One of the most often heard comments is how Bitcoin is anonymous. In reality, things are very different. There is no privacy when using Bitcoin by default, let alone anonymity.
The Transparent Nature of Bitcoin
To the average onlooker, the Bitcoin ecosystem may seem mysterious and complex. There is no sharing of public details or identities when sending or receiving BTC over the network. Everything is handled by decentralized technology through wallet addresses made up of letters and numbers. This is what is widely known as “pseudonymity”, akin to an online username or alias.
To achieve anonymity, however, Bitcoin isn’t suited. Even though many people assume all internet activity to be anonymous, that is far from the case. Anyone in the world can track Bitcoin transactions in real time, without the use of specialized software. All it takes is an internet browser, and a Bitcoin block explorer.
Being able to look at transactions in real-time does not offer insights as to who the Bitcoin users in question may be. That requires a bit more effort. After all, the encryption tools powering Bitcoin are built by academic researchers, who have made their findings public. People comfortable with these matters will easily find ways to reverse any aspect that offers privacy or pseudonymity.
This has given rise to what is known as “blockchain analysis firms”. Outfits such as CipherTrace specialize in linking Bitcoin transactions to real identities. Even if the funds pass through several pseudonymous addresses, there will always be a trail to follow.
Disrupting the Trail
Bitcoin mixers can offer a way to break the digital trail, so to speak. However, mixing services are also on the radar of law enforcement agencies. It is a matter of time until most of these services will be gone forever. Moreover, there is no guarantee a mixer doesn’t record user information.
Without using mixers, there are other solutions available. Wasabi, Whirlpool, and other tools can be used to remove any previous trace of one’s Bitcoin transactions. It removes “taint”, but is not always a foolproof solution either.
More importantly, these are not features the average Bitcoin users will ever rely on. It requires a moderate amount of technical know-how to set up these types of transactions. It is becoming easier to do so, but for now, this remains a rare approach.
Can you Achieve Bitcoin Privacy?
While it may seem daunting to try and achieve privacy when using Bitcoin, there are some simple steps to achieve minor privacy. Although these steps may not make much of a difference for those engaging in illegal activity, honest users should conduct these practices as often as possible.
The first option is to not share one’s public Bitcoin address publicly. More specifically, not using this address in forum profiles, on social media posts, or otherwise. Only share it when someone has to send or receive a payment.
Using a VPN is a solid second option. It may not do anything to hide one’s Bitcoin address on the blockchain, but it will show a different IP address associated with the transaction. Not all Bitcoin transactions record the IP address, but the site used to perform transactions – for example, an online store – may record this information.
Last but not least, avoid reusing the same Bitcoin address. Every user can generate dozens of addresses if they want. This process can be repeated over time too, allowing for nearly infinite wallet addresses. Reusing the same address time and time again is never advised, and avoiding it is always the best option.