When you hear about Bitcoin, one thing that you may notice is that it is a currency that is known for keeping the users anonymous. This is because it is possible for users to receive and send out Bitcoins without having to give out any personal information in the process. However, making sure that you remain anonymous with blockchain and the cryptocurrencies that use it will be a bit more complicated than that and sometimes remaining completely anonymous is impossible.
When you work with Bitcoin, you will notice that it is pseudonymous. This means that when you send and receive Bitcoins, you will do so under the pseudonym of your choice. But if someone is able to take that pseudonym and link it to your identity, anything that was ever done, all the transactions, under that pseudonym, will be linked right back to them again.
Inside the Bitcoin system, the pseudonym that you get to use is going to be an address that Bitcoin will send to you. As you work on transactions, whether you are sending or receiving Bitcoin, the address you have is going to be stored inside your own blockchain. If someone is able to get onto your system and link that address to your personal identity, it will be easy for them to link it all back to you.
Why stay anonymous?
The first question that you may have about this is why you would want to stay anonymous when using the blockchain technology or when you are working with Bitcoin and other cryptocurrencies. There are a variety of reasons why this is so important for different people, including:
- Hiding transactions: blockchain, with the help of the mining process, will help to hide the transactions that you are doing online. If you want to protect the information you use online or if you are worried about people finding out what you are purchasing online, it is time to use blockchain technology.
- Protecting personal information: personal information is so easy to spread whenever you do anything online. Whether you are using social media or making online transactions, a little bit of your personal information can be left behind, which is part of why it is so easy for someone to get ahold of your information. The blockchain helps to protect your personal information because miners will give it a unique code to hide all that information. This is a great option because you can shop or do other things online without others figuring out who you are.
- Security: many people choose to stay anonymous because they want to keep their information safe and secure. Online transactions can leave a lot of information out there for hackers and others to get ahold of and this makes online purchases unsafe. But when you use blockchain in order to stay anonymous, it is easier to keep your information hidden. You can make purchases and receive payments without having to worry about someone getting ahold of this information.
- Illegal activities: there are some people who will use Bitcoin and other cryptocurrencies in order to perform activities that are considered illegal. This could be money laundering or just selling products that are considered illegal. Being able to keep your information anonymous can make a big difference on whether you are caught or not.
- Keeping the government out of it: many times, people choose to go with Bitcoin or other cryptocurrencies that use blockchain technology is so that they can keep the government out of their business. They are tired of the big banks and the government being able to determine how much money is worth or how people can use their money and so they go online to try to keep their money safe. For those who want to keep their information safe and hidden, the blockchain technology can make this happen.
Staying anonymous on the blockchain
In some cases, hackers are able to get onto the network and figure out who made what transactions. This does take some work and if you are using the blockchain technology only on occasion for a few transactions, it is not likely that this will affect you. But for some people who spend a lot of time exchanging Bitcoin, such as those who do it as a part of their business, it can be a pain trying to keep your information hidden so that hackers and others are not able to get ahold of it and use it how they would like.
This does not mean that you can’t maintain at least a little bit of anonymity when you are using Bitcoin and some of the other cryptocurrencies. It is often hard to link together an address with the personal identity of the user unless they are careless or they do quite a few transactions. The Satoshi white paper that was released when Bitcoin came out also recommends that in order to stay safe, Bitcoin users should consider using a new address each time that they do a transaction so that they can avoid their transactions linking to the same owner. This is often considered the best practice, but it can be hard to come up with a new address each time you want to do a transaction, especially if you would like to do quite a few transactions.
One way that you can choose to increase how anonymous you are on Bitcoin and other places that use blockchain is to use more than one wallet. The wallet is where you are going to store your Bitcoin and complete your transactions. When you have more than one of these wallets in play, it is easier to hide information about who you are personally.
There are a few apps that you are able to use that can help you to manage more than one wallet if you choose to do this. MultiBit is a good software wallet that works with Linux, MacOS, and Windows so you can use it no matter what computer you are using. There are some other options, but make sure that you are comfortable with the one you choose and that it makes managing more than one wallet easy.
Another option that you can use is known as a mixing service. This kind of service is going to offer to trade out your Bitcoins so you get new ones that have a different history. In order to accomplish this, the mixing service is going to take the Bitcoins that you have and then will throw them into a big pot that contains Bitcoins from other people who are using the service.
After these coins are all mixed together, you will be sent back the same number of Bitcoins that you put in, but they will be new ones that are randomly picked. This makes it hard to tell which inputs are going to connect with which outputs. Now, this is effective in theory, but in order to accomplish this and remain anonymous at the same time, you have to put your trust in an anonymous third party. This third party needs to be able to be trusted to not keep any records of these transactions and to actually give you back the right amount of Bitcoin as well. When you use a bad mixing service, they could easily run away with your coins and leave you with nothing.
Online wallets or e-wallets is another effective method that you can use to mask the original owner of a Bitcoin. There are many online wallet services that will lump all the Bitcoins that are using their service together so that when you use the Bitcoin or withdraw them, you will end up with different ones than what you started with. This is only going to work in certain situations, though. The service needs to be active and there needs to be some other active withdrawals going on at the same time. You also shouldn’t take up more than ten percent of the services balance of Bitcoin’s or there could be issues.
One thing to remember with these web wallets is that they are going to maintain records of the coins as they come in and out. This means that if you wish to remain anonymous, it is going to depend completely on the service provider. Make sure to pick out one that you are able to trust.
As you can see, there are a number of options that you can choose to help you maintain your anonymity when using Bitcoin and other services that rely on the blockchain technology. None of them are necessarily foolproof and you do need to be careful that you are picking out a service that you can trust to keep your information safe. But if you are careful with the services that you use and watch out for your transactions with the tips above, you will be able to remain anonymous, even on the web.
