Bitcoin is the first digital and decentralized cryptocurrency in the world. This means that the currency is not regulated by any central bank or any other parties, instead, it is a peer to peer system and the transactions are executed without the participation of any intermediaries. In 2009, Bitcoin was created by Satoshi Nakamoto. Bitcoin is operated by a decentralized authority and offers lower transaction fees compared to other online payment mechanisms. Bitcoins are kept on a ledger in the cloud and there are no physical bitcoins. A lot of computing power is used to create and mine bitcoins around the world.
Why is Bitcoin thought to be anonymous?
• On a protocol level identity of the user is not tied up to the address of the bitcoin unlike most payment systems like the banks are. Anybody can have and create a random and a new bitcoin address with a private key without giving out any personal information.
• The identity of the user is not tied up to the transaction and in case it is (even a minor information) it includes the transaction in a block. This is similar to physical cash as the sender and receiver do not need to know personal information about each other.
• Thirdly, on a peer-to-peer network bitcoins transaction data is forwarded by nodes to a random set of nodes IP-address that is not used to connect bitcoins to each other.
Transactions are recorded and made public by Bitcoin merchants through the cryptocurrency network. An electronic address is the only link the transaction can be traced to you. As a matter of fact, if someone can identify your address and links, your transaction history can be revealed. Research shows that even with additional privacy protection, linking information of individuals is not very difficult. How people use different websites is monitored by web trackers using cookies. This personal information like names, address, and email. They can be sent to Facebook and Google and other track pages. With this leaked information malicious users and law enforcement agencies can readily collect and analyse it.
When you have somebody’s personal information like name and email and link with a Bitcoin address learning about the transactions is rather easy. Information leaked by web trackers is mostly used for analysis and advertising companies associated with companies such as Microsoft, Overstock, and Newegg. This company can reveal the information to the government or leak it.
When you purchase and use that sum of Bitcoins the links are still available and it is still possible even when the transactions are hidden. This is done by converting the purchase amount to the value of Bitcoin at the time of a purchase. Once you have the address the other transactions made with that given address are the transaction history for that specific individual. A blockchain is a decentralized public ledger which records Bitcoin transactions which can be viewed by anyone and is recorded transparently.
Even if a transaction is transmitted on a peer-to-peer network, this does not make Bitcoin completely anonymous as somebody can easily connect multiple nodes to the bitcoin network the combined, collected data can determine the origin of the transaction. Also, people who use multiple addresses might not be anonymous as they think as some bitcoin software can reveal you to onlookers this is done by creating a changed address as the last out of a transaction.
Your Bitcoin might not be so anonymous due to personal mistakes such as publishing your Bitcoin address online. Publishing it once is enough for other people to see the future transactions and you may be traced from the moment. Ross Ulbricht, a drug trafficker made the same mistake who later lost millions of bitcoins to FBI.
In 2012, Roger Very, a famous bitcoin angel investor revealed personal information to a person doing business with him like his name and address became his worst mistake in the industry. He had special privileges to the blockchain. To remain anonymous be careful who you reveal your personal information to.
Another way to be traced is when you buy bitcoins on exchange platforms – like Coinbase, thanks to which without leaving the comfort of your home you can easily purchase bitcoins from similar websites. To buy these coins, in some cases all you need is an email address and password. Most exchanges require more information like government ID card, passport, utility payments etc. Most exchanges give out enough information to link you to your bitcoin transactions.
Illegal activities have been cracked down by the government involving bitcoin. Governments use your Internet provider who in turn uses your Internet data for marketing and analysis to track down criminals. As long as you do not use VPN or Tor your internet service provider collects your Internet information. Bitcoin as somehow succeeded in finding a breakthrough as a payment sector and disrupt the financial sector. Companies like Overstock who you can use bitcoin as a payment method ask for a lot of additional information which can later be used against you.
How can you Increase Anonymity?
You can increase anonymity of your bitcoin through the following ways:
• Tracking one’s account can be hard if the web tracker does not include shipping in the bitcoin purchase by making the information not clear.
• If time is unknown as time is used in tracking, Bitcoin is time-stamped if you put a gap between when the user viewed the purchase and when the information was leaked would make your bitcoin account anonymous.
• Looking for exchanges that do not ask a lot of personal information. You can mine bitcoins for yourself instead of buying from exchanges or you can buy it from someone who requires a lot less personal information. If possible buy your bitcoins with cash, as some exchanges allow face to face meeting. Make your IP-address anonymous by using Tor and VPN. Bitcoins are bought using different currencies like euros and US dollars the price is always changing if you try and trace somebody buys converting the bitcoins to the currency you might get it wrong.
As it currently stands as highlighted earlier, Bitcoin is not anonymous. Therefore, unless a protocol-level anonymity system is included by Bitcoin, then Bitcoin users will have to do way more to decrease the high probability of detection by having to follow multiple workarounds. Consequences remain to be a probable fact if these users do not go by the rules.