Bitcoin anonymity – myth or bitter half-truth?

Ted Capwell


Probably only lazy was not interested in the anonymity of bitcoin. Many questions and debates have arisen since the sharp increase in the popularity of cryptocurrencies. Opinions were divided into several camps. There are those who believe in the complete anonymity of the coin, and there are those for whom bitcoin is an ideal tool for illegal fraud, deviation from the payment of taxes and even the financing of terrorism. The rest are convinced of the ability to calculate any user and that the anonymity of bitcoin remains naive. But the truth often lies somewhere in the middle. Let’s try to find out!

What is the principle of bitcoin transactions?

Before talking about the anonymity of bitcoin, it is important to understand the principle by which transactions are carried out. Therefore, for your understanding, consider the following simple example.

You want to send bitcoins to a friend-a few clicks and coins are written off from your wallet in an instant and credited to your friend’s account. Superficially precisely so this will look for you. But internally, this transaction will include three types of information:

• Entrance – record of the bitcoin-address that was used to send bitcoins – this will directly be your bitcoin-address (using the private key associated with this bitcoin-address).

• “Quantity” – records the number of coins transferred by you.

• “Exit” – record the bitcoin-address of the recipient, the father-in-law address of your friend.

In the process of implementation of each transaction, bitcoin is transferred from one or more inputs to one or more outputs. Ask why? The answer lies in the fact that the situation when the entry and exit is one is possible provided that the amount of bitcoins transferred is equal to the amount previously received – which is quite rare to find. Often a transaction will consist of more than one entrance.

What is the anonymity of bitcoin?

The ideological nature of the bitcoin network lies in the series of transfers between bitcoin addresses, where no one can know who they belong to. In other words, the anonymity of the owners of the coins.

There are three reasons to consider the anonymity of bitcoin:

• Absence of binding to the user’s identity for a bitcoin-address creation, as opposed to many payment systems. Everyone can create a new address at any time. The bitcoin-address is generated randomly without any need to enter data about the user.

This is in fact the main factor on which the anonymity of bitcoin is based – without specifying information about yourself, the user receives a string consisting of numbers and letters.

• Absence of binding to the user’s identity for a transaction. Therefore, it is possible to transfer cryptocurrency without disclosing personal information.

• Transaction data is sent by randomly selected nodes of the p2p network, and the connection of the bitcoin node occurs using IP addresses. Here, the nodes will not know whether the resulting transaction was created by the node that previously submitted it or whether it simply redirected it. As we can see, the key factor here is the randomness factor.

How is it possible to disclose the anonymity of a user in a bitcoin network?

There are three ways in which it is possible to reveal the identity of the user:

First, let’s consider the hardware and technical methods by which data can be obtained from the Internet provider of the user of the bitcoin-network. The fact is that all traffic will pass through its server, which can be accessed by third parties (authorities, hackers or the most unscrupulous provider). There is also one caveat, that the network does not have a single control center, which is why the information is transmitted from node to node. A transaction sent from the user’s computer to the host that accepts it can be recorded by the user along with the IP. And the more someone’s node-the more information about transactions and IP of different users it can accumulate.

In consequence of which, the crooks, having mastered the information collected in multiple sites, it is likely unable to determine the source of the transaction.

Probably palm branch of superiority on leakage of information on accessory of addresses, it is necessary to give to users.

Why so? Often, by reseaving and sending coins, exchanging one cryptocurrency for another and paying for the purchase of goods, the user by himself discloses some personal information. For example, you transferred coins to someone, thereby revealed that the IP address from which the coins came is yours. Or on the contrary, you were sent coins – the sender automatically knows that the IP-address to which he sent – yours.

After paying for the goods/services you will specify the information where to send it and to whom. Similarly, with the exchange of crypto-currencies on exchanges and other sites, the owners at least know your login and IP-address.

Finally, the highlight of deanonymize is hidden in the bitcoin network – all transactions are absolutely transparent for those who are interested. As a result, having determined the criterion by which several bitcoin addresses are linked and disclosed to the user. Cluster analysis is used here. Accordingly, even if one bitcoin address from such a bundle can be linked to a specific user, then learn all the other bitcoin addresses will not be difficult.

Speaking clearly, each transaction is recorded in the blockchain and is publicly available. Because every interested person has the opportunity to find, from what addresses to a particular user received bitcoins, and where to go. After that, after analyzing the links with further bitcoin addresses, a person will collect enough personal information.

So what do we have in the end: are bitcoin and anonymity incompatible things? If you want to know how you can keep your anonymity in the Bitcoin network, then click here.


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