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Bitcoin’s rapid growth has indeed been something of great wonder. In recent times, the coin has gained increased usability, evidenced by increased transactions-nearly 270 000 transactions per day with an increased number of online merchants who offer the ability to pay using Bitcoin.
While Bitcoin’s transactions have often been described as anonymous, the coin isn’t entirely anonymous. Yes, Bitcoin transactions are recorded and made public but are linked only with an electronic address. This, therefore, means that whatever you purchase using Bitcoin as a means of payment, the transaction cannot be traced to you specifically.
Similarly, it’s impossible to identify individuals holding Bitcoins even when having their addresses as their identity isn’t directly linked to the addresses. Nonetheless, there are some loopholes in Bitcoin anonymity, making it pseudo-anonymous.
A clear indicator that Bitcoin is pseudonymous is that anyone can access the permanent record of all transactions as it’s made public. The identity of individuals transacting in crypto is masked with encryption generated by public key cryptography. In each Bitcoin transaction, users are assigned two digital keys: a public key/address and a private key, also referred to as a signature.
The private key is the most important when it comes to security, as it is a sign that the user has signed off the transaction. The public key functions to indicate the time and amount of transactions. In addition, Bitcoin pseudonymity makes it possible to trace transactions to the user’s IP address and exchange account.
Encrypted Bitcoin transactions may imply that the transactions can be viewed but cannot be entirely traced to a specific individual. However, Bitcoin’s transaction is not as encrypted as this and can be abused in several ways.
First, Bitcoin trading exchanges such as Binance, Kraken, Bitfinex, etc., undermine Bitcoin encryption. This is because their KYC and AML policies demand that users provide personal information regarding real-world identities, including users’ two names, phone number, or even users’ IP addresses. This information can easily be retrieved if the exchange is breached.
Also, most Bitcoin crypto owners have linked their wallets to exchanges making it possible to trace their identities.
To evidence that Bitcoin’s transactions can be traced, there are companies, notably Chainanalysis, those track crypto transactions suspected to be linked to criminal activities, i.e., Darknet transactions. Chainanalysis has used its Blockchain analysis software and other clues to trace crypto transactions to their real owners. In essence, Bitcoin may claim to be anonymous, but it’s entirely not, and you should strive to remain anonymous.
Why is it important to maintain anonymity when making crypto transactions?
When you want to remain anonymous when making Bitcoin transactions of the utmost importance, especially when you want to uphold your coin’s security, anonymity may seem of concern to hackers or individuals who want to conduct illegal transactions. Still, it’s essential to any avid crypto user. With increased anonymity, you are not limited to regulations hindering cryptocurrency use and can also enhance and maintain your privacy.
While maintaining anonymity may be difficult thanks to increased blockchain software and the availability of networks designed to deanonymize users, it’s still possible to keep your anonymity when using cryptos using the below means ( behaviors and technologies).
1. Bitcoin Mixing-Tumblers/mixers
Bitcoin mixing is a new technique to hide BTC transactions by cutting off each transaction’s links and tracks. As a result, they confuse the trail of cryptocurrency transactions. Mixers and tumblers break the connection between Bitcoin addresses by either using a temporary address or swapping coins with other addresses with the same value.
They are essentially muddling the transaction address to offer a new start to anonymity. This, in turn, makes it quite challenging to follow the trail of the transaction. There are two types of Bitcoin mixers-centralized or decentralized. The difference is that decentralized mixers obtain the same mixing goals without the central authority overseeing the mixing.
2. Adopt Safe Behaviors when Transacting
To ensure anonymity in crypto transactions, you should first adopt safe behaviors. An anonymity loophole you should look out for is giving out personally identifiable information. You should also avoid linking your data or organizational information to the cryptocurrency address or transaction. Most crypto exchanges leak personal data such as IP addresses and other personal information that makes transactions traceable back to you. Adopting safe behaviors will ensure that you maintain some level of anonymity.
3. Hide IP Addresses Using Tor or VPNs.
VPNs, as well as Tor browsers, can safeguard your identity and also maintain a high level of anonymity. They achieve this by masking IP addresses and hiding users’ data, making transactions impossible to trace transactions.
4. Use New Bitcoin Addresses for Each Transaction
HD wallets provide a means by which you can generate new addresses whenever you intend to receive Bitcoins. New addresses ensure that you remain anonymous, mainly if you transact Bitcoin regularly. Note that Bitcoin works based on a blockchain that is public and transparent. Therefore, anyone with your address can establish how much balance you hold. Therefore, re-using the same BTC address is not advisable as it can compromise security and privacy.
5. Use a Stealth Address Instead of Publishing a Real Address
Suppose you’re looking for public donations or payments. It will be necessary to publish Bitcoin addresses on public spaces such as social networks or websites. However, this move is not advisable since transactions can be traced to you. Your account balance can also be found. Instead of publishing real addresses, you can use stealth addresses. Stealth addresses facilitate transactions when asking for donations from the public. These addresses allow users to enhance anonymity by masking the user’s actual address, thus preventing analysts from tracking the transactions.
6. Buy/Sell Bitcoins in Cash
Buying or selling Bitcoins in Cash also offers an anonymous way of transacting Bitcoin. It’s possible to purchase Bitcoin anonymously by not using exchanges. Instead, you can use services such as Localcryptos, which provides anonymous face-to-face interaction integrating Escrow services.
Bitcoin may claim to offer anonymous transactions, but this isn’t the case. Bitcoin anonymity can be described as pseudo-anonymous since it’s possible to trace a transaction’s origin. Nonetheless, Bitcoin’s users can take drastic measures to remain anonymous.