Does Bitcoin Guarantee Anonymity?
A cryptocurrency is a virtual cy. It is utilized as a means of exchange. It looks like a real cy. But it does not possess a physical embodiment. It utilizes cryptography. Therefore it is impossible to dual-use or fake it.
If you possess an ordinary bank account, you should know that a bank registers “know your customer” (KYC) data. But if you utilize cryptocurrency, KYC is not obligatory. Actually, there are many exchanges that can function in law in jurisdictions that do not require KYC. This means they are positioned in a grey zone if we speak about legal obligations. Simply speaking, this indicates that one user has the possibility to open thousands of “addresses” and utilize them to transfer monies between different accounts. Nothing will stop this user, and he/she will not face red flags. This is the main reason for many criminals have begun to utilize the cryptocurrencies method as a preferred for money laundering.
Still, there is one paradox around cryptocurrency. It consists in that data connected with it forms a trail. This trail can all of a sudden transform the whole financial history into publicly available. Transactions that occur in Bitcoin are available to anyone who is present online. All things are tracked: the addresses to which monies are transferred, the date, and the cost of every transaction. The single thing that can not be tracked is peoples’ identities that stand behind addresses.
Bitcoin is regarded as the first cryptocurrency that is based on blockchain. Nowadays, it is the most widespread and essential. In our days, hundreds of alternative cryptocurrencies exist with different characteristics and features.
How Reliable is Bitcoin?
From one side, cryptocurrency is completely anonymous. But on the other side, it is entirely transparent and easy to be tracked. Cryptocurrency is regarded as anonymous the meaning that you have the possibility to keep an address without disclosing any info about your identity. A single person has the possibility to possess several addresses. Theoretically, there is nothing that can connect addresses together and point that addresses are owned by this person.
When you transfer and get virtual currency, it looks like you write under a pseudonym. If the pseudonym of the writer is ever related to his/her identity, everything he/she ever composed under that pseudonym will be connected to him/her.
If we look at the original technical document of Bitcoin, we will discover the recommendation for users to utilize a new address for every transaction. This would help addresses to shun binding to a common possessor.
On What Does It Indicate?
Everything that occurs in the Bitcoin sphere is easy to be tracked due to the structure of the algorithm. This directs to such a level of transparency from which many users can be surprised. For instance, if you publish your Bitcoin address on your website, every person would have the possibility to discover your balance.
The pseudonym stands for the address to which you get currency in the Bitcoin sphere. Remember that each transaction that is related to that address is kept in the blockchain. This means that if an address is ever connected with your identity, each transaction will be connected with you.
Every transaction is publicly available. For this reason, the massive map is made in the process of time. Then analytical instruments have the possibility to paint an illustration of where bitcoins are sending. Bitcoin addresses remain anonymous. But if an address can be connected with a real identity, Bitcoin does not guarantee confidentiality. There are many methods to relate addresses with real identities. As a rule, it is possible with the help of KYC policies.
In order to get full anonymity, you should achieve unlinkability. But recent studies were conducted and indicated that real identities could be connected with addresses of transactions that utilize them. Thus, we can conclude with certainty that many cryptocurrencies are considered pseudonymous but not anonymous.
What Can Be Done?
In the sphere of crypto regulation, you can reckon that it is unpredictable. Regulations for struggle with money laundering are constantly varying. Therefore, companies that operate with crypto-assets should be ready for rapid actions, the adoption of renewed standards, and the defense of their activity from regulatory oversight.
The criminal sphere can be suppressed with the help of instruments that juxtapose client data with bitcoin transaction histories. This will help to identify clients with a high level of risk, maintain compliance with AML, and shun “infection” connected with crypto money laundering.
In conclusion, we can say that Bitcoin payments are more confidential than traditional electronic payments. But if to make an effort, it is possible to track them. The model of confidentiality of Bitcoin is radically different from the model of other payment systems. This makes us adapt our thinking when attempting to be more anonymous. Bitcoin offers us many possibilities to stay truly anonymous. But utilizing these possibilities needs knowledge and skills.