are cryptocurrency transactions anonymous?

question if cryptocurrencies

like Bitcoin are truly anonymous.

So if you can have, trade, spend, or
buy crytocurrency without actually

leaving any trace of you being the
person that performed that transaction.

Now, in order to answer the question,
we are first going to look at regular

FIAT currencies like US dollar, Euro and
so on, and your regular bank accounts.

With your regular bank accounts your bank
is in control using multiple databases

to manage and store all transactions
to keep track of what's going on.

And legally, depending on which country
you are in your bank is required

to keep records of all transactions
that happen on your bank accounts

for a certain piece period of time.

Within the U S in most cases, banks
are required to store transaction

information for five years at least.

Obviously the could store it longer, but
that's what they are required to do by

law, which automatically means that if
you have any kind of transaction that you

don't want to show up, that you rather
would forget about, or you rather would

have that nobody knows about them within
the regular banking system, there's a

good chance that after a certain period
of time, five years, 10 years, again, it

depends on the country the bank operates
in that transaction will disappear.

So there will be no further proof
of that transaction happening.

While the transaction in the
first place wasn't anonymous,

because you had to verify your
identity to open the bank account.

Overall, it's still kind of anonymous
because eventually that data disappears.

And that's one of the crucial
differences between how regular banking

works and how cryptocurrencies like
Bitcoin that use blockchains work.

Because within a blockchain, the
whole blockchain will always be

available and it's public information.

So why do people say that
cryptocurrency is anonymous?

First, it starts off by while you
need to show your ID to open a bank

account - so the bank will know your
identity, whereas other people may only

know your account number - when it comes
to cryptocurrencies, however, you can

just use your phone or your computer
to create a crypto wallet, which will

provide you with addresses, which is
kind of like the equivalent to a bank

account number for each cryptocurrency.

So you would have, for example,
an address for Bitcoin and

address for Etherum and so on.

Now in order to create that wallet, you
did not need to show any kind of ID.

You just downloaded an app
and started it, and there's no

verification process involved.

So at this point you actually would
have an anonymous bank account

using cryptocurrency like Bitcoin.

But where do things go from there?

At the moment, all you would have,
would be empty cryptocurrency wallets,

like empty bank accounts that are
quite useless, like an empty bank

account without a line of credit.

So you would need to get cryptocurrency
like Bitcoin to make use of that

cryptocurrency in the long run.

Now years ago, for example, when
Bitcoin started, you could mine

cryptocurrency or Bitcoin specifically
on your computer profitably.

So you could actually generate Bitcoin
from nothing in quotes and those

coins would appear in your wallet.

And at this point they would
still be anonymous, which means

you would still be anonymous.

All the blockchain would show is that
Bitcoins got generated based on your

computer doing the work and that they
got transferred or added to your wallet.

Nowadays, that's obviously
not possible anymore.

At least it's not profitable.

There are some companies out
there that use specific hardware

and they work in countries with
very low electricity prices.

So for them it's still profitable,
but for the average Joe out there,

it simply doesn't work like that.

Or you start spending more on
electricity than what you get

back in coins like Bitcoin.

So nowadays, since mining coins like
Bitcoin is not profitable anymore,

you would head to an exchange like
for example, crypto.com, which is the

exchange that I'm personally using.

And I'm also using their wallet
and their other applications.

And if you aren't using them yet, I
recommend that you check the link in

the description down below, because you
can also get up to $50 worth of their

CRO coin, when you sign up using the
link in the description down below.

Obviously, there are also other exchanges
out there, but what all of them have in

common if you want to buy cryptocurrency,
so in that example, Bitcoin, you

will need to pay for it somehow.

So you would either wire money from
your bank account, which can be

identified since you have to provide
your identity to open that bank account.

Or you can use your credit card
where the same thing applies.

As a result, there will be a transaction
that shows that Bitcoin or whichever other

coin you bought has been transferred from
the wallet of the exchange to your wallet.

However, the exchange itself will
have a record of you purchasing with

your credit card, your PayPal account,
your bank account, or whatsoever.

So in order to stay anonymous at this
point, you would actually need it to find

somebody who's willing to sell you Bitcoin
or whatever other cryptocurrency you

want to buy using services like Western
Union or another method of an anonymous

money transfer so that there is no record
showing which person actually bought

the coins that ended up in your wallet.

And therefore you would
still be anonymous.

Obviously, for the average user,
that's way too much effort.

You would really need to go
looking and find somebody.

And most likely, if you find a shady
person that is willing to do that, they

most likely will not sell the coins
to you for the current market price,

but they know that you have a reason
why you want to do that anonymous and

they probably will overcharge you.

Now, let's assume somehow you
manage to get the coins like Bitcoin

anonymously into your wallet.

So somehow you found somebody that is
willing to do an anonymous cash transfer

or any kind of other transfer and send
you the coins into your wallet, or you

got them by any other means that didn't
leave any kind of trace as to who you are.

Now you have a wallet with some coins
in them, which is really great, but just

like having a bank account with money
in it, if you don't do anything with

that money, it's kind of like worthless,
and it doesn't do you a lot of good.

So eventually you will want
to use those coins by probably

buying something with them.

And that's again, where we
run into the same problem.

Let's assume Amazon would
accept Bitcoin or any other

cryptocurrency for that matter.

And you use your wallet to
buy something on Amazon.

Now the money itself at this point
would still be anonymous as we assumed

that you were able to purchase Bitcoin
or any other coin for that matter

without leaving any kind of trail.

But now that you purchase something on
Amazon, they will have a delivery address

for whatever it is that you bought, which
again, could be tracked back to you.

And again means that your crypto wallet
is not anonymous because at that moment,

whoever looks into this would see, okay,
the person with this delivery address use

that crypto wallet to buy product A or B.

And therefore we can assume that the
owner of that crypto wallet is actually

the person that placed that order.

And again, you're not anonymous anymore.

Now, maybe you don't want to buy
something with your Bitcoin, but

eventually want to put it on your
bank account as US dollar, Euro or

whatever other currency you have there.

So you can actually, I don't
know, pay for your next house

with it or something like that.

And again, you want it
to the same problem.

You will need to find an exchange that
can take the coins off you and wires

you the money on your bank account.

And again, that will leave a trace
because there will be a transaction in

the blockchain that shows your wallet sent
money to the wallet off that exchange.

And the exchange will have information
as to who they paid that money too.

Now I'm not saying that it's impossible
to use cryptocurrency completely

anonymous, but as you can already see,
it would require quite some effort.

Most likely you would have to deal with
some shady characters and most likely

you wouldn't be able to sell and buy
cryptocurrency at the current exchange

rate, but probably would pay a huge
markup because those people involved in

such kind of transactions most likely
will take advantage of the knowledge

that you really want to be anonymous.

And therefore you're willing
to pay more than what the coins

are actually worth right now.

Now the biggest problem, however, is
what we already discussed initially.

Your regular bank is legally obliged to
keep records for five, 10, maybe 15 years,

depending on the country you're living in.

However, the blockchain is a permanent
ledger, which keeps track of every

transaction, which means that even after
50, 60, 70 years, people will be able to

look up, which wallet transferred money
to which other wallet or to which service.

And that means it will always
be possible to reconstruct who

is behind which transaction.

Now, when people steal cryptocurrency,
for example, like it happened

to Nicehas a couple of years
ago, then there's also a trail.

Back then people transferred
all the money, or I think almost

all the money from Nicehash'
wallets into their own wallets.

And from there, they started forwarding
the money to another wallet and another

wallet and another wallet and so on.

And they split it up into multiple
wallets, which is kind of like a

great way to break down a huge amount.

But the problem is at some point they
will want to exchange those coins,

or they will want to buy something
with those coins or cash them out.

And therefore at some point
another person or service has to

be involved that is willing to take
those coins and give you whatever

it is you wanted to buy with them.

Or wire you the money
that you wanted for it.

And again, unless you find some
shady people that are willing

to do that with anonymous cash
transfers or things like that.

You'll most likely leave a trail.

And while that trail will only lead
to one of the wallets, maybe after a

hundred splits and transfers overall,
because the blockchain keeps a permanent

record, it will still be possible
to reconstruct that the money came

from the stolen funds from Nicehash.

So they will identify the first
person that somehow can be identified.

Then they will reach out to that
person and figure out who they

got the coins from and so on.

And eventually it will lead back
to the wallets that were used to

steal the coins in the first place.

So to conclude this video, yes, it
is possible to use cryptocurrency

anonymously, but it comes with some
extra effort because you cannot use

regular exchanges and services, but
you will need to find people that are

willing to deal a little bit outside
the system, and you will need to find

methods to deal with them anonymously.

So where they don't have your
regular email address, they

don't know your phone number.

They don't even have your IP address
to narrow down the location you're

living in, which means for most people
it will not be worth the effort.

So even if you manage to get all your
cryptocurrency somehow miraculously,

maybe by mining them initially when it was
still profitable, the moment you want to

spend them or cash them out, is the moment
where you most likely will leave a trail.

And compared with your regular bank
account where records disappear

after a couple of years, because
banks will not store them forever.

With cryptocurrency, there is actually
permanent record on file that will

never be deleted from the block chain,
which will mean that even in 20, 30,

50 years from now, there will still be
a trace as to what happened back then.