The anonymity of cryptocurrency has earned it a reputation as a secure form of payment that is free from any tracking or interference. You’ll be surprised at how much these digital currencies can reveal about you if you take a closer look.
Anonymous vs. Pseudonymous
Bitcoin’s wallet is the main problem. This is where your Bitcoin is kept. The pseudonymous wallets for cryptocurrency are more common than the anonymous. Anonymity refers to being “nameless”, which comes from the Greek word meaning “without name”. However, your wallet will give you a fake name, a pseudonym. You get scrambled letters and numbers instead of Mark Twain, but the idea is the exact same.
Although the Bitcoin Project has made this information public on its website many people believe that the scrambled natures of their wallet addresses means that payments cannot be tracked. This is the reason for using a fake name. However, your Bitcoin wallet address can also be tracked. It’s there, in the way the system was set up.
Blockchain and Anonymity
Bitcoin is built on a blockchain. This blockchain contains information about when Bitcoin was created, how it was used and by whom. It’s actually more complicated than that based on the Ethical Blockchain Manifesto.
This ledger is also known as a list. Anyone can see which wallet has spent what Bitcoin. Even though the activity of the person who spent the money may be hidden behind a lot of letters and numbers, it is still visible.
You could, for example, know that John spent money on a VPN service on a particular day. If you were to go to the ledger, you would be able see which Bitcoin address had spent money on the VPN. You can also check out where money was spent, even if the search returns more than one or two addresses. You can also check if one of the addresses you found made a Wikipedia contribution like John does regularly.
It’s not just one data point that tells you something, as with browser fingerprinting. It’s all part of the overall picture. It’s possible to put all these pieces together with today’s technology. This makes pseudonymous accounts almost useless when it comes protecting your identity.
If you need to send anonymous online payments, you have other options than Bitcoin. Monero is the most widely used (other examples are Zcash, Dash),. However, all of these options use some technology to obscure the wallet’s address making it harder to track the coins.
Bytecoin is a cryptocurrency based on CryptoNote technology. It claims to be the first private untraceable currency.
Untraceable refers to observers not being able to identify who sent a transaction from a particular recipient. Unlinkable, on the other hand, means that observers are unable to determine if any transactions were sent from the same source. Ring signatures are the way to trace the untraceable part.
These ring signatures render transactions opaque so observers cannot see who sent it, for how much, and who it was from. Ring signatures are basically a string of transactions that make it hard (but not impossible) to distinguish them from one another.
CryptoNote uses unique keys to achieve un-linkable transactions. It is still possible to view all transactions to one public key (wallet address) with ring signatures. CryptoNote generates unique keys every time someone receives coins to fix this problem. It uses the Diffie-Hellman Key Exchange encryption method, which allows the sharing of secret information between two parties.
Bytecoin is sent to an address by another sender. This unique code is used for the transaction. This unique code makes it appear that the coins are being sent to a new wallet every time.
BCN’s market cap was only $25.2 Million and its daily trading volume was about $20,000.
Monero is a private cryptocurrency, similar to Bytecoin. It has privacy features built into every transaction. XMR is a hard fork from BCN. Monero shares the majority of the privacy technology with Bytecoin, so Monero has the same privacy tech.
Bytecoin was founded in 2012 with 80% of its total supply. This was in contrast to other mineable cryptocurrencies which have very limited supply.
Seven developers who were working on Bytecoin decided to fork the BCN network and create a new cryptocurrency. This new coin was called Bitmonero and then changed to Monero which literally means “coin” (in Esperanto).
Monero is now one of the most popular private cryptocurrencies, as demonstrated by its market capitalization ranking among the top 20 coins. The IRS offered $625,000 to anyone who could unlock the privacy features of Monero.
XMR is the largest privately traded cryptocurrency in terms of market capital on this list. Monero, which is worth more than $2.05 billion and has a daily trading volume around $1.6 billion, is the 14th-largest cryptocurrency by market capital as of the time this article was written.
Many believe Zcash is the most private cryptocurrency. Edward Snowden even endorsed it via Twitter
Zcash uses a technology known as “zk-SNARKs“, which stands for zero-knowledge succinct, non-interactive arguments and knowledge.
The details are as complex as the name suggests. The important thing is that zk–SNARKs allow one person to prove that something is true to another without revealing any specifics. This makes this solution perfect for private crypto transactions.
Privacy is not an option in Zcash. Transactions are not made anonymously. Zcash supports four types of transactions, each with different levels of privacy.
Zcash has the best privacy protocols and second highest market cap among all coins on the list. One con is the confusion caused by the many types of transactions, which could lead to confusion among users. Some might assume that all Zcash transactions are private.
Zcash, which is valued at $564million and has a daily trading volume around $495 million, is the 33rd most valuable cryptocurrency by market capital as of the time this article was written.
Dash was the first private cryptocurrency to be created in 2014. The coin was originally called DarkCoin. However, it eventually became DASH (short for digital cash).
Dash can be used to exchange money, as the name suggests. Transactions can be completed in less than one second and cost less than a penny.
Dash employs something called “masternodes” in addition to crypto miners. They receive 45% of all DASH mining reward for their essential functions, such as processing transactions quickly and making them private.
DASH has one potential drawback: masternodes make it more centralized than other crypto networks.
DASH, which is valued at $634million and has $521 million daily trading volume, is currently the 29th most popular cryptocurrency by market capital.
Verge is a cryptocurrency that’s “designed for people and everyday usage.” Verge was originally created in 2014 under the name DogeCoinDark. DogeCoinDark, like Dash, changed its name to Verge shortly after it was founded.
Verge uses the Wraith Protocol technology to keep transactions private. Wraith Protocol anonymizes transactions via the Tor Network (short form for The Onion Router).
The Tor Browser hides IP addresses by routing internet connections through anonymous nodes all over the globe. This technology is used by Wraith Protocol to anonymize cryptocurrency users. This option is optional, and must be activated.
Verge has many benefits, including fast transactions and low fees. It also has the potential to scale up and be used more widely. However, most of the XVG supply is already in circulation. This means that the coin will lose value over time due to inflation.
Verge, which is valued at $63million and has a daily trading volume around $1.8 million, is currently the 113th biggest cryptocurrency by market capital.
Analyzing the myth of anonymity
Although Bitcoin wallet records can be viewed publicly, there is no way to identify who the owner of the wallet is. To have a Bitcoin wallet, you don’t need to provide a proof of identity (KYC). This is what gave rise to the myth of Bitcoin anonymity.
Crypto exchanges have solved this problem by requiring KYC ID before you can conduct transactions. Then sharing your data with law enforcement officials.
Also, your Bitcoin wallet that is empty and unoccupied will be considered anonymous. However, if you have ever sent and received anything, law enforcement may use the KYC documents uploaded on an exchange to identify the sender as well as the receiver.
Although it is possible to trace the wallet owner with ‘crumbs’ of information, it is difficult. They collect information from ‘darknet markets’,’sniff’ data by mining Bitcoin themselves and then cross-reference it with KYC information taken from crypto exchanges to identify the owner of a Bitcoin wallet.
Not only Bitcoin, but even the most private cryptocurrency like Monero, DASH and Verge can be traced to a certain degree. Every transaction is tracked and stored on a ledger. Anyone can see it. The ledger records the amount, time and wallets from which the money was sent or received.
It is simple: you are anonymous until you haven’t traded or transacted in cryptocurrency. Once you do this, your wallet will be added to the ledger and thus the record books.