5 Reasons Why Bitcoin Is Not Anonymous
Last Monday the DHS was sent a letter from the US Senate Committee on Homeland Security and Governmental Affairs asking for “any information, plans or strategies on how it currently plans to treat virtual currencies, including Bitcoin.
Posted on the Committee’s website, the letter explains the attractiveness of the currency for investors and entrepreneurs with its potential for profit and quick payment solutions. But it also warns that its “near anonymous and decentralized nature has also attracted criminals who value few things more than being allowed to operate in the shadows.”
“As with all emerging technologies; the federal government must make sure that potential threats and risks are dealt with swiftly; however, we must also ensure that rash or uninformed actions don’t stifle a potentially valuable technology,” the letter stated. It was addressed to the Secretary of Homeland Security Janet Napolitano.
The Committee is correct in stating that Bitcoin is merely “near anoymous” or in other words “pseudonymous.” In a very real way, it means precisely what it means in literature: merely another identifier for the same actor. For instance, an IP address is to a Bitcoin user what Mark Twain was to Samuel Clemens: a thin veil.
Here are 5 reasons why Bitcoin is not anonymous:
1. For most people, whenever they log on to the Internet, they are doing it from home or work. Your Internet Service Provider assigns to you an IP, and this acts as your portal to the net. Because you use this IP time-after-time, data accumulates on the network through cookies, etc., and your traffic can be known.
2. Bitcoin transactions are perhaps more public than any other payment system due to the public ledger. This public ledger, called the “block chain”, solve the problem of double spending. In other words, no bad virtual checks. The block chain will make all Bitcoin transactions known to man…known to man. In more than one instance have stolen coins been traced, in particular “Pirate@40″. If you use the same wallet over and over again, and this wallet can be tied to traffic from a certain IP, then quite quickly assumptions can be made.
3. One can’t make assumptions about the privacy of their e-mails. As the revelations about NSA wiretapping have demonstrated, our e-mails are also public, like the Bitcoin block chain, for national security purposes. Implications have gone as far to note that even phone conversations and conversations thought to be off-grid can be picked up in the web of data collection. All of this might work as evidence in a court of law.
4. In many cases, the easiest ways to purchase bitcoins – from exchanges like Coinbase and Mt. Gox – also require identify verification process in line with the Know Your Customer and Anti-Money Laundering legislation.
5. Whole industries are forming around the basis that Bitcoin is not anonymous. In fact QuantaBytes maintains that Bitcoin “generates lots of data.” They provide lots of tools to analyze your Bitcoin information.
Certainly steps can be made to safeguard ones’ privacy while using Bitcoin, but one thing is for certain: if these steps are taken to the fullest, all the time, then you risk an anonymous Bitcoin experience.
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