As more online merchants begin to embrace the possibility of accepting bitcoin as a form of payment, an increased need for privacy and security is arising. One of the most attractive aspects of the bitcoin technology is its ability to offer anonymity. This means that all the transactions made using bitcoin cannot be affiliated or traced to any personally identifiable information.
As opposed to conventional methods where information such as real names and email addresses can be linked to a particular transaction, bitcoin uses a public key, also called a bitcoin address, to represent a transaction. This bitcoin addressed is not tied to any information that can be used to trace the real person who made the transaction.
How Anonymous is Bitcoin?
Although bitcoin guarantees more anonymity as compared to other electronic payment systems, it is not fully anonymous but rather pseudonymous.
What is the difference?
Anonymous means that the identity of the person sending or receiving the bitcoins is completely unknown. On the other hand, pseudonymous means that the identity is there, but is not your real identity, for example a fake name.
So instead of using your real identity, a randomly generated electronic address is used. This is your bitcoin address and it is what you use to send or receive bitcoins without revealing your real identity.
Another reason why bitcoin is not fully anonymous is the fact that all your transactions are eternally stored on a publicly accessible block chain-based ledger. Anyone using the platform is able to access all the transaction records attached to your bitcoin address, although they won’t know your real identity.
The original idea was to use different addresses for every transaction in order to increase anonymity. Although this may be more effective, full anonymity is still not guaranteed, since there are tools that can be used to analyze the public block chain and reveal association between different addresses. This means that if by any chance one of the addresses is traced back to a real life identity, the rest of them will be.
Understanding the Bitcoin Network and Anonymity
There is a ton of information stored in the transaction block chain that can be accessed by anyone who wants to analyze the bitcoin network. The public ledger is laden with detailed information about the nature and context of every transaction ever made. Such information as time of transaction, values and the public keys of both the sender and the recipient is made available.
The availability of this data means that interested parties such as intelligence agencies and marketing firms can analyze the bitcoin network to try and glean information about your real identity.
How to increase Anonymity
- Use bitcoin mixing techniques .
- Use logless VPN to prevent storage of internet activities .
- Use a new address for every transaction.
- Buy or sell bitcoins in cash.
- Think about using a privacy coin if this is what you are after.
It is true that the bitcoin technology offers a certain level of anonymity. Users can privately send and receive bitcoins without the transactions being affiliated to their real life identity. However, with the use of public keys and unrestricted availability of data in the block chain ledger, anonymity is not fully guaranteed.