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.
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.
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.
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.
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.
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.
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