How Anonymous is Bitcoin, Really?

November 22nd, 2021

How Anonymous is Bitcoin, Really?

Cryptocurrencies have always appealed to those who are interested in free, decentralized, unmanipulated money. Many people have bought into the perception that this new form of money would provide complete and total anonymity and privacy. Since the early days, Bitcoin has had a reputation for being an untraceable payment method, available to all on the world-wide web. Let’s dive into where Bitcoin earned its reputation for privacy and explore how truly private this cryptocurrency is today.

Most of the perception of privacy comes down to a matter of semantics and choice of wording. There must be a clarification on terminology to properly explore the topic. Let’s start at the digital wallet level, something everyone needs to own to be able to purchase and store crypto. These wallets are often exchanges, and exchanges require some form of proof of identification to sign up for their services. This may be a driver’s license, passport, or other government issued identification. Much like opening a bank account, these financial institutions must follow guidelines, such as KYC/AML (know your customer/anti-money laundering) practices. Some larger exchanges may even require proof of income, reporting of other assets you own, etc. in order to ensure all of these guidelines are met, and no illicit activity is taking place. Once the wallet is created with this information, the wallet is issued a unique address, specific to the type of currency you are purchasing. Bitcoin addresses are a long, typically 35-character, string of letters and numbers. These addresses provide a pseudonymous identity to the owner of the wallet, but do not necessarily make the wallet or owner anonymous. This is where the wordplay comes into effect.

Furthermore, the way the Bitcoin Blockchain was written/created – the ledger is public, available to anybody. This makes all transactions on the Bitcoin network permanently traceable, trackable, and stored in this public ledger. To add, anyone searching the ledger can view the balances, and all other transactions completed by any address. Of course, these are represented by the long string of numbers/letters as stated before, rather than the person’s name, but if authorities or someone in power were to wish, the true identity of the owner behind these numbers would surely be revealed. Exchanges have to comply with regulatory guidelines to avoid being shut down or investigated for the illegal activities discussed earlier. This essentially means Bitcoin addresses and digital wallets cannot remain completely anonymous, though they are pseudonymous to the public at large.

This being said, there are other cryptocurrencies (of much less market value than BTC) that are slightly more anonymous, in terms of purchasing on the blockchain/ledger system. These include, Zcash, Monero, and Dash. However, from a regulatory, and long-term perspective, coins like this lend a hand to illicit activities online and may be regulated out of business or forced to provide clarity. The lack of complete “privacy” Bitcoin has, can be made up for in terms of stability and adoption to governments. Those interested in investing in Bitcoin, should recognize this as a positive aspect, and friendly to governments and worldly adoption, which is sure to drive the price higher. Crypto anarchists may not be too thrilled, but there are certainly plenty of other more anonymous options. Being a limited, scarce asset, in a closed system of 21 million coins issued, the more Bitcoin that is bought and held long-term, the higher the price is to go. The clarity the ledger provides for all transactions puts regulators and lawmakers at relative ease, as many are grasping to understand this new technology.

Although Bitcoin provides little true anonymity, it does provide a clear- and clean-cut transaction ledger which not only benefits regulators and lawmakers worried about illicit use of this currency, but it also provides users clarity on digital wallet balances and bill payment history. This is very much like a traditional bank account, as many are familiar with this type of service through online banking, most commonly accessed through smart devices and mobile hardware. This transparency should put users at ease, knowing they can keep track and budget their spending through the use of this clearly defined ledger. Like a traditional bank account, each digital wallet shows purchases and expenses made through that wallet. These transactions are shown as the amount of BTC sent/received, usually the amount denoted in USD as well, and the sending/receiving address. If someone noticed an incorrect or fraudulent transaction, this transparency would provide the exchange and authorities insight into where the money went and who is behind this public key. As everyone works hard for their money, the last thing anyone wants is to have it disappear and have no trace or recourse to the perpetrator.

If mass global cryptocurrency adoption is in your vision, Bitcoin is the spearhead. Being able to securely and instantaneously send and receive money across the world at lightning speed, while also having a layer of “privacy”, without giving up security, is essential. Cryptocurrency has many false perceptions, often clouding investors and regulators judgement about this new technology, and potentially hindering its growth. Bitcoin provides the solution to these problems, as well as a long-rooted banking problem for 8 billion people around the world.

This disclaimer informs readers that the views, thoughts, and opinions expressed in the text/sponsored content belong solely to the author, and not necessarily to Bitcoin of America, organization, committee or other group or individual. All investments are at your own risk and should be done after careful research.

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