Are bitcoin transactions anonymous?

Bitcoins have often been described as a method of transacting anonymously, but just how anonymous is it really? To answer that question, you first have to make a basic distinction between privacy and anonymity in the financial context. An anonymous transaction takes place when no one knows your identity. Meanwhile, a private transaction could be defined as when a person purchases something and the amount remains unknown.

Traditionally, cash and barter have been the best method for private and anonymous methods of transacting, and in contrast, you have transactions that are neither private nor anonymous. That could include campaign contributions that hand over certain amount of cash. Your identity will be connected with every purchase using a credit card, for example. In addition, you have financial institutions that are private but not anonymous. A local museum may identify the names of people who donated, but it will not detail the specific amounts donated.

When you look at Bitcoin, they are a company that is anonymous but not private. While the identities will not show up on the protocol, every transaction that takes place will be visible on what is called the electronic public ledger. This is also known as the block chain of Bitcoin, and many have referred to it as a remarkable innovation that has let them operate. Because of the anonymity of Bitcoin, it has turned the currency into an attractive option and a challenge for financial institutions to regulate. The adoption of this new currency has continued to grow, and both the legal and financial institutions have looked at based on compliance.

Despite what seems like anonymity, some users who set up Bitcoin wallets at the popular places and exchange services have found that participating through these sites has linked their identity to the bitcoin holdings. As a result, they no longer remain anonymous, but that loss of anonymity occurs when a person chooses the wrong point of entry. If you want to stay anonymous, then you should find an entry point that does not disclose your identity. Because actual identities never get recorded on the block chain, the only piece of identifying information relates to the bitcoin address.

Keeping your identity anonymous even with Bitcoin can be difficult because even if you secure bitcoins without revealing personal information, people can still uncover your actual identity when they look at the transactions within the network. Some of the techniques that uncover a person’s identity include exposing an IP address or looking at the transaction ledger. The Bitcoin user does not have a limit on the amount of addresses that they can use, and as a result, they can store their bitcoins with a single address, or they can spread them over dozens of different addresses. With multiple addresses, tracking where the funding has flowed can be difficult, but transparency can be found when looking at the ledger for spending patterns.

Transaction graph analysis is another method that people have sometimes used for making educated guesswork. A person looks at around 57 million different transactions, and they will often have 62 million addressed, but that analysis can help investigators identify certain traits between among different Bitcoin users that they can later use for mapping.

One of the most basic techniques that has been used with transaction graph analysis relates to looking at the input address. These addresses will be controlled by a single person, and if that address shows up elsewhere on a block chain, then they can link the various transactions to that person. When you have excellent knowledge over how the transaction ledger takes place, it also gives you more information that can be used for puzzling out someone’s identity. Even with the disclosure of one person’s identity, the transaction on that address can be traced back to it even years later. You can, however, take greater measures to conceal your tracks than with regular cash.

Using the IP address to identify someone has also become a popular method of finding people and their various Bitcoin wallets. One of the ways that people have chosen to stay anonymous using Bitcoin is by using a TOR router. That does offer a little extra security against having your IP address exposed, but it also leaves you vulnerable to cyber attacks.

How anonymous is Bitcoin today? While the currency has greater anonymity than paying with cash, you have to stay dedicated to remaining anonymous if you will actually do so. Some people have gone to great lengths to stay anonymous, but the trouble with this is that the transaction ledger will easily leave you open to having your identity uncovered with enough research. As people continue to adopt the technology, on the other hand, the techniques for staying anonymous will improve, and there could be new regulations that will make it easier to discover a person’s identity.