Bitcoin Is Not Anonymous

Bitcoin has in the past few years garnered a lot of traction and acceptability as a payment application and an increasing number of online outlets and merchants accept it. Some of its most talked about characteristics is its decentralization and anonymity.

But is Bitcoin anonymous? No, at least not perfectly anonymous. Anonymity in computer science is a combination of pseudonymity and unlink-ability, which is different interactions of the same user with the system, should not be linkable to each other. Examples of pseudonymity and anonymity in practice are exemplified in forums: Reddit and 4chan respectively, where in the later you can make posts without any attribution at all.

All bitcoin transactions are stored publicly and permanently on the blockchain. The addresses of the transactions are publicly available. These addresses do not necessarily trace back to specific people and users can use new addresses each time they transact, and in fact, they should, as that was the recommendation in the original whitepaper by Satoshi, creator(s) of bitcoin, which you can argue is also a pseudo-name.

Bitcoin addresses are public key hashes rather than real identities. However, once the real identity of one user in one transaction is known, then all the transactions by that user will be known. Computer science and privacy experts call this pseudonymity and not anonymity because users can interact with bitcoin without real names and the pubic keys give pseudonymity.

You can create a number of different of these addresses and by extension as many pseudonyms. However in practice many bitcoin services require real identity. Linked profiles can be deanonymized by variety of side channels such as the transactions time.

Therefore unlink-ability in bitcoin would mean three things: hard to link different addresses of the same user, hard to link different transactions of the same user, hard to link sender of a payment to its recipient. There are other services such as mixing that can be used for anonymity, which we won’t discuss here.

All blockchain based currencies are totally, publicly, and permanently traceable and without anonymity meaning privacy would be much worse than the traditional banking system as the information can be accessed by any member of the public, which brings about ethical issues.

One characteristic of technology is that things that are different morally are going to be pretty much the same technologically, so it is not going to be possible to keep the good and leave the negative aspects of anonymity such as money laundering. This can be explained in the example of the Tor Network, where an anonymous communication network can be used by both journalists and drug traffickers. Technology does not differentiate for moral reasons.

There are several other ways to make the bitcoin transactions anonymous, however, like every technology; these deanonymization techniques have advantages and disadvantages. Bitcoin is the mother of all crypto-currencies; however, there have been other new coins such as Monero and Z-Cash that try to solve some of the shortcomings of bitcoin and Ether, which allows users to build applications on the platform.