Every day, the number of online merchants who are offering the option to use Bitcoins and other crypto coins as a payment method is increasing. One of the many great things this cryptocurrency promises to provide to its users and clients is anonymity. All of the transactions that are created in the Bitcoin blockchain are recorded and are available to the public; although, these transactions are linked with a simple electronic address. Now, this is great because there is no way that someone is able to trace your purchase specifically to you, no matter what you buy with your BTC.
Contrary to popular belief, Bitcoin is not completely anonymous. In fact, you could say that it is pseudonymous due to the fact that every user has a public address. Theoretically, it is possible to trace back the aforementioned public address to an exchange account or an IP address and even an actual identity with the help of network analysis. Pseudonymous privacy, as called by the experts in the field, is pretty similar to how you write books under a nom de plume.
As long as the pseudonym is not actually linked to you, you can keep your privacy safe. But this is at the expense of one thing. So, if someone happens to link one of our books to you as the author, then the deception is compromised. In other words, your entire history of your writing is linked to each book and by leaking one of them, the whole thing becomes public. Similar to this scenario, the second somebody finds the link between your personal details and your Bitcoin address, then your purchase history is also going to be revealed.
So, instead of asking the question: “is Bitcoin anonymous?” we should ask the question: “To what extent is it anonymous?”. This question is a much more suitable one and is much more interesting to learn about.
It is anonymous in the way that different parts and components of Bitcoin, such as public and private keys, IP addresses (or other type of addresses), and most importantly transactions, are all read and understood in text strings. An example of this is a public address that there is no way for it to be linked directly to someone’s real personal identity. Here is the breakdown. So, in case you use an address on an exchange which makes use of KYC – or Know Your Customer for those of you who want to know the full phrase – then, it is possible to link that addressed that we used to a someone’s identity in the real world and this process is not that hard either. It does require some effort but it does not need a lot of it.
Thanks to the work Steven Goldfeder has done, we can get an answer to this. As stated by Goldfeder and his team, if data is leaked during normal purchases, it makes the whole process of trying to link Bitcoin transactions they make with real life individuals becomes pretty straightforward. Also, it is good to know that when data is leaked, it is over and it doesn’t even matter if you use some privacy protection services, such as CoinJoin, as extra layers of security. They are only there to prevent this, not undo the disaster.
The main culprits here are cookies and Web trackers. Cookies are small pieces of code that are put into the website intentionally. They send data about the way users and viewers utilize different parts of the site to third parties. Also, common Web trackers send data and information to Facebook, Google, and some other platforms in order to track browsing habits, purchase amounts, page usage, and many more. There are even some Web trackers that are able to send such data as your name, email, address, etc. that are identifiable personally. This way, there is always the possibility that data about a transaction gets leaked into the Web in which law enforcement agencies, governments and even malicious users are able to collect and analyse it.
Most of this (that is leaking the information) is deliberately done due to analytics and sometimes advertisements. Among the ordinary data leaks that happen every day, there are some particular websites that have much more serious information leakage that might even reveal the exact details of transactions on the Bitcoin network to a lot of trackers. Although this may be totally unintentional, it still creates a lot of risks for the users who have to leak their sensitive data just to use a particular website.
Now, this is some seriously bad news for those who wish to keep all their bitcoin exchanges private and anonymous. Even if you succeed to keep the exact transaction hidden, there is still a chance that the link is made and the leak includes the time of the purchase and the amount of coins involved.
In this scenario, when the eavesdropper finds the leaked data, they have to first convert the amount purchased to Bitcoins with the help of Bitcoin exchange rates at the time. Then, they need to search the Bitcoin blockchain and look for a transaction in it with a similar amount in the leaked data. The user’s Bitcoin address will then be revealed as a result of this process. From then on, it is easy to track the rest of the transactions down. In fact, you could say that tracking down any other exchange created with the same address they just got is going to be a walk in the park.
Although, there are still some more factors that need to be considered for they might make the process harder and a bit more complicated. We already established that the Web tracker can leak information regarding the time the transaction occurred and the amount involved in it but sometimes there is the complexity of shipping not being included in the data. This way, the total amount of Bitcoin exchange is unclear and therefore harder to crack.
There could also be a gap between when the page that the data was leaked from was viewed by the user and when the actual purchase was made. A great example of such a case is the checkout cart. You should know that every Bitcoin transaction is time stamped meaning there is always the time the purchase happened written besides it. Due to this, not knowing the exact time or whether it’s accurate or not is going to throw a different level of complexity into the mix.
Most of the time, the amount purchased is not already in bitcoins and it is given in a local currency. For example, the transaction reads X amount of pounds or dollars which can be converted into Bitcoin with the help of exchange rates. The problem is, there is a huge variability in exchange rates for Bitcoin; so, if the time of the exchange is not stated accurately, then it is going to be extremely hard to find out the exact value of the exchange in BTC.
There is a really clever method to further conceal your Bitcoin information and that is with the help of CoinJoin. It is quite a common and popular way and a lot of people utilize this method so it’s pretty efficient and much safer. This service does a very simple, yet a smart job to confuse the eavesdroppers. It joins users – as is already clear from the name – who wish to make similar purchases and lets them pay together. Now, what this does is that it mixes all the bitcoins in the transaction, therefore making it super difficult to track down each one of them separately.
All of the aforementioned methods can make it more difficult for your data to be leaked and used to track you down but they do not, by any means, mean that such an event never can happen. In other words, the chance of a data leak can be reduced to as low as it gets but it never reaches zero and in mathematics, any probability of higher than zero is still possible. so, there is no guarantee your data does not get used but at least you can make sure it’s not as easy.
Besides having a transparent and open ledger, Bitcoin exchanges are built in a way that they leak information about users. It is good to know that every exchange has a couple of inputs that belong to a certain person. When analysed carefully, all of these inputs can lead to the person’s address and other transactions and tracking them down becomes much easier. With that said, it is important to know that Bitcoin is not anonymous due to all of the facts stated throughout this article – even if many people say otherwise – and that is exactly why you should be more careful about your privacy.
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