Is bitcoin anonymous? The simplest answer to this question is no. The real status of bitcoin is pseudo-anonymous.
Many people do not know this. After-all, it is based on the blockchain technology. Only veterans know the truth about the cryptocurrency.
Bitcoin is not anonymous by default. You need to understand how bitcoin works to get clearly what it means by it not being so. This may come as a surprise to those who are new to the technology. Everyone believed bitcoin solve the issues of anonymity when it was created.
We are going to look at the nuances of bitcoin anonymity. Continue reading.
You cannot understand anonymity without knowing the basic of bitcoin transactions and how they work. Basically, there are a series of transactions packaged as different data. Among them are the transactions inputs and outputs. In other words the addresses you send bitcoin from and the ones you send to.
Every transaction will have several inputs and outputs. It is not easy to find one input and one output. Common transactions include multiple smaller inputs to make one big transaction. It is also common to get multiple outputs which together control the transactions.
Why is bitcoin sometimes regarded as anonymous?
There are about three reason that that makes bitcoin ‘anonymous’.
First, it is different from banks and other payment systems. For these, the addresses are tied to the identity of the user on a protocol level, which is not the case with bitcoin. Anyone can create a new and random account for bitcoin.
Secondly, the transactions are anonymous. They are not also tied to the identity of the user. This means anyone can carry out a bitcoin transaction from any address as long as they have private keys.
Lastly, the transaction data for bitcoin is randomly transmitted and forwarded by nodes. This takes place over a P2P network.
Why is it not anonymous?
First, the system is not airtight. An attacker may find a means to connect multiple nodes to the bitcoin network. They can then use the combined data from the nodes to determine the origin of transaction data.
Second, there is a possibility of bitcoin addresses being linked to real identities. This is if you use the real IDs with bitcoin addresses.
Third, all bitcoin transactions are transparent and anyone can trace them. This complete transparency allows clustering of bitcoin addresses together. They can be tied to the same user. In case one address is identified, all others in the same cluster will be found if they are controlled by the same user. They become apparent in the real world.
Can you restore privacy?
There has been a great process to improve privacy in bitcoin. One straight solution is using Tor browser or other methods to hide IP addresses. No one can determine where they came from.
Bitcoin mixing on https://bitcoinmix.org and similar services is another great way to stay off the radar. You simply mix your bitcoin transactions to confuse anyone who may want to pry.