Are Crypto Transactions Really Anonymous?
Blockchain Anonymity Explained
One of the core features of blockchain technology - the underlying technology empowering cryptocurrencies - is anonymity, i.e. a way to perform transactions with complete privacy and anonymity for users. However, crypto anonymity is not as straightforward as one might expect it to be. In this article, we take a deeper look into the anonymity aspect of the blockchain and cryptocurrencies.
What do we mean by anonymity?
In general, anonymity is a feature that makes you unrecognizable. You have no known identity, and therefore, you are not possible to identify.
Blockchain achieves anonymity by allowing users to trade with a different name or even without a name. Unlike the traditional financial system, where all your transactions are processed based on your name as per official records, blockchain doesn’t actually need you to share your original name with anyone. Instead, your bitcoin (or any other cryptocurrency) account is identified by a unique alphanumeric address. This address is your blockchain identity for that particular cryptocurrency and can be used to send/receive payments to you.
Blockchain and a number of cryptocurrencies allow anonymity for their users, but that doesn’t necessarily make you completely anonymous.
How Anonymity Works in Cryptocurrencies
What cryptocurrencies do actually is that they replace your name with a wallet address that is your unique blockchain identity. It’s not physically possible to find out the owner’s real identity by their wallet address. So, you are in a way anonymous for other crypto users. However, it is possible to identify the real owner of a crypto wallet based on whether or not they possess a private key to the wallet. This is where cryptocurrencies lose their truly anonymous stature.
And since it’s possible to actually trace a blockchain wallet to its real owner based on the possession of private keys, saying that blockchain is truly anonymous won’t be actually true. However, it’s safe to say that blockchain and cryptocurrencies are a pseudonymous system, where the identity of the owner is conceived from other users.
Then, why is it that the bitcoin founder Satoshi Nakamoto has not been identified yet?
It’s because he never transferred his coins or made any transaction with his wallet. So, the public key or wallet address associated with Satoshi Nakamoto’s account is unknown.
Is blockchain anonymity (pseudonymity) a good thing?
In the past, cryptocurrencies have been known to help maintain the law and prevent money laundering by making it possible to trace the money laundering activities to the actual people. This is one of the reasons why most of the crypto exchanges today are required to get KYC & AML verified by their users. This helps ensure cryptocurrencies are not used for any illegal activities.
Though cryptocurrencies are not completely anonymous, a certain level of pseudonymity is natural in crypto transactions, which is a good thing for user privacy and can allow users to make payments with somewhat anonymity. For example, Libra Coin is a security-focused digital payment currency for the e-commerce industry that allows low-cost cross-border payments with complete privacy and anonymity using blockchain technology. It aims to provide e-commerce businesses with a convenient, secure and transparent way of accepting payments from their global customers using cryptocurrencies.
Cryptocurrency transactions on the Libra Ecosystem are private, secure and completely transparent. There is no middleman who will see or access your transaction details. Even the user information is encrypted and in the code form, so no one can see the actual details. All the transactions on the blockchain are encrypted and highly secure.
Also, the Libra Ecosystem allows e-commerce companies to accept payments in multiple payment modes from their global customer, using digital currencies.