One of the primary issues of fiat, for which Bitcoin was made, is the absence of confidentiality of user data. An unknown creator of a cryptocurrency payment system aimed to make Bitcoin anonymous. To do this, the developer used decentralized data storage technology and other ways to improve confidentiality. Nevertheless, complete Bitcoin anonymity could not be reached. In this regard, it is useful for crypto users to understand how to preserve the confidentiality of personal data.
What makes Bitcoin anonymous
Blockchain holds the confidentiality of user data. The next network characteristics determine the anonymity of Bitcoin:
- No linking of crypto addresses to users. To generate a new storage, participants in the Bitcoin system do not need to supply private data. They may even make wallets in any amount as needed.
- There is no link between Bitcoin transactions and their initiators. BTC holders are not required to supply confidential data to transfer cryptocurrency.
- Random selection of nodes for processing operations. Miners relay Bitcoin transaction data within the network. Although mining nodes share via IP addresses, they cannot be sure that they obtain transfers from their initiators for processing.
How to keep Bitcoin anonymous
There are three popular methods for increasing privacy:
- TOR. Established on The Onion Router technology, browsers use multi-level encryption of the connection with three keys to connect to the Internet. They are generated randomly as the signal passes via proxy servers (intermediates between the user and the network). Tor allows you to hide your IP address and any other facts.
- Bitcoin mixer. Operating such software, you may anonymize the initiator of such Bitcoin transactions. Crypto Tumbler collects users’ cryptocurrency and carefully “mixes” it, transferring digital assets to various addresses. As a result, network participants receive the invested amount back, but from different senders and in parts.
- Special wallets. There are opaque storage facilities through which you can send cryptocurrency anonymously. They block access to information about clients’ addresses and Bitcoin transactions. In this case, the service owners have several crypto wallets. Having received coins for one, they send a similar amount to others. As a result, it is almost impossible to link these transactions.
How to buy BTC anonymously
Attackers can identify the owner of a wallet using several methods. For this reason, many investors and traders try to buy BTC anonymously. There are three main ways:
- Lightning Network (LN).
- Direct purchase.
- Darknet (shadow Internet).
LN is a second-layer protocol or technology for creating payment channels on top of the main blockchain of the BTC coin. The Lightning Network was created in 2015 by a team of cryptocurrency organization Bitcoin Core developers.
LN technology can preserve the anonymity of Bitcoin for three reasons:
- BTC transactions from payment channels do not need to be included in the Bitcoin public ledger blocks.
- TOR technology is used for anonymization.
- There is no possibility to cluster Lightning transactions.
How to buy bitcoins anonymously using other ways? To preserve the confidentiality of private data, you can buy bitcoins anonymously directly. First, you are required to find a seller and agree to the terms of the transaction. It is recommended to insist on a deal in person. This approach will decrease the risk of fraud.
Another way to buy crypto anonymously is to use services on the darknet. However, such resources operate semi-legally or completely illegally. Also, services from the shadow Internet charge more for their services.
Exchange policies regarding Bitcoin anonymity
Most popular cryptocurrency trading platforms require clients to verify their identity using a passport or other documents. This is due to pressure from financial regulators of the countries in which exchanges operate. For this reason, trading platforms have a negative attitude towards virtual assets that maintain complete user confidentiality.
Anonymous cryptocurrency
Bytecoin is believed the progenitor of such digital assets. The project was developed in 2012 and founded on the CryptoNote encryption algorithm. This mechanism ensured the confidentiality of client data. In 2021, there were more than five more anonymous digital projects.
Summary
The Bitcoin network is pseudo-anonymous despite the absence of transaction data and wallets being linked to users. Confidentiality of data may be violated using heuristic methods. Origins of funds play the main role in this – unspent results of prior transactions – UTXO.
Help to keep the anonymous Bitcoin:
- The Onion Router. Multi-level Internet connection encryption technology.
- Mixers. UTXO shuffle software.
- Opaque wallets. Storage facilities that deny access to the personal information of users.
- Lightning Network technology. Protocol of the second level of the Bitcoin system.