Many people, especially those new to blockchain believe Bitcoin is anonymous. Well, who could blame them? After all there is evidence of some sort of ‘anonymity’ in Bitcoin.
For instance, the transactions on the network do not involve personal data. It is therefore possible for a bitcoin owner to protect their data to a certain level.
An individual can also spend bitcoins without involving their name in the details. Only the account is connected to where they receive the Bitcoins.
Bitcoin was created to be a trustless mode of currency to be used across the globe. Together with the reasons above, it is easy to assume the Bitcoin is anonymous.
However, the address linked to the account of a Bitcoin holder can be tied to their real identity. This makes it possible to know where they came from. The reason is, Blockchain keeps a permanent record of every transaction on a public ledger which can be accessed by anyone.
The true nature of Bitcoin is described as pseudo-anonymous. To ensure no one links your address and identity, you are advised to use a new address each time you make a transaction.
Bitcoin transactions in brief
The best way to understand this is to understand how cryptocurrency works. There are inputs and outputs in every Bitcoin transaction.
The inputs are represented by your account where the bitcoin is sent from. The output on the hand is the account the received the bitcoin. A transaction may be required to move from one or more inputs to one or more outputs.
Most people achieve transactions by merging several smaller inputs and outputs. For instance, two inputs controlled by an individual would be merged to buy an item for 1.5 Bitcoin. They become one transaction. This will also demand the involvement of many inputs since there will be a change of address. For the example above, the buyer’s address will receive extra 0.5 Bitcoin.
How is anonymity compromised?
There are several ways this could happen. Consider the following:-
- The connecting nodes can lead to the discovery of a transaction origin. Bitcoin runs on a P2P network that is not completely secured.
- Sometimes a Bitcoin users may include their personal identity, for instance on an exchange. This happens mostly when giving a delivery address for purchased goods. The transaction can be easily tied to the buyer’s identity. This is in the case where the input address transaction is tied to the identity of the buyer.
- The Bitcoin transaction takes place on a public ledger. This means, Bitcoin are open to all and the addresses can be traced. A group of Bitcoin addresses can be tied together. If there any individual’s identity tied to any one address, others in that same group are also tied.
Can you use Bitcoin anonymously?
Yes. You can achieve anonymity by:-
- Using more than one wallet for every transaction
- Using mixing services to hide your tracks. https://mixertumbler.com/ is a great and trusted bitcoin mixer.
- Using online wallets. Active services store all bitcoins entrusted to them. Though they are vulnerable to hacking, they can help hide your transactions.