Among the most touted benefits of the virtual currency known as Bitcoins is the fact that is anonymous. Is the cryptocurrrency completely anonymous, however?
Yes and No.
On one hand, Bitcoins are completely anonymous in that it is possible to have a Bitcoin address without revealing any information regarding your personal identity in that address. Additionally, it is possible for one person to hold multiple addresses or Bitcoin wallets. Those addresses also do not necessarily need to be linked together. As a result, it is possible to hold multiple accounts without there being any indications that those accounts are actually held by a single individual.
The lack of a central government or bank controlling the supply of Bitcoins also makes them anonymous. When a transaction is made with a credit card or a debit card, the information involved is stored in a number of different databases, allowing the relevant banks to maintain access to those transactions. As a crypto-currency, Bitcoins are unique in that no organization or bank controls them.
In this regard, Bitcoins are completely anonymous.
Yet, at the same time, there is another side to Bitcoins that makes them quite transparent. This is because all Bitcoin transactions are trackable. This is due to the way in which the algorithm that supports Bitcoin transactions is designed. All transactions made with Bitcoins are logged into a log book known as the blockchain. Compared to traditional transactions, when you make a purchase with Bitcoins, there is no need to show the type of identification that you would normally provide to verify who you are.
Theoretically speaking, anyone could easily see the balance of your Bitcoin wallet if you were to publish your address. This means that the job is certainly on users to protect their Bitcoin addresses just as they would any other confidential financial information. Additionally, due to the open source log book, it is possible for certain types of metadata to be traced which could ultimately reveal a user’s identity.
While Bitcoin has become increasingly known for its quasi anonymity, there have been increasing efforts to increase the security level of the currency even more. One possible contender is Dark Wallet. The Bitcoin wallet would act as a browser plugin and make the otherwise public blockchain less traceable.
Steps you can take to protect your Bitcoins and your identity
All Bitcoin addresses feature their own private key. The key is necessary in order to be able to spend the Bitcoins contained in your wallet. No private key; no transaction. That sounds secure enough, but it is important to ensure that your password is always protected. Due to the length of Bitcoin private keys, it is simply not practical to memorize them. Protection for your keys can be accomplished in a variety of different ways. While some people opt to keep them written down somewhere, that does leave your key vulnerable to loss by damage or even theft. In order to combat this problem, some Bitcoin wallets are now offering the option to use passwords that are specially encrypted.
Keeping separate wallets is one way to diversify your funds and limit the potential for loss. For instance, some people opt to keep one wallet for savings, another for spending, and yet another for receiving payments. Also, remember that web wallets are more susceptible to hacking attempts, so if you continually make transactions between various wallets, this can send a trackable signal to interested hackers. Finally, if you utilize a desktop client for your Bitcoin wallet, consider backing up your wallet for additional protection.