If You Think Bitcoin is Anonymous, Think Again

Bitcoin and other cryptocurrencies are not as anonymous as you think - in fact, they are more transparent than traditional money.

Whether it’s a VPN or a controlled pharmaceutical, chances are you can buy it somewhere for Bitcoin. Soon after its inception, Bitcoin became the go-to currency and payment method whenever anonymity was desirable. That trust still exists – but it can easily get consumers in deep trouble.

In reality, Bitcoin isn’t anonymous by design and the advent of blockchain analysis software takes the idea even further from the truth. Does that mean you should ditch it altogether? Of course not but there are things you should know before using Bitcoin to pay for anything shady.

Anonymous vs pseudonymous

Yes, there’s something to the idea that Bitcoin is anonymous. For one thing, neither the addresses you make transactions to, nor the transactions themselves require your personal information. Moreover, the transactions happen within a peer-to-peer (P2P) network, where data is sent to random nodes (on May 15, 2019, there were 9,471 of them).

This makes tracking the money hard, but by no means impossible. Bitcoin is similar to a chatroom: you’re anonymous until your secret identity is tied to your real one. In a chatroom, you hide behind your nickname, whereas on the Bitcoin blockchain you’re a list of character strings that constitute your address. Each address is unique to a transaction you’ve received (approx. 550,000 used each day in May 2019), but together they paint a vivid picture of your activities and can tie them back to your identity.

At the epicenter of the Bitcoin anonymity issue is one of its most important aspects - its transparent nature. Anyone can see each of the 400,000,000+ Bitcoin transactions that have ever been made, and each of these transactions contains a record of the path the money has traveled. Therefore, deanonymizing you is a matter of connecting the dots between you and your transactions.

Losing your privacy

There are many ways to find out who’s behind a Bitcoin payment:

  • Determining what IP address a transaction came from

Controlling a number of nodes on the peer-to-peer (P2P) Bitcoin network may allow government agencies or other interested parties to trace the origin of transactions.

  • Tying Bitcoin addresses to personally identifiable information

Many of the auxiliary services you need to pay in Bitcoin require personal data for registration. This includes Bitcoin exchanges, online wallets, and more. This can be a connection between your transactions and identity.

  • Clustering

This refers to the process of analyzing transactions and compiling a list of addresses controlled by the same user.

Clustering is at the heart of what makes Bitcoin less anonymous now than ever before. It allows companies to develop special blockchain analysis software, which has recently garnered a lot of attention from law enforcement agencies. For example, a New York blockchain analysis company, Chainalysis, got a $1.6 million contract from Europol as far back as 2016. Meanwhile, Japan’s National Police Agency (NPA) announced in 2018 that they would offer 35 million yen (approx. $315,000) to the private sector to develop their own blockchain analysis software.

Similar developments are seen across the board. Someone smart enough to use them can find out all about those secret purchases you’ve made.

What should you do to take back your privacy?

The truth is Bitcoin can never be fully anonymous, but it can get very close. All you need to do is follow a few simple rules.

Use more than one identity

The success of clustering techniques means you’ll need to have more than one source that all your transactions tie back to. That’s because the more transactions you make using one wallet, the more of a chance clustering will be used to identify the wallet and you.

For this reason, it’s a good idea to use at least several wallets to throw the hunters off your tracks. As a matter of fact, at the end of 2018, Bitcoin users had an average of 4.5 wallets per user.

Just make sure you…

Only use services that don’t ask for your personal data

Using an online wallet you’ve signed up for with your name and address removes the advantages of Bitcoin for anonymity. If law enforcement demands your data from the wallet operator, they can learn about all your transactions and related activities. The same goes for crypto exchanges and other services within the Bitcoin infrastructure.

Thankfully, the crypto community has no shortage of privacy-friendly business owners who don’t want your secrets.

Use a VPN service

You can use Bitcoin as an anonymous way to pay for almost any good VPN service. The irony shouldn’t be lost on anyone: using a VPN with Bitcoin is one of the first steps to getting your privacy back.

Despite the randomness element in the P2P Bitcoin network, there are ways to tie transactions back to your IP address. This gives away your location and potentially more. Connecting through a VPN server changes your virtual location, which will lead those following your money to an encrypted wall.

What’s a good VPN for Bitcoin?

Cybersecurity experts agree that getting just any VPN does little for your protection. This is especially true about free VPN services. For evidence, just look at this takedown of some highly popular free VPN services published by the cybersecurity platform VPNpro. As the writer, Ethan Payne notes: “Based on our experience and research in the VPN field, we can state that an overwhelming majority of the hundreds of free services on the market either leak personal data via DNS/WebRTC leaks or willingly share it with advertisers and law enforcement.”

Yet it’s understandable that not everyone wants to dive into the realm of VPN reviews and instruction videos. With that in mind, here are a few good choices for you to look at.

NordVPN

The first and foremost requirement you should have for a VPN is security. Although several VPN services come close to NordVPN in terms of security, none are better. It also has a huge 5,000+ server list and is compatible with most devices out there.

ExpressVPN

Perhaps not as secure as NordVPN, but it makes up for it in other areas, such as performance. ExpressVPN servers cover much of the globe - 3,000+ servers in 94 countries - ensuring good speeds more or less anywhere you go. The service also offers the split tunneling feature, which will let you minimize the VPN’s impact on your internet use.

ProtonVPN

If you insist on using a free VPN - beware. Lots of them have holes a police vehicle can drive through. Not ProtonVPN. This is a paid service, but it has a free version without a data transfer limit. Oh, and its founders are CERN scientists.

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