Is Bitcoin an Anonymous Form of Electronic Payment?

Bitcoin payments | Anonymous

September 6, 2021 by Walt

Bitcoin is, by all means, the most popular cryptocurrency in the world. It is hard to come up with a better name for digital money. Bitcoin possesses a variety of features which make it different from the standard fiat currencies such as the dollar. One of the main aspects of Bitcoin is the fact that it is not material. Moreover, it also does not require its owners to disclose their personal details when conducting transactions with their funds. These factors could make Bitcoin the perfect money for people who wish to stay anonymous. Yet, unfortunately, there are still viable ways to discover the identity of individuals interacting with Bitcoins. Read this article and learn why Bitcoins are not an anonymous form of electronic payment.

Bitcoin is not anonymous

Bitcoin transactions are anything but anonymous

Many people view Bitcoin as an ideal means of avoiding exposing their private and sensitive data as well as identity. While it is true that the Bitcoin blockchain does not require clients to register or in any way disclose their personal information, Bitcoin owners still face the risk of losing their privacy.

The Bitcoin blockchain is completely transparent. Every transaction that occurs on the Bitcoin network gets recorded and is stored forever on the blockchain. Moreover, everyone can see the activity taking place on the blockchain. Information about every Bitcoin address is public, which means that your Bitcoin balance and transactions can be viewed by third parties.

Thus, if your Bitcoin address becomes known to some person or agency, they can easily track you down and monitor all your crypto activities. That is why the identities of criminals that use Bitcoin can be discovered quite easily, and their crypto funds seized.

For instance, when criminals receive Bitcoin as ransom, they have to launder their money. Yet, it is nearly impossible to do it since no matter how many times they send their crypto to different addresses, the end destination can easily be traced with the use of the Bitcoin blockchain explorer. So, when they try to convert Bitcoin into a different currency through an exchange, law enforcement agencies will get a chance to discover the true identities of the criminals.

Can identities be linked to bitcoin addresses?

Another weakness of the Bitcoin ecosystem is the acquisition of Bitcoin. Today, in order to make a purchase of Bitcoin or any other cryptocurrency, a person has to go to a crypto exchange. There are, of course, other platforms for buying crypto, but they do not imply any guarantee of actually receiving the bought crypto. All major exchanges which abide by regulations ask their clients for their identities before they allow them to use their services. Basically, every transaction made with the help of a crypto exchange is recorded and tied to the identity of the user. Thus, the purchase of Bitcoin already becomes a problem for people wishing to stay anonymous when using cryptocurrencies.

The same problem arises when crypto investors make transactions using web wallets. Such wallets gain access to the IP address of the user and store this information. At some point, the logs of the wallet can leak to the public, and everyone will be able to see which IP corresponds to which transaction.

How to protect yourself?

Nevertheless, despite the fact that Bitcoin can be traced and your anonymity compromised, there are steps you can take in order to minimize such a possibility. First of all, it is essential that you store your funds in a wallet that is non-custodial, the one that does not claim the ownership of your coins. It is also recommended not to keep your crypto funds in the wallets of exchanges because there is always a risk of the exchange being a scam project or simply going bankrupt.

It is also important to keep your private keys stored in a secure location. Private keys constitute the main tool with which you can access your cryptocurrency. Once someone else gets hold of your private keys, they will be able to not only disclose your identity but also steal your cryptocurrency.

Additionally, it is a good practice to use Bitcoin addresses only once to conduct transactions. Essentially, you need to generate a new crypto address when sending and especially receiving Bitcoin.

When you do not have any other option except for using a web-based wallet, you can try to conceal your IP address using VPN services. This will help you avoid compromising your location.

What are the advantages of paying with Bitcoin?

What are the advantages of using Bitcoin for transactions?

After reading the information above, you may ask, “Why use Bitcoin?” Yet, in fact, although Bitcoin is not anonymous, especially when compared to other cryptocurrencies such as Monero, there are still many reasons why people use Bitcoin. After all, it is the favorite coin of the crypto community.

Bitcoin is perfect for conducting peer-to-peer transactions. Traditional payment methods such as Visa or Mastercard involve banks which do not allow clients to exchange their money directly. Bitcoin transactions, on the other hand, concern only two people involved in them. Basically, in every transaction, Bitcoins go from one address straight to another.

Bitcoin transactions are also much faster than some forms of standard money transfers. For instance, international transfers of money can take several days. Bitcoin transactions take mere minutes and even seconds if conducted with the help of the Lightning Network. It does not matter in which parts of the world the sender and recipient live, their transaction will be processed quickly.

Bitcoin transactions can also benefit companies that want to avoid becoming victims of criminals using chargeback fraud. Bitcoin transactions are irreversible, which means that once a transaction is processed, the money stays in the recipient’s wallet forever.

Using the Bitcoin blockchain to send money can also help users to reduce their expenses on fees. Even though Bitcoin transaction fees can be high if you use the Lightning Network to send Bitcoins, the fee will be only a few cents. Coupled with the absence of monthly bank fees and charges, Bitcoin transactions can be a much more affordable alternative to bank transfers.

Read this article and more in the NOWPayments blog: Are Bitcoins Anonymous Forms of Electronic Payment?

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