Bitcoin: Pseudo-Anonymity Disguised As Anonymity

By Contrast Crypto on Altcoin Academy

Bitcoin burst into the mainstream upon the realization that the cryptographic internet currency had been used to facilitate value exchange for illicit goods and services on platforms like the Silk Road website, which was once operational via the TOR Network.

Many consumers used Bitcoin to purchase illegal substances from the online marketplaces between 2010 and 2012, but most were unaware that their transactions could be fully traced thanks to the pseudo-anonymous nature of the Bitcoin blockchain.

Bitcoin looks anonymous. Its addresses are a string of text and numbers that you would spend weeks or even months trying to memorize - in fact, it would probably be easier to remember the first 50 decimals of Pi than to remember your Public Key.

This article isn’t an expose about Bitcoin developers lying to us because they didn’t. The assumption that Bitcoin is anonymous is an assumption made by uneducated community participants - which is fine, I guess. They just haven’t learned enough - which is where we come in.

Bitcoin is secure, but it is not private - and that’s okay.

Bitcoin utilizes a large network of nodes to ensure transactions are sent and received as they were intended. The network of nodes stores a history of all Bitcoin transactions which it uses to verify future transactions. If a pending transaction does not match what is recorded on the Bitcoin Ledger, the transaction will not go through. Bitcoin’s Ledger is decentralized and transparent, making it very difficult (read: near impossible) to alter permanently.

Can Bitcoin Transactions Be Anonymous?

To put it simply, yes, but it takes some effort. So you need to ask yourself: is the effort worth the privacy?

Anonymous transactions with Bitcoin (BTC) require a little bit of work, but it is doable…to an extent. If you’re looking for full obfuscation of your data, however, it’s probably better to use a cryptocurrency focusing specifically on privacy.

Here’s a list of privacy-oriented cryptocurrencies.

Bitcoin Mixing, aka Bitcoin Washing, Bitcoin Laundering or Bitcoin Tumbling, is a technique used to break the links between BTC addresses by trading or swapping Bitcoins back and forth with other addresses to make the transaction trail more difficult to follow, but these transactions may still be linked to your IP address.

TOR is a web browser that uses distributed nodes to encrypt and route your internet traffic to random nodes on the TOR Network until your traffic reaches its final destination. This makes it incredibility difficult to pinpoint the origin of internet traffic. TOR is recommended when using services such as LocalBitcoins. It is also important to note that when using KYC enabled Cryptocurrency Exchanges, the use of TOR is not advised as the intention of KYC/AML laws is to attach an identity to the user.

Similar to TOR, VPN services encrypt and route your internet traffic through a server of your choice, though you will need to ensure the VPN service does not store your data on their servers if your intention is to fully obfuscate your online identity.

Here’s a list of VPN services that do not log your data.

Online privacy, like physical privacy, should be respected. It’s not about hiding illegal activities, it’s about being able to interact with the world without feeling as if you’re being watched. Let us know your thoughts by commenting below. Alternatively, you can find us on Twitter at @ContrastCrypto.