How anonymous can you be when you are using Bitcoin (BTC)?
Bitcoin is not anonymous; it is actually pseudonymous in design. This means it is not untraceable, and there are specific ways to reveal the true identity of the Bitcoin user. The underlying technology behind Bitcoin is called the blockchain. It is a particular type of database design, and it keeps a permanent and public record of all transactions ever made, together with the specific details of each transaction, such as the amount of BTC transacted between both wallet addresses of the sender and receiver, the date & timestamp of each transaction, etc.
Pseudonymous is akin to having a nickname registered in an online forum. Just because you named yourself, for example, GoldenJet, does not mean you are anonymous and no one else finds out who you are. You are, of course, bound by your activities, e.g. your IP address and your email address. However, your identity can still be tracked easily if the forum owner or the authorities want to.
Your specific actions when using Bitcoin determine how much personal information about you is revealed. This article will state down all these actions and activities.
Related Post: How to find out if someone has Bitcoin & cryptocurrency?
1. Your Bitcoin wallet
You have already revealed your true identity when using a cryptocurrency exchange wallet. You do this by providing personal information to the crypto exchanges. Most crypto exchanges require their users to provide ID verification, such as uploading their residential proof of address, a photocopy of the ID card or passport page and even a selfie of themself holding their driver’s license. Users can get “verified” status and begin trading and withdrawal activities on their platform.
Commercial blockchain forensics & analytics tools are capable of finding out from your bitcoin address that it is actually generated from a particular crypto exchange. This is possible because each exchange uses a specific manner (i.e. hashing function) to generate bitcoin addresses, primarily for audit and compliance purposes.
When using mobile crypto wallets, be mindful of the personal information that it asks for and those you give out. ZenGo crypto wallet, for example, requires your email address (mandatory step) before you can proceed with the creation of a new wallet. When you reveal your email address, there is a chance you may disclose your identity. Use a disposable email service like Mailinator if you need to provide one.
Our research and testing find that the Trust Wallet mobile app does not require personal information like an email address when setting it up.
2. Your Bitcoin transaction activities
Your bitcoin spending transactions can also reveal who you are. For example, if you are using it on e-commerce sites, hotels staying, using a crypto credit card, or spending it on a bitcoin-accepted cafe, these are places and merchants that may reveal who you are.
Think of your credit card information, CCTV footage, and personal information stored on e-commerce shopping apps.
Your bitcoin receiving transactions can also reveal some things about you. Whether was it from a merchant or cryptocurrency exchange who has your personal information or from someone who is personally associated with or knows who you are.
Related Post: How to make Bitcoin transactions untraceable and anonymous?
3. Linking to your Bank account
When you link your crypto wallet to your own bank account, this is a straightforward way of revealing yourself. Most people do this because it is easier to deposit fiat currency, e.g. USD, into the crypto exchange wallet for buying cryptos and trading purposes. It is also easier to withdraw USD from the exchange into your bank account.
4. Cashing Out into Fiat Currency
The act of converting BTC into your local fiat currency, e.g. USD, mostly requires linking your bank account to your cryptocurrency exchange account. In doing so, both sides know exactly what you are performing. Cashing out BTC via linking your bank details reveals your true identity. Of course, you can argue that you could use someone else’s bank account, but that’s another hurdle to cross when identifying yourself through that person.
You can choose to meet someone in public and transact BTC in return for cash via the Localbitcoins platform, but the platform does need to verify its sellers and buyers. In other words, you still have to provide certain personal information about yourself on that platform. This is done necessarily to avoid scams and protect buyers’ and sellers’ interests.
5. Publicly giving out your Bitcoin address
Although your Bitcoin address is meant to share with others, it does not mean you should post it anywhere, especially on the Internet.
Again, when you give out your Bitcoin address, be mindful if it is in a public domain, such as an online forum or social media platforms like Twitter or Facebook, where everyone else can see it. If they can see it, they can query it on a blockchain explorer, see all your past transactions, and know your current balance.
An exception to this will be when you are asking for a bitcoin donation, and you have to display the full address in your social media account publicly, for example.
In most situations and for most people, only give out your Bitcoin address to the person you expect to receive funds from.
Related Post: Can you trace the physical location of a Bitcoin address?
This article is not written for you to be paranoid and start to find ways to anonymize your Bitcoin activities. On the contrary, it is written to educate most Bitcoin users on the potential of our personal information that may be revealed externally.
If you want to learn more about using cryptocurrency anonymously, you should consider using privacy coins like Monero and ZCash.
Always be mindful of the personal information that other bitcoin services ask for. They can be crypto exchanges, mobile wallet apps, online community forums, etc.
Bitcoin as the virtual currency and its underlying technology, the blockchain, is designed to be like a public ledger where all transactions and their accompanying details, e.g. amount, timestamps, and wallet addresses, are captured transparent and auditable.