Bitcoin is usually defined as anonymous because it’s conceivable to transfer and receive bitcoins without providing any individually classifying information. But for many people, the question is: Is Bitcoin anonymous? Let’s take a look at it.
Is Bitcoin Anonymous or Pseudonymous
Bitcoin is not completely anonymous. In actuality, it is pseudonymous because each user has a public address that probably could be searched back to an IP address or cryptocurrency exchange account and a real identity through precise network examination.
Transferring and receiving bitcoins is like communicating by using a pseudonym. If an author’s alias is ever connected to their identity, everything they ever communicated under that pseudonym will now be connected to them. In Bitcoin, your pseudonym is the location to which you accept Bitcoin.
Every transaction including that location is saved forever in the blockchain. If your location is ever connected to your identity, every transaction will be connected to you. In the first whitepaper, it was suggested that Bitcoin users adopt a new address for each transaction to bypass the transactions being connected to a common master. This would be just like printing many books under various pseudonyms.
A multi-input transaction happens when you accept payments to your wallet to separate addresses, but then you transfer payment by using your own wallet which extracts bitcoins from many addresses. The resulting transaction will add various addresses as data, demonstrating that they are in an identical wallet and relate to the same entity. If your identification is ever connected to any of these addresses, none of the addresses will keep their anonymity.
Some work is needed to secure your privacy with Bitcoin. All Bitcoin transactions are saved openly and forever on the network, which indicates anyone can view the balance and transactions of any Bitcoin location. However, the identification of the user behind an address remains hidden until the data is exposed during a purchase or in other events. This is one cause why Bitcoin addresses should only be utilized once.
Bitcoin locations are “anonymous,” but if an address can anyhow be connected to a real-world status then in such cases Bitcoin gives no privacy. There are a number of methods to link addresses to real-world statuses, most prominently via Know Your Customer/Anti-Money Laundering policies at exchanges and blockchain investigation such as address clustering.
Disclaimer: This information should not be interpreted as an endorsement of any cryptocurrency. It is not a recommendation to trade. The crypto market is full of surprises and overhyped assets. Do your research before buying anything. Do not invest more than you can afford to lose.