Is a Bitcoin Transaction Anonymous?

Monday August 22, 2022

Is a Bitcoin Transaction Anonymous?
  (Source:Getty Images)

Developers have marketed Bitcoin and other cryptocurrency exchanges as anonymous and private since the original white paper presented blockchain technology in 2008. But how private are crypto transactions?

Earlier this year, a Manhattan couple was arrested and charged with financial fraud concerning a 2016 cyberattack on the Hong Kong cryptocurrency exchange Bitfinex. Authorities seized $3.6 billion in Bitcoin. It was the most significant economic seizure in the history of the Justice Department. So, if you are planning to trade Bitcoin, you can use a reliable trading platform like BitIQ.

Law enforcement went to great lengths to track down the infamous funds, including following the stolen Bitcoin through a complex web of transaction data spanning various countries. It took six years for authorities to catch up. Researchers have recently demonstrated traceability through unintentional patterns in Bitcoin transactional data — the larger a data set, the more patterns appear. Patterns can also be identified and tracked.

Because Bitcoin allows for direct peer-to-peer transactions over the internet, the activity intends to involve only two parties. You don't need banks, governments, or intermediaries. Although this appears to be the ideal framework for confidentiality and anonymity, the recent bust and other examples tell a different story of crypto transactions.

CNET spoke with two blockchain technology experts to learn more about the relationship between anonymity and cryptocurrency: Dr. Steven Gordon, who teaches a cryptocurrency and blockchain course at Babson College, and Feng Hou, Maryville University's digital transformation chief, who works on implementing blockchain technology.

Are Bitcoin Transactions Anonymous?

No, the recent bust in Manhattan is evidence, and after last year's Colonial Pipeline hack, authorities recovered some of the ransomware from the attackers.

"While there are specific ways that cryptocurrency does provide a level of privacy, keep in mind that nobody today can claim 100 percent anonymity," You said.

Although Bitcoin transactions might not be entirely anonymous, Bitcoin trading remains a lucrative investment. Thousands of people are venturing into investment each day. As long as you conduct clean business, Bitcoin is safe, and there is no need to worry about its anonymity.

How Cryptocurrency is Traceable

Because of the federal focus on crypto-related crime and the increasing sophistication of law enforcement tools for tracking illegal Bitcoin payments, these transactions can no longer be anonymous. Apart from the increased resources devoted to combating crypto crime, there's a more straightforward reason why these transactions aren't genuinely anonymous for ordinary Americans.

The blockchain registers transactions involving cryptocurrencies, which are generally accessible to the public. At the same time, crypto trades are not necessarily connected to identity, providing users with some anonymity. While you can purchase some goods and services directly with Bitcoin, in most cases, you have to convert it into local currency before spending it. Furthermore, converting Bitcoin into US dollars, a heavily regulated currency backed by the federal government, leaves a clear paper trail.

To convert Bitcoin to dollars, you must first locate a company that offers this service, for instance, cryptocurrency exchange, a money transfer service, or select banks. Companies like these typically follow "Know Your Customer" principles, meaning identifying your identity is

necessary to use the service. "Despite how anonymized or pseudo-anonymous Bitcoin is, the services that convert Bitcoin into dollars are not anonymous, and thus transacting it would not be anonymous in any meaningful sense," Gordon said.

Is Any Crypto Truly Anonymous?

Some cryptocurrencies claim to be completely anonymous. However, users should view any claim of entirely anonymous transactions with skepticism.