Is Bitcoin REALLY Anonymous?
I was riding in an Uber the other day, when my driver asked me what I did for work. When I told him I was a Bitcoin Trader, I was met with the (now) usual excitement that comes with hearing this (If I had said this 2 year ago, I was usually given a puzzled look and asked what a Bitcoin was...) followed by a tirade of questions found it just about every Bitcoin FAQ post (I'm pretty sure I know my Bitcoin 101 page off by heart now).
While most of his questions were simple enough to answer, there was one that stuck out, that was a little more intricate than the rest - Is Bitcoin Anonymous? As we were nearing my drop off point, I unfortunately had to keep the answer short, sharp and sweet - In simple terms, yes, but technically, it couldn't be further from it.
So, my random ride sharing friend, where ever you are, I hope you manage to find this article, and it answers your question.
Anonymity V. Privacy
Before we begin, It should be pointed out, that the two words above, do not mean the same thing. In fact, this is an extremely important factor to distinguish, especially when it comes to using Bitcoin, and comparing it to other payment methods... to explain this a little better, I have included some expertly drawn stick figures.
Each stick figure in the photos above, represents a financial transaction (whether it be with Bitcoin, Bank Transfer, or Cash). The location of each stick figure represents their privacy, and the mask the stick figure wears, represents their anonymity.
If our stick figure friend is standing in the middle of a busy street wearing a Guy Fawkes mask, then this would show that the transaction taking place isn't private - hes standing in the middle of a public road, surrounded by other people - however the transaction would be considered an anonymous one, because no one actually knows who he is - hes wearing a mask.
If our stick figure friend remains in the busy street and takes the mask off, then his anonymity is no longer shielded - we now know his identity, or identifying features. In terms of a transaction, this would mean that the transaction is not private, but now, has lost all anonymity.
Now say, our stick figure friend takes a holiday on a secluded island, all to himself, and frolicks in the sun, beach and sand, while continuing to wear his Guy Fawkes mask. While this probably doesn't sound overly enjoyable, in terms of a transaction, this would be considered a private and an anonymous transaction - nobody knows who he is, and nobody knows that he is there.
But as before, if our stick figure friend takes his mask off to feel the sun on his face and wind in his hair, the transaction would lose its anonymity, however keep its privacy, due to the location.
Your stick figures are poorly drawn and your stock images suck. Where does Bitcoin fit in with all of this?
In terms of Bitcoin, this would be represented as our stick figure friend wearing a Guy Fawkes mask in the middle of the city - While anyone would have a hard time finding out who you are, the Blockchain is still a public ledger, viewable by anyone.
And what about the other scenarios you may ask? Well, a transaction that is low in privacy and low in anonymity, would be considered one that involves a financial institution - Transfers, Credit purchases, PayPal transactions, you name it. Somewhere along the line, multiple entities collected your information and used that as a part of your payment.
A transaction that is High in privacy, but low in anonymity could (arguably) be compared to a charitable donation. You or a charity may publish that they receive a donation from you, however the value of the payment, or how the payment was made, would not be disclosed.
Last but not least, the ever elusive, High anonymity High privacy transaction. What's involved? One thing really - cash. Legal tender can remain in circulation for years before it hits the desk of a bank teller, making it near impossible to track where it has been since leaving the mint, and where it will end up next.
But wait, didn't you ask me for a copy of my ID before I could purchase my Bitcoin? Doesn't that void the premise of Bitcoin being "Anonymous"?
In some ways, yes, sadly it does. With Bitcoin and other cryptos alike coming under heavier scrutiny by rules and regulations from Federal Governments, providing ID before purchasing Bitcoin will soon become a mandatory process for all of those wishing to enter the market - Also known as KYC/AML/CTF (Know Your Customer/Anti Money Laundering/Counter Terrorism Financing) - It is the same (if not worse) process a bank would put you through when you go in to open a bank account.
To the contrary however, Cryptos can still be purchased through "anonymous" means - such as paying cash - until the heavier laws take precedence in Australia. But even after these take effect, obtaining Bitcoin through the sale of goods or services, does bypass these laws, making it the most efficient way to obtain Bitcoin anonymously.
Times are getting tough for the ol' Zucker...
Ok, so what if I move my Bitcoin to another wallet provider? Or a coin tumbler? That would make it a lot harder to find me right?
Again, this is another point which is highly debatable. Moving your Bitcoin to a different wallet, doesn't necessarily make it more "anonymous"- especially now as technology advances, there are some smart cookies out there creating software that is programmed to identify "who" or "which service" generated a wallet address (such as WalletExplorer, Chainalysis or Coinfirm).
While coin tumbling services may give you a fighting chance in all of this, by dispersing your Bitcoin in random amounts to different wallets of your choosing, Services like BitcoinFog or HelixMixer aren't completely safe from being identified by WalletExplorer.
So really, I'm screwed. Bitcoin isn't really anonymous, and my whole life is a lie...
Well hold up just a second there! There's no need to claim the end of the world as we know it!
You see, whether we register for a wallet service with just an email, or with a fully fledged ID verification, If someone really wanted to go to lengths to figure out which wallet address was yours, it would involve some pretty heavy duty legal paperwork (like a subpoena) and even then, if the wallet provider is outside their jurisdiction, the likelihood of your information getting turned over is slim to none - and even then, your wallet address provider would still need to be identified - if there is one - And while the services listed above can come in handy, they're still a work in progress; Do you know how many Bitcoin wallets will eventually exist under the current system?
of them, so it would be pretty fair to say, identifying all of them would probably take twice as long as what it would take to generate them!
The great part about Bitcoin, is that regardless of your track history, its never too late to go incognito. Here are my Hot Tips:
NEVER reuse the same wallet address - wallets are designed to be one time use, hence they are so easily generated. Compromising on your ease of use will certainly go a long when it comes to preserving your anonymity.
Stick to cash based payment methods when it comes to purchasing or selling Bitcoin. The less middle men you use (such as banks), the better!
Set yourself up with separate contact/security information (such as emails, passwords, phone number etc.) that you use ONLY for dealing with Cryptos - avoid using your everyday contact information, or details that can be linked back to you easily.
Use TOR or a VPN service to access your wallet provider - Despite what the media may tell you, TOR is a fantastic way to protect your privacy when browsing the web - so much so that its used by military, and government agencies! Combined with a VPN, its the perfect way to keep your IP address hidden. (and no, using TOR will not turn you into a dark net dwelling junkie pedophile)
While using coin tumblers can be a great way to obscure your trail, try using services like ShapeShift or XMR.to, to convert your Bitcoin to Monero, and back again - Monero is designed to mix your transaction in with other transactions (like a coin tumbler) before ending up at its final destination. The same thing can be achieved with Zcash, Dash, and Komodo.
Have anymore hot tips to add? Maybe there's some transaction identifiers out there I missed! Be sure to let me know in the comments section below!
NB: While I have identified services and methods within this post, "Bitcoin Babe" is in no way affiliated with any of these services, and is not responsible for any losses or damages incurred should something not go to plan when using these services or methods!