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Is Bitcoin Anonymous or Private, and What’s the Difference?

Liz Louw
Liz Louw
12 June 2019
 

The number and variety of contradicting, misleading and confusing statements around Bitcoin abound. Some assume the very worst, like that ‘Bitcoin’s energy use is destroying the planet’ (debunked here) or that ‘bitcoin is mostly used by criminals’ (debunked here).

Other claims assume seemingly beneficial traits, like total anonymity for those who transact with Bitcoin. The idea that Bitcoin provides users anonymity poses two misunderstandings: Firstly, that bitcoin transactions are untraceable, and secondly, that an anonymous financial system provides the individual with more freedom. Let’s check the claim and its supposed benefits and measure them up with reality.

The Bitcoin Ledger is Traceable by Design

The quickest way to set the record straight about Bitcoin’s supposed anonymity is to head over to a Bitcoin browser with your wallet address in tow. Block Explorer is one of several such browsers that lets you view the transaction history of the Bitcoin blockchain. You can search the ledger by wallet address (i.e. the public key), transaction number or block number to zero in on the section you’re interested in.

Yes, the bitcoin ledger is transparent, and once a transaction has been recorded it is impossible to erase or alter without being detected.

Although the bitcoin blockchain ledger identifies transaction senders and receivers by wallet address making it pseudonymous, government sting operations like Operation Onymous have proven that Bitcoin transaction records can be traced to reveal the actors at work behind the scenes.

Why Bitcoin’s Designer Chose Traceability

“Bitcoin doesn’t help you hide. Bitcoin follows the law. Bitcoin is an immutable evidence trail. This is important: an immutable evidence trail means that you can be followed and stopped if you do something criminal.” Craig Wright

Have you been drawn to Bitcoin with the lure of anonymity? I’m afraid you’ve been duped by some of the most common Bitcoin myths: that Bitcoin offers secrecy to those who like to operate under authorities’ radar and that Bitcoin was invented to overthrow governments.

But wait, before you resign yourself to disappointment, let’s ask ourselves whether anonymity is all it’s cracked up to be!

Anonymity Aids and Abets

One of the most popular proposals for anonymity promises it would give society and the individual more freedom and keep us safe from the leer of Big Brother. Let’s talk straight for a moment: black markets are notorious for enabling and even participating in heinous crimes against society! So, whose freedom is anonymity supposed to protect?

The infamous case of Silk Road is all telling...

When Operation Onymous cracked Silk Road, an online black market claiming anonymity through the use of Bitcoin and Tor hosting, the government sting resulted in more than 17 convictions for sex crimes including 71 child sex offences (Source).

Silk Road’s founder, Ross Ulbricht, was arrested, tried and convicted of money laundering, computer hacking, conspiracy to traffic fraudulent identity documents, and conspiracy to traffic narcotics using the Internet. He is currently serving a life sentence.

“Children between the age of 12 and 16 were exchanged using Silk Road.”

(Craig Wright)

And it’s not only criminal organisations that take advantage of anonymity. Murky systems, like off-shore banking channels, are well known for aiding corrupt governments and politicians too.

We could say that anonymity is the sewer system of society: wherever it’s left unguarded and undisturbed, the rats will gather to nest and breed.

Anonymity Doesn't Help, but Hinders Individual Freedom

Another promise of anonymity-backers is that it will create a society where the government can’t stick their noses into our private affairs. The logic sounds simple enough, but reality has proven the opposite to be true.

In a recent article on the legal implications of privacy coins and protocols, Bitcoin’s creator, Craig Wright, provides a solid counter-argument to the proposed ‘benefits of anonymity’:

Anonymity Is Not Free

Some (foolish) people like to say that anonymous systems create more freedom and that they will bring down government. They are categorically wrong on all counts. Anonymous systems are the way to bring in more government control.

If you want to bring in more government, you bring in more threats.

If you bring in anonymous systems and things that government cannot control, then the reaction is very simple: government is increased. Most people want safety, security, and peace of mind. Most people don’t care and will hand over control very simply. So the thing is, if you make it simpler for crime to exist, the majority of people will hand over the reins of power to government. In creating a more anonymous system, you end up creating a system that oppresses most people, and most people will accept it for safety and security.

You may not like it, but such is the fact of the matter and how it all works. If you create a system that allows terrorist funding, you have also created a system that allows government to crack down. If you want free private communications, the last thing you ever want to think about allowing is anonymity.

How Bitcoin Offers Privacy

Bitcoin may not offer anonymity, but that does not mean that it divulges information willy-nilly, or for the sake of curiosity. As a ledger holding the entire Bitcoin transaction history, the only way to locate and interpret individual transactions, without undertaking a full-scale tracing operation, is through access to one of the transaction identifiers, like the wallet address or block number at stake.

As long as you operate legally, there is little incentive for anyone to go to the trouble of trying to unravel your Bitcoin transaction history. At the same time, Bitcoin’s immutable transaction history serves you with indisputable evidence in scenarios where you need proof of a transaction: you’d simply offer the relevant parties the necessary identifiers to locate and verify exactly the bit of information that pertains to them; nothing more, and nothing less.

Given the Bitcoin ledger’s indisputable, but private nature, this opens up the potential for a whole world of related data-sharing applications to be built

“The BSV blockchain allows for data storage on chain, which search engines, applications and websites can then query from for their use cases. Because transaction structures can be specified, read and write permission can be easily controlled and allow for any manner of new application.

The use cases for this are already powerful. Institutions can use this structure to encrypt and safe-guard data while still allowing transparency for information that needs to be shared openly.”

Bitcoin is Honest Money

Though privacy coins like ZCash and obfuscation services such as Cash Shuffle aim to hide or confuse the trail of transaction breadcrumbs, the traceability of the Bitcoin ledger is no fault; it’s a design choice to enable honest money to keep criminal actors at bay and government at an arm’s length.

For those who are willing to operate within the law, Bitcoin’s transparency is a boon; as long as your cards are ‘above board’, you can keep them close to your chest.

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