Users attempt to remain hidden behind their Bitcoin transactions (8)
The cryptocurrency Bitcoin has made a big splash in the past eight years, with the market becoming worth over $100 billion (1). It’s popularity is ever increasing, and rightfully so. There are enumerable reasons to use Bitcoin: improving ease of international purchases, avoiding volatile government currencies, market speculation and currency trading, and purchasing day-to-day items with many participating businesses. However, Bitcoin has become infamous for its popularity with illegal activity. The reason for this is that Bitcoin is known for being anonymous.
The reason Bitcoin receives this reputation of anonymity is that no personal information is required for a Bitcoin address or transaction, giving users a sense of security (2). Those receiving a Bitcoin do not even know the identity of the person sending it (6). This is fueled by the computing process for transactions, in which independent miners process transactions without needing to know the identity of either party. The Bitcoin’s can then be delivered to the user’s pseudonym, which does not have their personal information attached to it. With this idea that their identity is secure, Bitcoin users have used the currency for many shady activities. For example, Bitcoin has been used to purchase illegal drugs and weapons, gamble illegally, hide assets, and make illegal transactions internationally (3). Bitcoin was at the center of the online black market known as Silk Road, which sold countless legal and illegal drugs, medical supplies, and hitman services (4). The anonymity of Bitcoin allowed Silk Road to collect over 9.5 million Bitcoin ($1.2 billion) in revenue (5). Silk Road was later shut down by the FBI, and what this revealed is that Bitcoin is not as anonymous as everyone thought.
It turns out that Bitcoin is not totally anonymous but only “pseudo-anonymous” (6). While no personal information is used, all transactions are public record. Therefore, there are certain things that can giveaway a user’s identity, such as one’s IP address, the timestamp of a transaction, the amount of the purchase and reuse of a Bitcoin address (7). Computational analysis of transactions on Bitcoin’s public ledger can help law enforcement to uncover IP addresses amidst the millions of transactions. Additionally, if a person’s identity is linked to one of their Bitcoin addresses, all of their transaction history can be uncovered, which is a real problem for privacy.
Since anonymity is one of the major reasons people use Bitcoin, there are ways to restore that privacy. For example, users can use softwares such as mixers that try to scramble transactions and hide IP addresses (6). This is, however, a controversial subject: do we want to protect users’ privacy and allow Bitcoin to remain anonymous or is it better to restrict anonymity in order to prevent Bitcoin from promoting illegal activity?
References:
(6) https://bitcoinmagazine.com/articles/is-bitcoin-anonymous-a-complete-beginner-s-guide-1447875283/
Great blog, Laughlin!!! This reminds me of when people were freaking out about whether or not they should unlock the lady's iPhone to help the government (I personally don't know the right answer on if that is okay or not) but I wish I knew the line of how much access the government should have with our privacy. Interesting also how androids and Alexa's are always listening since they respond to "Alexa" and "Hey google", does this mean its recording everything we say potentially? whom knows.
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