Anonymity and privacy appeal to many crypto users. Cryptocurrencies are privacy-focused, but is bitcoin anonymous? If yes, how is bitcoin anonymous? In this article, you’ll learn whether bitcoin is anonymous or not and how to increase your anonymity as you exchange bitcoin. You’ll also know how cryptocurrencies are tracked and the most anonymous cryptocurrencies in the industry. This is important for crypto users who are big on privacy and anonymity.
Can You Buy Bitcoin Anonymously?
In addition to making profits, most crypto users love cryptocurrencies because of the sense of privacy and anonymity they enjoy when transacting with cryptos. For example, if you are considering buying bitcoin, you can buy on any crypto exchange (CEX or DEX) or via an offline peer-to-peer transaction. But is bitcoin really anonymous? There are four ways to transact bitcoin: buying, selling, and sending and receiving. You can buy and sell bitcoin on exchanges or convert it into other cryptos. You can also send or receive bitcoin, via a third-party, in exchange for a service. You can also exchange cryptocurrencies for fiats such as the USD or GBP. How anonymous is bitcoin? Many regulators require crypto exchanges to provide a KYC feature to registered users; this means users’ IDs are associated with accounts that send and receive bitcoin. This is why no cryptocurrency is entirely anonymous. Crypto exchanges keep records of transactions as required by law; these records can be pulled to trace any crypto. You can also get bitcoin through a crypto bitcoin mining service.
How is Cryptocurrency Tracked?
It is established that bitcoin is not anonymous; how do you track the identity of bitcoin users and their transactions? First, crypto transactions are recorded on a public ledger (blockchain) and are available to anyone. But blockchain transactions are not associated with a user. Why is bitcoin anonymous? The transactions are public, but the identities of the parties are not. Cryptos are tracked when they are exchanged for fiat cash that a government regulates, as doing that leaves a paper trail that investigators can follow.
Exchanges and ID
Trading cryptocurrencies on centralized exchanges such as Binance and Coinbase presents a problem with anonymity. These exchanges are registered businesses that are required, by law, to require some form of identification (driver's license, passport, or some other government-issued ID) before a user is verified to trade or perform transactions. Although users retain privacy, these KYC protocols mean governments can easily match crypto transactions with the sending or receiving accounts on centralized exchanges. Is bitcoin wallet anonymous? Yes, but in the event of an investigation, the authorities may request identity information from exchanges. KYC is necessary for fintech and blockchain companies to comply with anti-money laundering (AML) laws. Using a fake ID is of little consequence, as authorities can track the receiving bank account information. Is sending bitcoin anonymous? Mostly no, if sent from centralized exchanges. It is essential to use verified, and licensed platforms when buying or selling bitcoin is necessary.
How to Approach the Anonymity of Buying Bitcoin?
Is bitcoin completely anonymous? No, but you have several options if you want to increase anonymity when sending bitcoin. While making anonymous transactions from a wallet challenging, you can use a bitcoin mixer to improve anonymity. A bitcoin mixer or tumbler is a crypto service that mixes bitcoins from different sources until they are unidentifiable and sends them out to various wallets. Crypto users with trackable or colored bitcoins or another crypto send them to the mixing service wallet, where they are mixed until no one can identify the coins received from each contributing address. The coin pool is then sent out to the receiving wallets. Investigators cannot trace such transactions. The pros of a bitcoin mixer are:
- Anonymity and privacy
- Full security.
The cons include a delay in receiving currencies. Delaying final transactions is a strategy to increase anonymity and make it harder to trace.
Is bitcoin still anonymous? You can also try the smokescreen method, where you create different wallet addresses and send the bitcoin around them as often as possible, spacing the transactions to make them harder to trace.
What is the Most Anonymous Cryptocurrency?
If you are wondering is bitcoin truly anonymous, there are only two leading coins that offer privacy and anonymity: Monero and Zcash. They are among the coins built with features that provide anonymity. The Monero blockchain has privacy features for all transactions, offering a significant level of privacy. Zcash, on the other hand, has privacy features that crypto users must activate by themselves. Unfortunately, most users don’t activate these features. Is buying bitcoin anonymous? You can buy on Monero’s opaque blockchain.
Anonymity is an essential feature to many crypto users, but there is no single cryptocurrency that is 100% anonymous. Crypto users must therefore be wary of claims that certain transactions are entirely anonymous or private from the government. AML regulations ensure that authorities can trace cryptos on exchanges to get owners' identities. By using a crypto mixer or smokescreen, it is possible to increase anonymity when buying or selling cryptocurrencies.