Living in a world where almost everything can be accessed through the click of one button, it could be dangerous for people not to safeguard their data. This is true, most especially when you are dealing with your financial data. The Anonymity that Bitcoin that promises to users is what brought the cryptocurrency into global popularity in the past few years. However, as opposed to what most people believe, Bitcoin is not completely anonymous. In this article, we will discuss how Bitcoin works in relation to user privacy and why it is not considered completely anonymous.
Bitcoin is pseudonymous in nature
When you make a Bitcoin transaction, you will not be represented by your personal information like name and emails; instead your transaction will be linked through a unique Bitcoin address. This address a.k.a your “pseudonym” serves as your identity in the Blockchain network.
The blockchain, an open-source and volunteer-run online entity, is a centralized ledger where all Bitcoin transactions are recorded and logged. When you send money through Bitcoin, the blockchain will log all relevant information related to all Bitcoin transactions made. The data contained in blockchain logs include:
- Bitcoin address of the originator of the transaction
- Bitcoin address of the destination of the transaction
- The date and time of the transaction made
- Amount/value of the transaction
- Amount/value of funds in the said Bitcoin addresses
While none of these data include Personally Identifiable Information (PII) which directly gives away the real-life identity of Bitcoin users, there are several ways for interested parties to link this information to a person. For example, when transactions are made using a standard browser, it is easy for anyone to find out the IP address related to the transaction. When the IP Address is known, it becomes exponentially easier to find someone’s exact geo location and even their names.
Who can see your Bitcoin transactions?
Technically, everyone who has access to the blockchain network will be able to view your transactions. Thus, the more relevant question in this case is: who WILL view your Bitcoin transactions?
There are a number of entities who has an interest in viewing your behavior in the Blockchain network, including who you send or receive money to/from. These interested parties range from your friends and families to invasive institutions who have a stake at knowing your financial information. For the purpose of this post, we will discuss only pervasive entities who are known to be snooping into people’s Bitcoin transactions.
It is not a secret that most governments are spying on their citizens for different reasons. One of the reasons why governments and law enforcement agencies are scraping information from the blockchain is social engineering. One of the most controversial scandal involving data scraping is the infamous Cambridge Analytica that was used to influence people’s opinion leading to the 2016 Elections.
Another reason why the law enforcement is lurking in the Blockchain network is because they are hunting for cybercriminals. And since the transactions there are technically not anonymous, there could always be mistaken identities.
Businesses and Advertising Networks
When they say, data is the new oil, they mean that there is a multi-billion dollar industry that benefit from collecting user data on the internet. It’s called digital advertising. Advertisers are always collecting data that they can sell to business so that it can be used to accurately target users with specific ads. While this is not necessarily dangerous, it’s annoying at least. If you don’t want your mom to snoop on your personal businesses, why would you let businesses to see what you buy or how much you are paid?
Hackers and Cybercriminals
The internet is full of threat actors and cybercriminals who are in the Blockchain network waiting for their new target. They use the information they can find in the Blockchain in order to find potential victims to attack. These attacks range from infecting their device with malware to blackmail, to physical harm like kidnapping.
With that being said, there really are people and organizations out there who will do their best to spy on you in the Blockchain network. But, there is one thing you can do to prevent them from being able to follow your transactions. You can actually mix your coins with others to confuse people who are following them off their trails.
This process is what you call Bitcoin mixing. It involves using a third party service provider that mixes the coins sent by different users and replacing them with random, clean, and untraceable coins. By mixing your coins, you can be guaranteed that your transaction will not be linked back to your identity and you can make transactions without the fear of being spied on by either the government, invasive businesses or cybercriminals!