In our newest Bitcoin Basics column we review the anonymity of Bitcoins and whether they truly provide payment and wealth secrecy to users.
Bitcoin was founded on two core ideals: being a community driven, peer-to-peer digital currency, and offering people a high degree of anonymity. This latter feature attracted a lot of Libertarian leaning people looking for less government oversight, and admittedly also a small number of criminals who have used Bitcoin to fuel illicit activities. For most of us, however, this anonymity is simply a way to protect our wealth.
Anonymity has long been a concern of the Bitcoin community because the currency relies on digital movements to track who has what bitcoins. Obviously, creating a digital record of such movements can cause concern for many people, including those who use Bitcoin only for legal activities.
Bitcoin is, by and large, an anonymous currency as it uses a pseudonym system that protects the identify of people behind a sort of “pen name.” The address that you use to send and receive bitcoins will act as your pen name, giving you a digital identity that can be tracked and monitored, but allowing you to protect your “real world” identity from the Bitcoin community.
This system allows Bitcoin to both be open and transparent, with all interactions being monitored by the community at large. At the same time, as an individual investor, your actual identity is protected.
Since your pen name is public, people will see and know about all of your work, so to speak. They will be able to determine how many bitcoins you have, who has been sending you money, and who you have been sending money too. What they won’t be able to figure out (at least not without a lot of effort) is who “you” actually is.
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Ensuring Anonymity While Using Bitcoin
Of course, anonymity is not guaranteed. For example, if you run an online store and you accept bitcoins, it’ll probably be possible for someone to figure out who you are. People can also try to track your IP address or hack your computer. So what if you want to remain anonymous, what steps can you do to provide some extra protection?
Perhaps the best option is to use multiple addresses and multiple wallets. You can think of it as giving yourself multiple pen names, which will make it harder for people to track you. Some programs, such as Bitcoin Core also allow you to create multiple addresses for your inputs.
Another option is “Shared Coin”, which will essentially mix your coins in with other people’s coins, making it harder to track them. Once coins are mixed up, it becomes difficult to analyze the history of said coins.
And if you’re worried about people tracking the computer that you conduct trades from, you could hide your IP address. There are many programs that can help with this.
These simple steps will help ensure that your wealth remains secure and you remain anonymous.
This article was contributed to DCmagnates by Ofir Beigel from 99Bitcoins – an informational blog that helps you get stated with Bitcoin.
(Image courtesy of openclipart)