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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.
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