Bitcoin Forum

Dear bitcointalkers,

This is my first post and question here. I have read the introduction and several other pages about bitcoin, but I don't understand the anonymity of Bitcoin transactions yet. I see it as follows:

1. I want to send a sum of bitcoins to a guy for that will make a website for me
2. My address is public (public key) and his address is publicly known (on the website he has his bitcoin address, let's say he uses one)
3. I send my bitcoins to his address (I do understand here how a digital signature works, more or less)

Now, all transactions are public and registered in the blockchain right?  So anybody who knows this guy's public bitcoin address (and everybody can know this because it's on his website) can see how much bitcoins he got from me. Besides, his name is on his website. I don't have my name and address posted anywhere so I remain anonymous. I suppose I don't really understand, but where is the anonymity for the guy/shop delivering the service here?

The one thing that he can do, is generate a new address in his wallet just for the transaction that he will have with you and give you that address. In that way he can remain anonymous.
On the other hand if he uses just one address for receiving coins and doesn't care much about anonimity, then that's his problem. He might not want such  ;)

How would someone who is looking at the block chain know that your bitcoin address is tied to you the person?

Also bitcoins are not anonymous, they are anonymizable. You can use a mixing service that will pool your coins togather with other peoples coins and "tumble" them before releasing the coins to a specified address. Inorder to visualize the tumbling process, imagine that you have 10 addresses with 10 coins on each address, you make 10 new addresses and send 1 coin to each new address from the first old address, then 1 coin to each new address from the second old address ect.... until you have 10 new addresses with 10 coins on each, then repeat the entire process 10 times. Now it becomes imposable to know which coins belong to who.

the "public" in public-key cryptografy, is not to confuse with non-anonymity.

to answer your question:
some one who knows the merchants address, can see that someone has send bitcoins to him, and the proof of this is that you own some bitcoins which can by signing something with the bitcoin-owning privatekey and can be verified by the corresponding publickey.

now:
it is only know that the holder of the key send something, NOT who the holder are.
if you provided the merchant if identifying information(address, name, phonenumber, ...), he can reveal the identity of the holder of the key(he have both information, identity and address/publickey, while anyone else only a address/publickey).

There's nothing to tie the sending address to you the person. Plus, the send might come from several addresses in your wallet. Read up about inputs and outputs. Really, the only way it can be determined that you sent the bitcoin is by traffic analysis to backtrace your IP address, which has its limits. If you send the transaction via a proxy server your IP address will be masked. Or, I think you can even just go to any place that offers wi-fi and send it from there.

In other words, out of the box, bitcoin doesn't provide complete anonymity, but it's pretty close and it can readily be made to with a couple extra steps.

I do understand that I, the sender, remain anonymous.

What I do not fully understand is how a recipient can remain anonymous. I mean, every recipient has to send his public address to the sender, right? And businesses have to "announce" this on their website. So if you would keep track of the addresses that, let's say WordPress, announces on it's website for senders to send their bitcoins to, you can see which transactions are going to WordPress. Everybody could see the incoming cashflow of WordPress. Am I wrong?

Users can create an infinite number of addresses.  It would be foolish for Wordpress to use a single address for all incoming payments given there is no cost to create thousands, millions, even billions (if they need that many) new addresses.  Most businesses use a new "one time use only" address for every single order/deposit/transaction/customer. The only person seeing a particular address is the person making the payment. 

As an example, please tell me how many Bitcoins FC4B has received from clients.  ( https://fastcash4bitcoins.com )  Grab your calculator I will wait.  If you get it exactly right down to the satoshi I will give you 1,000 BTC.

why would i send money to someone i don't know?

a website could create bitcoinaddress on-demand, when someone wants to send them btc, and not only have a single bitcoin address

One would assume that WordPress (or any other public type of recipient) would show you the address to pay to via HTTPS (so it is not made public).

Of course if you and every other sender wants to disclose the address that they paid their fee to then WordPress will indeed have lost its payment anonymity (assuming that was important to them) but potentially so have you and every other sender. :)

Thank you for all the replies.

So if I get it right now, a recipient who want to keep his anonymity does the following:

1. Send his bitcoin address only to the sender, for example via https. Only the sender knows the address is coming from an identity now and nobody else knows about the connection between the address and the company/person behind it.
2. Automatically generates a new bitcoin address for every transaction.

My last question, I guess, concerns point 1. Am I right this can be done using public-key cryptography? Let's say Alice wants to pay Bob for a product. She sends her request to Bob. Bob then encrypts his (new) bitcoin address with Alice's public key. This way only Alice can decrypt his message and see Bob's  bitcoin address. Alice then transfers her bitcoins to Bob's address. This way nobody else could have seen Bob announcing his bitcoin address. Is this the way it is usually done?

Yes - of course that is exactly what HTTPS is (and is the same way you can safely use your internet banking).

Doh, of course! :-[ Thanks a lot for clearing up!  ;D