Bitcoin, in particular, has an image for being a totally anonymous means of payment that is unaffected by monitoring or meddling. However, a deeper examination reveals that these virtual currencies expose far more info about you than you would imagine.
The major problem with Bitcoin is its wallet, which is where your Btc is kept. The majority of cryptocurrency wallets are pseudonymous instead of anonymous. Anonymity is defined as being “nameless” (derived from the Greek phrase “without name”), however your wallet provides you with a fictitious name, a pseudonym. You’ll receive some jumbled numbers and letters instead of “Mark Twain,” but the concept is the same.
Despite the fact that the Btc Project itself discloses this details, many consumers believe that because their wallet addresses are scrambled, payments cannot be traced. After all, that’s the whole idea of using a fictitious name. Your Bitamp Bitcoin wallet address, on the other hand, can be found easily: it’s right there in the system’s setup.
Bitcoin is based on a blockchain, which is a chronological record of when Bitcoin was created, where it was used, or by whom. This list, sometimes known as a ledger, is open to the public. Anyone can observe which wallets spent which Bitcoins and where they were spent. Despite the fact that the individual who spent the money is obscured by a jumble of letters and numbers (one example is “vBZSEYstAetqTHn5Au4m4TFg7xJaN,” which is phoney), their action is not.
For example, if you know your friend John spent money on a certain service—say, a VPN—on a specific day, you can look up which crypto address spent the money on that VPN in the ledger. Even if your search yields more than single or multiple two addresses, you can look into where the money was spent elsewhere. You have an additional data point if one of the addresses you obtained makes a Wikipedia donation, as John does on a regular basis.
It isn’t a single data piece that identifies you, as it is with browser fingerprinting. It’s a whole image. It’s also simple to piece all of these tiny parts together with today’s technology, rendering pseudonymous accounts nearly worthless when it comes to safeguarding your identity.
But there’s another issue: spending Bitcoin isn’t anonymous, and neither is buying Bitcoin. All exchanges that allow you to trade your government-backed cash for cryptocurrencies require some form of identification, such as a passport, a driver’s licence, or a state ID. To function, exchanges, like ordinary banks, must use know-your-customer (KYC) procedures.
This may entail requesting your identification (as seen here on the Coinbase website) as well as proof of employment and other information. They do it because they have to, much like banks: Governments all throughout the globe are cracking down on financial fraud, regardless of how it is done. Authorities may see who purchased how much and when by just asking the trade for your information because the ledger is public. If you believe getting a phoney ID would help, you’re in for a rude awakening: The bank account you used can potentially be used to identify you.
Of course, there are methods to get past these measures, but they’re frequently rather technical or simply prohibitively costly, such as setting up a unique protocol to mask the source of your transfer or hiring an intermediary to acquire Bitcoin for you for a charge. After you’ve covered the sources of the purchase, you’ll need to cycle through multiple wallets on a regular basis. That should be sufficient to hide your trail, at least in part.