Bitcoin and other cryptocurrencies are often associated with anonymity. At the end of the day, you can perform transactions that do not involve middle parties, such as banks. Sure, there are no major fees to pay either – most of them can be avoided. But then, is this cryptocurrency really anonymous? Are there any ways to trace transactions back to you?
Bitcoin allows people to send and receive money with a pretty good level of privacy and anonymity – better than most other types of money. But then, even the people behind Bitcoin agree that the cryptocurrency is not fully anonymous. Cash is, therefore, the king of privacy. Then, how does the anonymity of Bitcoin work?
Bitcoin is pseudonymous
Dealing with Bitcoin is like writers used pseudonyms. If that pseudonym is linked to you, every transaction you do under it will be linked to you too. With Bitcoin, this pseudonym is practically the address you use for transactions. If this address links to you, you can kiss anonymity goodbye.
To ensure anonymity, you could use a different address for each transaction – even if one of the pseudonyms links to you, the others will not. However, this method is not always 100% safe. What else can you do then?
Come up with your own full node
anonymous wallet nodes are needed to validate transactions. Using your own code means you do not have to rely on someone else’s code to send your transaction details to the blockchain. Running your own full node avoid the necessity of trusting others to verify transactions.
On another note, your own note adds to your privacy. Just like any other option, it comes with a drawback as well. This option is suitable to technical people who know what they are doing.
Rely on a VPN
A VPN hides your IP address, but it also keeps your traffic encrypted. For full anonymity, avoid free VPNs – they are not too expensive anyway. In other words, your ISP and partners are unable to see what you are doing online – plus, other websites cannot really get your IP.
This method works hand in hand with the previous one. You are free to connect to a Bitcoin client using the VPN you chose, so onlookers cannot tie you as the node owner.
Get an anonymous wallet
An online wallet is mandatory for Bitcoin transactions, but different wallets come with different specifications. If privacy and anonymity are your main concerns, you should opt for a wallet that provides such features. For instance, Monero has gained notoriety for being fully anonymous – no one could ever trace your transactions to your name or address.
As a short final conclusion, unlike most expectations, Bitcoin is not fully anonymous. It does provide an acceptable degree of anonymity, but it will never be as good as cash. Improving your privacy and anonymity is, however, doable, but you need to take additional steps in order to get there – and some of them are not free or require technical knowledge.