Introduction
Anyone who has been in the crypto world for some time will sooner or later have come up against the criticism that Bitcoin is an anonymous means of payment and can therefore be used to finance illegal business such as money laundering, drug trafficking or terrorism. This statement is not correct. Of course you can send Bitcoin through the peer-to-peer nature of the network to any other participant, without an intermediary like a state has the opportunity to intervene in the transaction - but you are not anonymous.
Particularities
Bitcoin was the first functioning, decentralized cryptocurrency. Bitcoin is a pseudonym and the blockchain is completely transparent. This means that the Bitcoin addresses may seem cryptic to normal users and it is not clear who is behind a given address, but all transactions are publicly visible in the blockchain. Blockchain explorers such as Blockchain.info show all transactions that have ever occurred on the network.
Weaknesses
The privacy of Bitcoin users can be compromised if the identity of a Bitcoin address becomes known. In the Blockchain all touchpoints of each Wallet are recorded for all time. Accordingly, the blockchain can be scanned for interactions with this address and all payment traffic is open. There are companies that specialize in this analysis.
Identities are required, for example, for exchanges by regulators with KYC / AML (know-your-customer / anti-money laundering). Once the identity of a customer is known, blockchain analysis can be used to locate other wallets controlled by the same user. Even if the identity is unknown, you can still track which wallet is in contact with which others and how much money is going where.
This publicity of the network and the eternal documentation of the transactions can lead to further problems such as lack of fungibility, which I would like to highlight in a later article.
Current state of the art
Bitcoin, with its first-mover advantage and market capitalization, has the most developers, nearly 500 (!), Which gives hope for much innovation. The anonymity problem is familiar to many Bitcoin enthusiasts and there are already some solutions available, such as MimbleWimble. It's likely to take some time before MimbleWimble is up and running. More acute problems like scaling take precedence over Bitcoin.
View in the future
Bitcoin will become more transparent. By analyzing the blockchain in conjunction with the regulators' KYC / AML policy, it will be possible to draw far-reaching conclusions about the identity and payment traffic of individual wallet addresses. Possible solutions are already in the room, but, as usual with Bitcoin, they will take their time to become active.
Summary
Bitcoin is not anonymous, but pseudonym. In order to protect privacy, either constantly new addresses must be generated by a user, or the Bitcoin protocol must receive an update. If you want to keep your identity secret, you should think twice about using Bitcoin.
Thank you for reading!
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"Aspire to inspire before we expire." - tradewonk
I totally agree, I am not bullish on Bitcoin for the long-term, I like my privacy! If you go to someone's bank you cannot just receive their balance and incoming and outgoing transactions whenever you want. That is Bitcoin unfortunately. I support private anonymous cryptos like Monero mostly.
Agree. I also like Monero.
The peculiarity of your articles is that they are affordable to everyone. Ease, clarity and simplicity that allow new people to better understand the cryptoccurency, thank you once again dear @tradewonk
My pleasure!
I agree, Bitcoin won't be adopted as a transaction method because of security reasons. Other coins such as Ripple and Monero are more trust worthy and can be accepted as payment methods.
What do you say @tradewonk?
Monero is definitely the coin you have to choose if you want privacy.
Bitcoin is less anonymous than cash. Eg if I take $10000and buy drugs from a drug dealer unless he has my phone number, name or other identifying things or unless we are caught right then and there that transaction will be almost 100%anonymous. But if we use Bitcoin there is a record. And it is forever. True the police would still first need to realize that Bitcoin was used to make this transaction in the first place, and then get access to the device used to make the transaction, if the device is encrypted then they would have to find out if they can break the encryption which as we all know might not be possible, and then if they achieve this then they have to get possibly a password or some other kind of unlocking key for a cryptocurrency wallet, which if it's not from a exchange and especially a local exchange will be very difficult maybe even impossible. Let's put it this way. Crypto doesn't give you anything cash can't if you do it smart.
Privacy is a human right. You do not have to ask for permission to use your human rights to their fullest. And if you want to guarantee your rights encryption
thanks for sharing...I'm following
:):)
Thanks for sharing. You did good job. @tradewonk
Thank you!
Good info about how bitcoin and Blockchain works bro
Thanks buddy!
The phrase of money laundering is the main trump card of bankers who do not want to release all the capital from their hands. For those who know how to wash the Fiat is not any work. In general, the government to listen to is harmful! Good luck to you.
The bitcoin went from a cryptocurrency to transacting a value asset such as gold, it is very likely to reach a historical record this 2018. Due to its great value is unlikely that people will show their wallets to be hacked as has happened in several cases.