Bitcoin is one of the tops and widely used cryptocurrency that promises to be untraceable. People often portray bitcoin as an untraceable medium of exchange used to carry out illegal activities by allowing criminals to send and receive payments that can never be tracked. This means that bitcoin is a currency that maintains user anonymity and never exposes its users’ real identities. However, it is not necessarily true.
Undoubtedly, bitcoin is a currency that offers enhanced privacy and other benefits as compared to traditional currencies as it eliminates the intermediaries. However, still, it is a network that is private but not anonymous. In reality, there are plenty of ways where the user’s identity can be exposed with bitcoin transactions. Blockchain is the technology on which the entire bitcoin network is based, and to know and understand anonymity, it is important to know about blockchain.
Overview of Blockchain
Bitcoin network is pseudonymous but not anonymous, and every user must understand this. Bitcoin is a decentralized digital currency that allows users to follow peer-to-peer networks without requiring users to need the approval or permission of third parties. No merchant processor, bank, government, or credit card issuer is required to verify a bitcoin transaction that takes place between a buyer and a seller. For more information you can go through this website https://bitcoin-investor.app/
Because no third party is involved, users require a way to verify the bitcoin transactions and avoid the issue of digital currencies, i.e., the double-spending problem. This is where blockchain technology comes into play to avoid the double-spending problem. Blockchain is a distributed public ledger that records all the transactions that miners mine. In traditional payment systems, the ledger is maintained by third-parties, a group of computers maintains the blockchain ledger, and each computer has a copy of the blockchain ledger.
The bitcoin transactions are mined by miners who use specialized computing power to solve complex mathematical puzzles. The miners verify the transactions and add them into blocks, and each block is connected to its previous block forming a chain of blocks known as the blockchain. A large number of miners mine bitcoins, but the miner who solves the puzzles accurately is the one who gets the bitcoin reward for his hard work and efforts.
Pseudonymity vs. Anonymity
The blockchain is a ledger that permanently records all the bitcoin prime transactions that are accessible to all its viewers, and this means blockchain isn’t anonymous. Whereas the transactions recorded on blockchain are encrypted because blockchain uses cryptographic principles, they hide bitcoin users’ identities, which means bitcoin’s blockchain is pseudonymous. Bitcoins are the crypto tokens that are stored in digital wallets that work with two digital keys that are kept secret.
Those digital keys are public keys and private keys. A public key or bitcoin address is the location that is a hash derived from the public key, but in reality, it is a term that is used to depict that everyone can see the public key, and it is published on the blockchain. A private key is a secret key that is only known by the user and is also sometimes known as the user’s signature. The blockchain only depicts in a ledger that a transaction has taken place between two users or public keys and will display the amount and time of the transaction.
Blockchain analytics
Yes, it is possible to know users’ identities by analyzing the transactions recorded on the blockchain. There are some top-notch companies that have built their software that is based on blockchain forensics. The work is these companies are done by using analytics to link the bitcoin wallet address to web entities and helps to analyze the risk of illicit activities. Many studies and researches have been done that depict that it is easily possible to learn about individuals’ blockchain transactions by using network analysis and several other methods.
The best way in which bitcoin user can enhance their privacy is by using different and new bitcoin address when making a transaction. Thus they will get a new public key for everything, which makes it next to impossible to trace the transactions or address of a user.