News - How anonymous are Bitcoin transactions?

By Ted Maas

How anonymous are Bitcoin transactions?

Bitcoin (BTC)
Privacy and security

Bitcoin is often thought to be anonymous. In fact, however, the cryptocurrency is pseudonymous. Can Bitcoin transactions be traced?

Is Bitcoin anonymous or not? Bitcoin still has a reputation for being used primarily for illegal purposes, such as to launder money without being seen. In fact, however, the cryptocurrency is pseudonymous.

This is because blockchain technology is a publicly accessible database where one can track all transactions ever made. However, the respective addresses consist only of numbers and letters and are thus alphanumeric. With a little analytical skill or basic technical knowledge, it is then possible to track who sent how many Bitcoins to whom.

In the past, criminals repeatedly fell for the misconception that Bitcoin is an anonymous currency, which ultimately played into the hands of law enforcement officials. This way, all they have to do is figure out which exchange the BTC address in question is linked to and they can find out the details of criminals.

Yet criminals have long found ways to cover their tracks. For example, there are so-called Bitcoin mixers that send the BTC through different addresses until they are untraceable or difficult to trace. The operators of the legendary crypto scam PlusToken allowed several million US dollars to disappear into the depths of the crypto sector.

Which cryptocurrencies are anonymous?

Finally, there are also cryptocurrencies, so-called privacy coins, that "by default" offer some anonymity. One of the best known is probably Monero. There, sing-signatures ensure that traces gradually fade away. A system similar to bitcoin mixers.

The cryptocurrency DASH, meanwhile, offers the "Privacy Send" option. This allows users to optionally cover their tracks on the Web. The transaction is mixed with those of others, making it impossible to trace which person made which transaction.

ZCash is also a privacy coin. The protocol here relies on the so-called zero-knowledge proof ZKSnark. Both parties to a transaction must be able to verify the transaction without having to know the identity of the other. Yet such coins are becoming rarer and rarer. Licensing applications are increasingly relying on the prohibition of privacy coins.

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