin (BTC) is the king of cryptocurrency that allows anonymous transactions.
Last year, when bitcoin, Ethereum, and even the meme-based dogecoin indicated extraordinary development, the cryptocurrency developed as one of the most popular investment options.
In April 2021, Bitcoin (BTC) crossed a staggering $60,000 price and touched its highest value. Many people still believe that Bitcoin makes transactions anonymous, but does it?
Is Bitcoin (BTC) an anonymous cryptocurrency as suspected by many folks? The answer is no. Let’s talk about this in detail.
Background Of Bitcoin Anonymity
Governments from all over the world, including India, China, the US, and Europe, have shown their fair share of suspicion towards cryptocurrencies.
A few years ago, it was speculated that bitcoin (BTC) was an anonymous underground currency that could not be tracked even by the world’s leading intelligence agencies. But in reality, that’s not the case.
Cases from as far back as 2015 show differently. In 2015 it was proved that bitcoin is not as anonymous as it is said to be, when Silk Road, also known as the creator of the bitcoin market, was sentenced to life in prison for facilitating the sale of $ 1 billion in illegal drugs. The investigators of the case still pursued the money.
The most confidential cryptocurrencies like Monero, DASH, and Verge are also traceable to a certain extent. It is all because of the very nature of the blockchain. Every transaction is recorded and maintained on a ledger – and that ledger is attainable to everyone.
Michael Sonnenschein, CEO of Grayscale Investments, clarified during a webinar to Business Insider that Bitcoin is no longer suitable for illegal or illicit activities. He stated:
A lot of people still think that digital currencies, or Bitcoin (BTC), is a good use for illegal activities. In reality, it’s presumably the worst means to be used for illicit activity.
Bitcoin Anonymity Vs. Privacy
It is beneficial to draw a fundamental distinction between anonymity and privacy in financial transactions. If no one recognizes your identity, the transaction is said to be anonymous. A transaction is said to be private if what you purchased and for what amount are anonymous.
Let’s have a look at different kinds of financial transactions. The most innately confidential and anonymous transaction means are cash or barter.
Camping contributions include transactions that are neither private nor anonymous. You can also have credit card transactions in this category because for every purchase that you make your identity is known.
All this data is accessible to the merchant, credit card network, issuing bank, and – if subpoenaed – law enforcement authority.
Certain financial transactions are private but not anonymous. For instance, at the local art museum, the donor walls only identify the donor’s name but not the amount donated.
On the other hand, bitcoin is anonymous but not private. In the bitcoin protocol, identities are not recorded anywhere. However, every transaction conducted with bitcoin is available on the distributed electronic public ledger known as the blockchain.
Bitcoin (BTC) provides anonymity that is a point of attraction and a challenge for financial regulation.
The participation of many Bitcoin users at the outset entails connecting their identity to the bitcoin holdings when they access currency through one of the conventional exchange services or online wallets.
Bitcoin (BTC) effectively provides no more anonymity than a bank account to its users. However, the loss of anonymity of users is not a feature of the bitcoin protocol.
The users must find an alternative entry point if they want to take advantage of the intrinsic anonymity provided by bitcoin. For instance, they attain bitcoin in a confidential transaction, as payment for goods or services provided, or as a reward for mining.
Since blockchain ledger does not record real-world identities, these bitcoin transactions can then be anonymous. The only identifying information recorded on the blockchain ledger are bitcoin addresses, and the owners as proof of ownership hold the corresponding private keys of these addresses.
However, maintaining anonymity through Bitcoin (BTC) is no longer guaranteed. Even if the users manage to obtain bitcoins without giving their personal information, in the course of transacting bitcoin within the network, the real-world identity of the users can still be detected.
By watching the video below, you can learn why Bitcoin is not anonymous. This amazing video by Techlore explains about Anonymity of Bitcoin and other famous cryptocurrencies.
Why Is Bitcoin (BTC) Often Called Anonymous?
The fact that bitcoin (BTC) is an anonymous digital currency is still believed. It is mainly because anyone at any time can mine bitcoin currency. Everyone can mine bitcoin (BTC) without providing your home address (or company headquarters), IP address, or other personal information.
It is as if there is a dark room enclosed by a very vague black covering where all the miners work.
Moreover, for downloading bitcoin (BTC), any user’s personal information is not required. With bitcoin (BTC), it is even possible to transact records to other wallets safely, without revealing your identity. So it is proved that Bitcoins (BTC) that are being mined are undoubtedly anonymous.
So saying that bitcoin (BTC) is anonymous is true but only in theory. The reality is quite different from this theory. It is because of financial market policy, also known as the financial regulators. These financial regulators have set some rules regarding digital investments, and bitcoin (BTC) is no exception.
Bitcoin Is Not Anonymous
In reality, Bitcoin (BTC) is not anonymous. If bitcoin (BTC) were anonymous, all the transactions performed through bitcoin would not be traceable.
The bitcoin (BTC) protocol uses a blockchain ledger that lists all the transactions. However, the blockchain does not record the data regarding the names of the miners.
The blockchain primarily records your wallet’s public address, and the data mostly corresponds to a sequence of numbers. It is for the safety of the owner. Each transaction is recorded by the blockchain, which can be traceable back to the owner if the miner uses the same address every time for these transactions.
But how can a sequence of numbers lead to its owners? The task is effortless. It’s important to know that tokens do not magically emerge in a wallet. Tokens appear in a wallet when miners send them through an exchange (cryptocurrency exchange).
However, according to your consumer (KYC) principles, all exchanges must identify their consumers.
The stock exchange records your information if you have a wallet. If instructed by an authority, the exchange could provide your information or send your IP address that locates your location.
Bitcoin addresses provide a lot of information that links the wallet to its owner.
In June 2021, American Bitcoin ATM operator CoinFlips CEO remarked that Bitcoin (BTC) transactions are more transparent than cash, and using bitcoin to launder money would be a silly idea.
So bitcoin (BTC) is not anonymous, and we have numerous examples to prove it. The Silk Road is the most prominent example.
Bitcoin (BTC) emerged in 2008 (the golden age of bitcoin (BTC), and only a few people knew about it. The description of bitcoin (BTC) provided by people was always the same. They described it as a currency that is not regulated by the authorities and requires no trusted third party.
Bitcoin was known for its cross-border exchanges and anonymity.
An e-commerce site was launched after a few years, and this site was not like others because it was available on the dark web. The site was an invention of the fearsome pirate Roberts (DPR). The site was named Silk Road, and only non-catholic products were available for sale.
DPR decided that only bitcoin (BTC) would be used for making transactions.
Unfortunately, a few years later, in 2013, DPR was caught by the FBI. The FBI tracked him through his bitcoin transactions by him. The agents infiltrated the buyers of projects and uncovered an unmasked IP address. Due to this address, the agents could track the transactions on the bitcoin (BTC) blockchain.
The FBI arrested DPR and obtained more than 26,000 bitcoin (BTC) reserves.
So never believe that bitcoin (BTC) is entirely anonymous. However, it is possible to attain some sort of anonymity with bitcoin (BTC), also known as the king of cryptocurrency.
How To Be Anonymous With Bitcoin?
Let’s see what the cryptocurrencies in the world say about anonymity.
Bitcoin (BTC) says that all the transactions are recorded permanently on its system. That means the balance and transactions of a bitcoin address are public for anyone. However, they also claim that the identity of the owner remains anonymous.
There are many techniques to stay anonymous with Bitcoin (BTC).
The most popular strategy is the use of blender services. The goal of this blender service is to mix the bitcoin (BTC) of several users. With this strategy, it becomes problematic, if not impossible, to recognize the precise provenance of the chips.
The blending of bitcoin is a proven method, but it contains a flaw. Using the blending service technique, the user needs to count on the third party to assign the funds.
Another hurdle with this technique is that your transaction can get mixed with other users who make fewer legal transactions.
Examining The Myth Of Bitcoin (BTC) Anonymity
Though the records of Bitcoin (BTC) are available for public view, there is no inbuilt network that provides the owner’s identity. Bitcoin does not typically require ‘know your consumer’ (KYC) identity proof from its users for getting a wallet. That is the origin of the Bitcoin (BTC) anonymity myth.
Regardless, the issue is being solved by crypto exchanges. Crypto exchanges now require knowing your customer (KYC) ID before letting you make transactions. The information is provided to law enforcement agencies.
In other words, if you are not making transactions with your Bitcoin (BTC) wallet, your anonymity is maintained. However, if you ever sent or received a transaction, law enforcement authorities can identify both sender and receiver through their KYC ID provided by the crypto exchange.
Investigating agencies can track the wallet owners using their KYC information from crypto exchanges.
So, the transactions made through bitcoin (BTC) are more traceable and open than any other bank. Users should be aware that bitcoin is undoubtedly less anonymous than cash dealings.