May 21, 2024


Bitcoin & Tech news

Is Bitcoin really anonymous? reality and myth

bitcoin anonymous

When we started investing in cryptocurrencies, one of the main arguments that made them so interesting was the fact that they promised us anonymity when making digital transactions.

This anonymity was based on the fact that cryptocurrency wallets are not linked to any bank account or to our real identity, so in principle it is not possible to know who owns a particular cryptocurrency wallet, since it is not associated with your name nor is it registered in any database beyond the blockchain itself.

However, it is clear that this anonymity has ceased to exist in many areas related to cryptocurrencies, starting with the trading platforms themselves that request our personal data to give us access to their cryptocurrency buying and selling services, in compliance with current law.

The anonymity of cryptocurrencies is simply absent for those who buy cryptocurrencies on Binance, Coinbase or eToro, something that we simply have to accept if we want to use these services.

Anonymity is also not guaranteed outside of brokers

However, we also run into a problem when it comes to seeking anonymity with Bitcoin outside of these platforms. It is true that Bitcoin allows us to operate in the cryptocurrency market without the need to reveal our identity, but the truth is that the anonymity that Bitcoin offers us is rather a pseudo-anonymity, in the sense that, rather than hide our identity and the transactions we make with our cryptocurrency wallet, what Bitcoin does is mask those transactions and our own identity under the ‘name’ of our cryptocurrency wallet.

This problem of pseudonymity is common to the vast majority of cryptocurrencies and an inherent part of the operation of their blockchain. In order for a blockchain to be able to verify the veracity of the transactions carried out by all of its users, it is necessary that this same group of users have access to the transactions carried out by all its members, so that legitimate transactions can be verified and the data can be falsified. attempts to violate the integrity of the blockchain.

This is a structural problem of cryptocurrencies that is common to the vast majority of cryptocurrencies and that, except in projects such as Monero, allows tracing the path of the operations carried out by a specific cryptocurrency portfolio until its eventual conversion into fiduciary currencies.

There is nothing that is 100% anonymous, neither inside nor outside of cryptocurrencies

The problem of anonymity goes far beyond cryptocurrencies and extends into many other areas of our daily lives. Even services such as VPNs or the Tor browser, which in principle guarantee private browsing thanks to their robust encryption, are insufficient to guarantee us totally anonymous browsing on the Internet, since there are still aspects of our browsing that allow other companies to collect our data : for example, each time we access an online account or each cookie that stores our internet browsing data.

In this sense, it is important that we bear in mind that the supposed anonymity that cryptocurrencies offer us is only such within limits that are determined by the defining characteristics of the blockchain.

Aspects such as the traceability of the operations we carry out with our cryptocurrency portfolio or the fact that our funds become completely linked to our identity when we deposit them in our bank account or make certain payments with them, are factors to take into account. when considering this supposed ‘anonymity’ that attracts so many investors to the cryptocurrency market.

And what about Monero and other private cryptocurrency projects?

The case of Monero is different and deserves a separate chapter to review the keys to the operation of its blockchain. Since the CryptoNote white paper – the origin of Monero, back in 2013 – the traceability of cryptocurrencies was presented as one of its most important weak points, so that within this cryptocurrency it is not possible – at least on the paper– knowing how much balance a specific cryptocurrency portfolio has or what transactions have been made between some portfolios and others.

However, even Monero has its shortcomings. Leaving aside the fact that the Monero blockchain could still suffer from cryptographic vulnerabilities that expose this data – hence the US Treasury offers a reward of $ 625,000 to whoever manages to crack this cryptocurrency – there is still the problem of justifying the money coming from the Monero blockchain when it is moved to any other platform or converted to fiat currency.