Are Bitcoin Transactions Anonymous?
As a rule of thumb, for any bitcoin transaction, neither the sender nor the receiver is required to make available any other personal information about themselves. Users have the choice to either disclose their identity or to be incognito when transacting, but how anonymous are those bitcoin transactions where the users have chosen anonymity? The aim of this article is to investigate this question and come up with a definitive answer.
Achieving realistic anonymity with bitcoin can be quite difficult and complete anonymity may be virtually unattainable. It is therefore said to be pseudonymous since transacting in bitcoin is like writing under a pseudonym, a nom de plume as it were, whereby if an author’s pseudonym is ever linked to their real name, every work they ever did will end up being linked with their real selves. In this regard a bitcoin’s user pseudonym will be the address to which you received the bitcoin, which has every transaction associated with it stored forever in the blockchain. Therefore, it’s always advisable to use a new address for each different transaction to avoid some scenario whereby different transactions are linked to a common owner.
The question now becomes: how easy is it to link your personal details to your bitcoin address? Well, it may come as surprise, but it is quite straightforward to link individuals to their corresponding bitcoin transactions. This is still possible even after the use of extra privacy fortifications like CoinJoin. This is mostly due to cookies which are designed to send information to third parties about the way people use the site. Web trackers, which are also to blame, send information to Facebook, Google among others for tracking of page usage, browsing habits etcetera. Some trackers may even end up sending your more personal stuff like your name and email address.
The fact that bitcoin transaction data is conveyed and then forwarded by nodes to a random set of nodes on the peer-to-peer network was meant as a way of advancing anonymity. However, if somehow an attacker finds the means to connect several nodes to the bitcoin network, the amalgamation of this data collected from the different nodes may be sufficient to determine where a transaction originated from.
Another factor that might interfere with anonymity when transacting bitcoin is the effects of clustering. This are extrapolated by the transparent nature of bitcoin transactions. This leads to a scenario where multiple bitcoin addresses are clustered together and linked to the same user. There are some bitcoin software that reveal the change addresses to observant onlookers as well. This is possible when the software always creating a change address as the last output of a transaction. Those who make use of multisig-addresses are vulnerable as well as the same issue crops up. Taint analysis which, in a nutshell, involves the calculation of the percentage of bitcoin on a specific address with its origin from another specific address. Amount analysis and time analysis also erode anonymity by analysing the specific amount and time of transactions respectively.
Anonymity is also interfered with by multi-input transactions. This is basically when payments are received to your wallet from different addresses, but you consequently then send a payment out of your wallet which fetches bitcoins from several addresses. This leads to a scenario where the outgoing transaction includes multiple addresses as inputs and therefore demonstrating that they are in the same wallet and belong to the same user.
Ways in which anonymity can be retained
One way to improve your anonymity is in the use of multiple wallets. This allows you to have the equivalent of multiple distinct identities and can be achieved by use of a software known as MultiBit which allows you to manage multiple wallets from one program. The use of web hosted wallets can also be very effective in boosting anonymity.
Another way of boosting anonymity is by use of what are known as mixing services which basically take your bitcoins and deposit them in a big pot with other bitcoins from many other users and then sending them back randomly rendering it impossible to deduce which inputs connect to which outputs. However, this route carries with it its own risks and requires you to place a lot of trust into the hands of a third-party entity.
The use of tools such as AdBlock Plus, Ghostery, UBlock Origin etcetera can also be employed to deal with web trackers. Setting strong privacy and security protocols on your device can also be helpful as is using an operating system with strong privacy features like Linux.
It should be also outlined that the pseudonymous nature of bitcoin has its advantage in law enforcement as the various agencies concerned are able to track and weed-out criminals and those engaging in shady activities.
This article clearly shows that bitcoin users don’t enjoy complete anonymity but they also some level of it and with the use of the practices discussed you can maintain a generally acceptable level of anonymity when transacting. Remember as always you can learn a lot more by visiting authoritative sites on the same such as bitgale.com