Bitcoin 106 (101 part 6): anonymity

Wednesday 06 July 2016

People often say that bitcoin is anonymous, but it’s not quite that straightforward.

Bitcoin has received lots of attention for enabling ‘anonymous’ transfers of money, which make it a popular choice for buying drugs online and other types of criminal activity. However, it is not entirely accurate to say that bitcoin is anonymous. More accurately it is pseudonymous, and transactions can be traced back to their source due to the way the blockchain records every transaction.

Anon

Bitcoin can be used anonymously - but it's often possible to find out something of who's behind an address

Pseudonymity

Each bitcoin address is a unique string of characters derived from its private key, which gives you access to it. In itself, there’s nothing to link the address to its user - it’s not like a bank, where you have to provide information to get an account. When you send bitcoin to someone else, there’s a link between the two addresses on the blockchain, but once again, nothing that inherently identifies either of you. So it’s fair to say that although it’s possible to see whether the money is moving, and what any given address is doing, you can’t necessarily tell who is doing it from the blockchain itself. The address is a pseudonym, like a pen name. Used carefully, bitcoin is, effectively, anonymous.

Outside information

In practice, though, bitcoin often isn’t as anonymous as people like to think. This is because information from outside the blockchain can be used to identify the owner of an address. Once you identify the owner of an address, you can link that person to other accounts they send funds to.

There are many different ways in which an address might be de-anonymised. People sometimes post them publicly on internet forums, along with other information that points to them (intentionally or otherwise). They use exchanges, which typically require some kind of registration requirements like an email address or even passport details - which the authorities may demand from them. It may even be possible to link transactions that are visible on the blockchain to specific events. For example, suppose someone says that they will send $1,000 in bitcoin; if you know the exchange rate at the estimated time of sending, you can find all the transactions that match that amount and correlate the addresses.

The bottom line is that bitcoin can be used anonymously; however, some information may well be available to anyone with the time and resources to dig around for it.


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