Bitcoin & Anonymity

[Magicalking]

​Bitcoin is anonymous! Almost every newbie believes that. I know I did, I even boasted about it to my friends. I am sure that many newbies are like me and think that Bitcoin transactions are encrypted and cannot be tracked. But after joining the forum and months of research I come to find out this isn't true.
https://www.reddit.com/r/CryptoCurrency/comments/onajts/anonymity_and_cryptocurrencies/
   Bitcoin is not anonymous but pseudonymous. What does it mean?
All of the anonymity of Bitcoin solely rests on the fact that the address of your crypto wallet is not connected to your identity in any way. When you open a new wallet, you should not provide any information about yourself. But if you have registered your wallet in crypto exchanges that require kyc verification, then there is a high chance that you and your crypto wallet can be connected.
   Bitcoin cannot be anonymous and transparent at the same time.  Bitcoin is built on the blockchain network. What is the blockchain network? Blockchain is a public journal where every transaction ever made is recorded. Anyone can find out using blockchain explorer how much money is in a bitcoin wallet, when and from which address the money came.
If one receives bitcoin that is connected to a criminal address will that person be indicted too? Will every address connected to such account be tagged also? There is limited supply of bitcoin in circulation so such scenario is very possible. If that happens how does one clean the slate?
  
 

[1714061047]

1714061047

[BlackHatCoiner]

I am sure that many newbies are like me and think that Bitcoin transactions are encrypted and cannot be tracked.

At first I also thought that it is anonymous, but encrypted transactions? I had never read that anywhere when I was a newbie. There is no encryption schemes in Bitcoin. Only hash functions used for the PoW mechanism & for the address generation, and the elliptic curve digital signature algorithm (ECDSA).

All of the anonymity of Bitcoin solely rests on the fact that the address of your crypto wallet is not connected to your identity in any way.

Instead of defining where the “anonymity” of Bitcoin relies on, I think that it'd be more expedient to explain why it can't be characterized as anonymous. It's not directly the identity reveal. It's the fact that anyone at anytime can observe the addresses (the pseudonyms) you've interacted with including the amounts transacted. If you publicly announce your pseudonym plus the amount and the receiver's pseudonym, it's enough to call it pseudonymity instead.

There is limited supply of bitcoin in circulation so such scenario is very possible. If that happens how does one clean the slate?

It indeed has a limited supply, but theoretically, there will always be clean coins from mining. If one paid 0.01 blacklisted bitcoins to the miner, they essentially aren't blacklisted anymore. It's an interesting topic, I had begun that discussion regarding the fungibility. Here's the link: The fungibility of Bitcoin — Long Term

[Magicalking]

At first I also thought that it is anonymous, but encrypted transactions? I had never read that anywhere when I was a newbie. There is no encryption schemes in Bitcoin. Only hash functions used for the PoW mechanism & for the address generation, and the elliptic curve digital signature algorithm (ECDSA).

That was what I thought lol

Instead of defining where the “anonymity” of Bitcoin relies on, I think that it'd be more expedient to explain why it can't be characterized as anonymous. It's not directly the identity reveal. It's the fact that anyone at anytime can observe the addresses (the pseudonyms) you've interacted with including the amounts transacted. If you publicly announce your pseudonym plus the amount and the receiver's pseudonym, it's enough to call it pseudonymity instead.

Thanks for the corrections. I will update the topic as I gather more information

It indeed has a limited supply, but theoretically, there will always be clean coins from mining. If one paid 0.01 blacklisted bitcoins to the miner, they essentially aren't blacklisted anymore. It's an interesting topic, I had begun that discussion regarding the fungibility. Here's the link: The fungibility of Bitcoin — Long Term

Are miners allowed to do that? I will definitely read the topic...thanks again

[BlackHatCoiner]

Are miners allowed to do that? I will definitely read the topic...thanks again

Yes. Each time a block is solved the miner gets the 6.25 freshly mined bitcoins plus the fees. These fees have no connection with their blacklisted outputs and thus, they're whitelisted.

[bitmover]

  Bitcoin cannot be anonymous and transparent at the same time.  Bitcoin is built on the blockchain network. What is the blockchain network? Blockchain is a public journal where every transaction ever made is recorded. Anyone can find out using blockchain explorer how much money is in a wallet, when and from which address the money came.
If one receives bitcoin that is connected to a criminal address will that person be indicted too? Will every address connected to such account be tagged also?
  

Even though bitcoin is open and transparent, you can achieve some degree of anonymity using it. You will never be 100% anonymous 100% of the time, but you can be "pseudo-anonymous".

For example, if you received some bitcoin from an exchange you made KYC, those coins will be somehow linked to your personal documents and identification.
However, you can send those coins to a bitcoin mixer or to a coinjoin service. Those services will mix your coins with someone else's coin, and give you back other coins which are not linked to the ones you sent them, in a fresh new address.

You can read more about this kind of service here:

https://bitcoin.org/en/protect-your-privacy

Limitations of mixing services
Some online services called mixing services offer to mix traceability between users by receiving and sending back the same amount using independent Bitcoin addresses. It is important to note that the legality of using such services might vary and be subjected to different rules in each jurisdiction. Such services also require you to trust the individuals running them not to lose or steal your funds and not to keep a log of your requests. Even though mixing services can break traceability for small amounts, it becomes increasingly difficult to do the same for larger transactions.

[Saidasun]

If you had a discussion with a lot of senior members on this forum about anonymity you would find out that a lot of them think Bitcoin is fool proof anonymous and they will die on that sword. I was reading a topic from a couple of years ago and there was multiple legendary members arguing that it is anonymous. It is not just newbies which believe this but those that have been registered for 3+ years.

[ranochigo]

It indeed has a limited supply, but theoretically, there will always be clean coins from mining.

It depends on how you define taint, it is such a broad definition that you almost always can twist it around to suit your goals. Most often, taint is determined by tracing the paths of the coin, with the UTXOs created having assigned some level of taint and decays with the number of transactions that it is associated with. It doesn't make sense to label every tainted coins the same, because almost all of the coins are tainted.

I understand that the current general take is that taint isn't assigned to block rewards from the TX fees. But it doesn't make sense as it'll just provide the miners a way to obtain clean coins without much effort; by including the tainted coins as fees. It remains to be seen if that would change anytime soon.

If one paid 0.01 blacklisted bitcoins to the miner, they essentially aren't blacklisted anymore.

This isn't true. Most would still consider it as tainted, even if a portion of it gets sent to a random address.

[20kevin20]

Even though bitcoin is open and transparent, you can achieve some degree of anonymity using it. You will never be 100% anonymous 100% of the time, but you can be "pseudo-anonymous".

Even Monero can't get your anonymity to 100% at all times. For example, by using lightweight wallets your security is significantly decreased. 100% anonymity is a difficult goal and requires much more than changing the way you use Bitcoin. You have to change your lifestyle to achieve it.

[ndalliard]

reading the posts here i just realized that it isn't that clear what anonymity even means - at least not to me

if you know the name of someone, but don't know where to find this person, is this person anonymous?

is it a question about perspective? am i anonymous for some, but not for others?

if we talk about bitcoin and say it is not anonymous, are we talking about the holder of the bitcoins (the holder of the private key to be exact)? or are we talking about the bitcoins, from where they came and where they go?

 

[kaggie]

If you had a discussion with a lot of senior members on this forum about anonymity you would find out that a lot of them think Bitcoin is fool proof anonymous and they will die on that sword. I was reading a topic from a couple of years ago and there was multiple legendary members arguing that it is anonymous. It is not just newbies which believe this but those that have been registered for 3+ years.

It was anonymous for them. They could have hidden themselves behind any number of VPNs while mining without being discovered. As long as they don't interact with KYC systems, then they can possibly stay anonymously pseudonymous. Still, that means that they are limited in the ways they could use their fortunes.

if you know the name of someone, but don't know where to find this person, is this person anonymous?

That is not anonymous but identified.

is it a question about perspective? am i anonymous for some, but not for others?

Often, yes. You could have been identified through a way that you didn't realize, such as browser fingerprinting https://www.eff.org/deeplinks/2017/11/panopticlick-30

if we talk about bitcoin and say it is not anonymous, are we talking about the holder of the bitcoins (the holder of the private key to be exact)? or are we talking about the bitcoins, from where they came and where they go?

For owners of addresses that have not been linked to an individual, they are anonymous.
They are also pseudonymous, in that their addresses specifically ties to an individual or group.
For addresses that have been linked to an individual, like through KYC, they are identified.
Identified addresses to/from a major exchange are anonymous to most of us but link to identifiable individuals.

So, normally people say bitcoin is pseudonymous. Not quite anonymous, not quite identifiable.

[ndalliard]

if we talk about bitcoin and say it is not anonymous, are we talking about the holder of the bitcoins (the holder of the private key to be exact)? or are we talking about the bitcoins, from where they came and where they go?

For owners of addresses that have not been linked to an individual, they are anonymous.
They are also pseudonymous, in that their addresses specifically ties to an individual or group.
For addresses that have been linked to an individual, like through KYC, they are identified.
Identified addresses to/from a major exchange are anonymous to most of us but link to identifiable individuals.

isn't every address linkable to an individual?
isn't every individual identifiable?

does this mean anonymity is a shade and not something you are or you are not? again: i think it is about pespective

[aoluain]

if we talk about bitcoin and say it is not anonymous, are we talking about the holder of the bitcoins (the holder of the private key to be exact)? or are we talking about the bitcoins, from where they came and where they go?

For owners of addresses that have not been linked to an individual, they are anonymous.
They are also pseudonymous, in that their addresses specifically ties to an individual or group.
For addresses that have been linked to an individual, like through KYC, they are identified.
Identified addresses to/from a major exchange are anonymous to most of us but link to identifiable individuals.

isn't every address linkable to an individual?
isn't every individual identifiable?

does this mean anonymity is a shade and not something you are or you are not? again: i think it is about pespective

Every address is linked to an individual but depending how that individual has created the wallet
containing the address determines the level of anonymity.

Tips to preserve anonymity

Dont use a hardware wallet, you will have to provide a name and postal address to
buy one use a self generated paper wallet instead.

Stay away from centralised exchanges where you have to provide personal details, use local
bitcoin sellers or decentralised exchanges.

Use a VPN on your computer when browsing the internet and transacting with Bitcoin.

Stay away from FREE e-mail providers like gmail, spend a little for anonymous and
encrypted email and VPN like PROTON.

[ranochigo]

Every address is linked to an individual but depending how that individual has created the wallet
containing the address determines the level of anonymity.

It isn't. You don't have to reveal your identity to create an address or a wallet for that matter. Software wallets do not fingerprint you.

Dont use a hardware wallet, you will have to provide a name and postal address to
buy one use a self generated paper wallet instead.

Or use a dropship. You can use an air-gapped wallet as well but that is subjected to your technical competency, a paper wallet might not be as secure, depending on how you generate and use it.

Use a VPN on your computer when browsing the internet and transacting with Bitcoin.

VPN doesn't provide sufficient privacy for the user. In fact, some of them keep logs and actively tries to break your privacy. Don't use VPNs if you want to preserve your privacy.

[BlackHatCoiner]

Even though bitcoin is open and transparent, you can achieve some degree of anonymity using it. You will never be 100% anonymous 100% of the time, but you can be "pseudo-anonymous".

Even Monero can't get your anonymity to 100% at all times. For example, by using lightweight wallets your security is significantly decreased. 100% anonymity is a difficult goal and requires much more than changing the way you use Bitcoin. You have to change your lifestyle to achieve it.

There's a hereby failure of the differentiation between anonymity & privacy. Anonymity is when you want from people to know what you're doing, you just don't want them to know that is you doing it. Privacy is when you want to keep certain activities for yourself only. Monero can get you 100% anonymity, because there is no way to track me down unless I gave you my secret keys. If you use a lightweight client, you're ruining your privacy, not your anonymity.

It depends on how you define taint, it is such a broad definition that you almost always can twist it around to suit your goals.

True. I'd define it as a condition where the TXOs are being censored by individuals. For example, exchanges.

[dkbit98]

If you don't connect your Bitcoin address with your identity or your bank account than nobody will ever know that those Bitcoins belong to you and you can sent them to anyone.
Bitcoin is public ledger so every transaction can be seen but you can also use mixers like Chipmixer that will make tracking of your coins almost impossible if you do it correctly.
In ideal situation Bitcoin would be better with some integrated solution for private transaction but it can still happen in future, maybe with some sidechain or second layer solution like Lightning.

[bitmover]

Even though bitcoin is open and transparent, you can achieve some degree of anonymity using it. You will never be 100% anonymous 100% of the time, but you can be "pseudo-anonymous".

Even Monero can't get your anonymity to 100% at all times. For example, by using lightweight wallets your security is significantly decreased. 100% anonymity is a difficult goal and requires much more than changing the way you use Bitcoin. You have to change your lifestyle to achieve it.

Even Monero can't get your anonymity to 100% at all times. For example, by using lightweight wallets your security is significantly decreased. 100% anonymity is a difficult goal and requires much more than changing the way you use Bitcoin. You have to change your lifestyle to achieve it.

I agree with BlackHatCoiner, there is a slightly difference between privacy and anonymity.

Indeed lightweight clients are bad for privacy , but they are very convenient. There are various degrees of privacy, and not everyone need all privacy possible in every transaction all the time.

For example, an address with small amounts with coins that were just cleaned in a mixer  may be used in a lightweight client without any problem. But your life saving wallet may be running in a full node.

[aoluain]

Every address is linked to an individual but depending how that individual has created the wallet
containing the address determines the level of anonymity.

It isn't. You don't have to reveal your identity to create an address or a wallet for that matter. Software wallets do not fingerprint you.

Dont use a hardware wallet, you will have to provide a name and postal address to
buy one use a self generated paper wallet instead.

Or use a dropship. You can use an air-gapped wallet as well but that is subjected to your technical competency, a paper wallet might not be as secure, depending on how you generate and use it.

Use a VPN on your computer when browsing the internet and transacting with Bitcoin.

VPN doesn't provide sufficient privacy for the user. In fact, some of them keep logs and actively tries to break your privacy. Don't use VPNs if you want to preserve your privacy.

apologies but I didnt say every address is linked to an identity, they are linked to a person,
its up to us to decide how much of our identity we want to reveal!


Interesting about the VPN. If I buy a VPN service using Bitcoin without revealing my identity
is that not a safe way of browsing the web?
(apologies for going slightly off topic)

[zasad@]

​   Bitcoin cannot be anonymous and transparent at the same time.  Bitcoin is built on the blockchain network. What is the blockchain network? Blockchain is a public journal where every transaction ever made is recorded. Anyone can find out using blockchain explorer how much money is in a wallet, when and from which address the money came.
If one receives bitcoin that is connected to a criminal address will that person be indicted too? Will every address connected to such account be tagged also? There is limited supply of bitcoin in circulation so such scenario is very possible. If that happens how does one clean the slate?
 

Use decentralized services and crypto exchanges where verification is not required.
There are still such exchanges, for example https://www.hotbit.io
You are safe as long as you do not interact with services that force you to provide your personal information.
If you are afraid that you will be accused of a crime, buy bitcoins on well-known crypto exchanges that provide purchase documents.
I'm about https://www.coinbase.com/

[ranochigo]

apologies but I didnt say every address is linked to an identity, they are linked to a person,
its up to us to decide how much of our identity we want to reveal!

You did mention about how the individual creates the wallet, any software wallet that you are using will not reveal any unnecessary information to a third-party during a wallet creation. If yours does that, then you should stop using it.

Interesting about the VPN. If I buy a VPN service using Bitcoin without revealing my identity
is that not a safe way of browsing the web?
(apologies for going slightly off topic)

No. VPNs are not designed for privacy beyond encryption of the traffic between the VPN server and your computer. Your VPN provider is able to intercept your traffic, see the origins of your traffic and perhaps decipher plain-text traffic as well. There is a reason why people don't recommend using VPNs if you are really concerned about your privacy.

[aoluain]

apologies but I didnt say every address is linked to an identity, they are linked to a person,
its up to us to decide how much of our identity we want to reveal!

You did mention about how the individual creates the wallet, any software wallet that you are using will not reveal any unnecessary information to a third-party during a wallet creation. If yours does that, then you should stop using it.

Interesting about the VPN. If I buy a VPN service using Bitcoin without revealing my identity
is that not a safe way of browsing the web?
(apologies for going slightly off topic)

No. VPNs are not designed for privacy beyond encryption of the traffic between the VPN server and your computer. Your VPN provider is able to intercept your traffic, see the origins of your traffic and perhaps decipher plain-text traffic as well. There is a reason why people don't recommend using VPNs if you are really concerned about your privacy.

I stand corrected on both counts.

Re: VPN's I have to do some research and a possible comparison between VPN and TOR.