Bitcoin is back in the news again as its price rises higher in the markets, an interesting fluctuation for those still in the crypto game or looking to invest. After the dizzying heights of the crypto-rush, there’s been a bit of a lull in the market, as investors look to more stable ways to build money while governments around the world crack down on illegitimate ICOs.
Who is behind the mask, Bitcoin?
A brief history
Bitcoin was the original cryptocurrency, released no less than 10 years ago, and has been the guiding light for the rest of the crypto markets. While much of the pull of crypto is that no coin is technically tied to any other coins or fiat currencies around the world, in general, other (fairly stable) cryptocurrencies have followed more or less similar sorts of patterns in their value – they are indeed tied to Bitcoin as their beacon currency.
However, that’s not the point of our article today, to discuss the current valuation of Bitcoin and how it relates to other cryptocurrencies. We’d like to instead discuss another aspect of this digital currency that causes some confusion among the community: its anonymity – or is it a lack thereof?
Bitcoin for the dark web
One of the lures of Bitcoin, at least in its formative years, was for illegal reasons; namely, the drug trade and money laundering. Obviously, those involved in these activities don’t wish to have their identities uncovered, and at the time Bitcoin seemed ideal.
Because Bitcoin for many years held the tag of anonymity, people are still under that belief that if you purchase Bitcoin, it’s anonymous. While under very specific circumstances this may be true, it doesn’t really hold today. The dark web, which is so easy to access, still runs on Bitcoin.
Bitcoin transactions are all available to see on the blockchain. That means each sender, receiver, and amount of Bitcoin is recorded, since the beginning of the cryptocurrency. Every single transaction, out there in the open for anyone to view.
Now, the thing about these transactions is that the sender and receiver are just identifiable by hashes. That makes them anonymous, right? Well, not so fast. If you can tie a person’s identity to a hash, then you can easily search the entire blockchain to see just how many Bitcoin they have.
So how can you tie an identity to a hash?
In the beginning, Bitcoin was generally traded in person, for fiat currency, after being mined by some person or group. A person created their own Bitcoin wallet with their public hash as the wallet address and public key and a private key. If they created the wallet securely and without trace it may indeed be private. If they didn’t follow security protocols, it could be open to be hacked, Bitcoins stolen, identities uncovered, all the rest.
Meeting in person, with someone you didn’t know, to swap Bitcoin: all they’d know about you was your location at that given time, what you look like, approximate age, and your Bitcoin wallet address. That may be enough to identify someone, then again, it may not.
How things usually work these days
A Bitcoin wallet may be stored on a hard drive away from your computer so that you don’t lose it, this is generally seen as one of the more secure options these days. Trezor is an industry leader when it comes to offline hardware wallets and supports Bitcoin plus over 1000 other coins for storage.
For purchasing and spending, people use coin exchanges and online wallets like Coinbase. It’s easy to use, fairly trustworthy… and requires a full identity check to sign up, as do (almost?) all online exchanges. This means if you’re buying on an exchange, wherever those Bitcoins go afterwards can be traced.
There is a process known as tumbling which splits and sends Bitcoins over a range of different addresses to “muddy the waters” along the way, but in the end, it’s all traceable. And if it’s originally linked back to an identity, that means it’s not anonymous.
Even if you bought anonymously at a meetup in the first place, set up your wallet truly anonymously, used different addresses for every transaction, and used CoinJoin, if you then spend your Bitcoin at a retailer with your details, and that data is leaked, then your identity may be able to be uncovered. Other places you can spend your Bitcoin may not require ID, such as Bitcoin casinos, should you wish to stay anonymous while playing online. However, since anonymity requires some hoop jumping with Bitcoin, we now have alternatives.
The rise of privacy coins
To counter the privacy failures (and then numerous work arounds to fix the non-anonymity issues) of Bitcoin, we saw the rise privacy coins instead, such as Monero. Monero obscures the sender, receiver, and amount sent in the blockchain ledger, so tracing is not possible. Others like Zcash offer a similar type of digital currency setup.
And so, there you have it. Bitcoin can be anonymous, but it’s tricky to configure the right setup for anonymity if that’s your aim; the entire history of every Bitcoin transaction ever will exist forever. If you’re looking for a more anonymous, non-traceable coin, then you’re better off having a poke around privacy coins instead.
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