Despite what many may think, currently Bitcoin is NOT anonymous. However, those who improve it, work to achieve a global, decentralized and 100% anonymous financial system.
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In this new article we will talk about anonymity and privacy as well as their different points of view, how anonymous Bitcoin is right now and why, the Blockchain analysis tools and some methods to improve anonymity.
Privacy is dead
When we go to the bathroom we close the door. It is not because we are doing something illegal, but for privacy. We don't want anyone to see what we do.
With technology, on the other hand, we are not so cautious, we constantly leave doors open, giving so much information about us that we are not even aware.
When you receive an email, when you have a conversation, when you watch a video, when you make a purchase,… On the Internet, all and absolutely all the actions you do leave information about what you like, what you don't, what you consume, where you go, where and who do you sleep with, what solidarity campaigns do you finance, ... and even, with the appropriate algorithms, can predict the future Guessing our behaviors before they happen.
This, which just 20 years ago would terrify us or sound like a film, is today (after going through a gradual process of normalization) a reality, something that is accepted without scandalizing us.
And it is that, every minute that passes tons (literally) of information are generated from each one of us.
We do not own our privacy.
Believe it or not, corporations like Google they know everything about you. They know things as private as who you have voted for in the elections, if you are unfaithful, if you are homosexual, if you have any disease, ... and everything, of course, without you having actively said anything to them.
And it's not just big corporations that know this.
Twitter, Facebook, Epsilon, Sony, LinkedIn, Yahoo, Bitfinex, Apple Lossless Audio CODEC (ALAC),, European central bank,… Think about the big company you want, or even institution. They all store information for hundreds of millions of people and almost all of them sell information (remember: when something is free, the product is you) or end up being hacked.
It is estimated that 36000 are hacked every day new websites.
Hacks that obtain information and that later sold in black markets, even legitimate data companies called data brokers, who use it to create complete "virtual" profiles of each of us, with all kinds of information that they later resell and use in an unethical way and even, sometimes, illegal.
Often these data "mines" don't even need to be hacked for there to be a privacy leak. The companies themselves Deliver the information to governments on a voluntary basis, if not, create back doors, doors that "accidentally" forget to close.
Some governments argue that mass surveillance is necessary for public safety. However, there are reasons to doubt its effectiveness.
"What difference does it make! if I do nothing wrong! Why do I have to hide? Let them watch what they want." we are encouraged to think.
There are those who defend that it is not about hiding, simply about having the control to show what you want and leave the rest private.
In fact, a report from the White House reached the conclusion that there are no obvious signs that telecommunications surveillance has stopped a single case of terrorism.
Is privacy only wanted by terrorists?
In this video, Marta Peirano, explains in an excellent and quick way how important it is to remain anonymous and have privacy today.
As you will begin to understand, when talking about privacy or anonymity, we should not only think about terrorists and drug traffickers, but also about resistance cells, human rights activists, reporters who denounce their governments, children who exceed what their Parents teach them, in citizens who consult (or publish) stories, in homosexuals or in news and reports about things that their government does not want known.
But you also have to think about you and me, everyone.
One might think that anyone who is not an activist or a dissident has nothing to hide, and therefore no political fear. However, since we cannot predict the governments that will be in the future, neither can we know if one day we will have something to hide.
Right now, computer surveillance allows retrospective research, as our data is being stored.
With a little effort, almost any individual, business, or government can know more about us today than any intelligence agency has been able to find out about individuals in the past.
Data does not expire, it does not rot. They are there forever, unalterable. It's not like when you tell someone something, who may or may not forget it, unconsciously modify it or not.
Today billions of records of information are analyzed in real time and compared and linked to past data, and now it begins to be processed with artificial intelligence based on neural networks that are capable of taking analysis to levels previously unimaginable. And no one knows if at any given moment someone will use them against you.
Yes! There are many places on this planet today, where if you think differently from what power thinks, without privacy you can be, in the worst case, dead. And that's one extreme, but there are many intermediate points.
Even something as stupid as dancing can land you in jail in some places.
Edward Snowden (among others), a former NSA agent, has publicly taught how "democratic" governments betray their citizens, systematically violating their privacy in all kinds of communications, often in collaboration with large corporations.
Lack of privacy gives rise to censorship.
Computer surveillance has already been used to prevent protests and imprison people for ideological differences in Türkiye, Egypt, Mexico, United Kingdom, China o Spain among others.
It is not just your email or your documents that are vulnerable to privacy violations.
Things as normal as the camera and microphone of your computer and your mobile can be the eyes and ears of others in your own home for governments and criminals.
During your most intimate moments they can be turned on and recorded without you even realizing it, without even turning on the light of the camera indicating that it is working.
So what are we referring to with all this? Wasn't this about Bitcoin?
We mean that privacy is extremely important to anyone.
And your financial activity, the data of your economic movements, define very well the type of person you are and even where you are.
So if Bitcoin wants to be the global financial system, it must decide its position.
That is why Bitcoin, with its disruptive design, has said enough!
Bitcoin (from the hand of its developers following the legacy of its creator, Satoshi Nakamoto) does not want to harm the individual, and wants privacy to be guaranteed 100% to prevent other people from taking advantage of your financial information against you, but also giving the option of verifiable transparency if the owner so wishes.
No one should know, if you don't want to, on what aspects of your privacy you spend the money, much less traffic with that information behind your back.
Bitcoin, in search of financial privacy
Bitcoin = Anonymous Money = False.
It is one of the first mistakes that almost everyone makes due to media noise. Bitcoin is NOT anonymous. At least not yet.
Now, unlike companies that, legitimately, seek an economic benefit and in exchange for a service without economic cost, they trade with your private information, Open Source software is free, public and is generally developed by people altruistically.
This is the case of Bitcoin, which can afford not to need the traffic of your personal information, since it does not seek an economic benefit.
Bitcoin, following the philosophy of ideological currents, such as Cryptanarchism and Cypherpunk, was devised with the objective of creating a financial system that, among other things, was capable of allowing financial transactions between distant and unknown people.
However, your anonymity is compromised "rebound".
The current design of Bitcoin makes it really difficult to be anonymous.
In the world of transactions, an anonymous transaction is understood as one where third parties do not know either the issuer or the receiver, and as a private transaction those where third parties do not know the amount of money and date as well as the reason for which it is paid.
In other words, privacy and anonymity are not the same.
This allows Bitcoin to be represented on a graph alongside other means of payment. Above more privacy, below less privacy. Right more anonymity, left less anonymity.
For example, a transaction with cash does not leave any record on any site, nothing that can be analyzed by third parties. Only the sender and the receiver know how much, when, where, who and in terms of what the transaction has been made.
Here Bitcoin lags when it comes to privacy: it shows how much and when. However, unlike cash, anonymity is improved (or so it might seem) to the point that neither the sender nor the receiver need to know each other.
What information is left in Bitcoin?
To have a Bitcoin walletIf desired, you do not need to open a user account on any website or in any type of provider. It is a free program, free, P2P. You install it and period. In addition, there is no limit per holder for the number of Bitcoin addresses that can be owned, since thousands of addresses can be created in just one second. And finally, moving money between them can be done at a very low cost and even automated because Bitcoin is programmable.
But, as we have already explained when talking about transaction operation, Bitcoin works thanks to an accounting book that keeps everything and that anyone can see.
This means that the transactions of Blockchain they can be seen in real time, and data is available for absolutely all that have been done, since the first in 2009 until the last. There is none that does not appear and it is impossible to manipulate, so the one that is registered in it there is no way to ever erase it.
What is stored in the Blockchain is data that, at first glance, can seem complicated to understand and much more to relate.
A few Bitcoin origin and destination addresses, amounts and dates ... Where does it say who I am? In principle nowhere.
Am I anonymous then? Do not.
We must first understand that a Bitcoin address is a pseudonym for you, like the username you can use on Twitter. If at any time someone finds out who is behind that username, they will automatically have all the messages you have published related.
The same with the Bitcoin address and its transactions. An address is a pseudonym for you, if they know your address they can see all the payments you have made, dates and balance. And it is that, unlike Twitter, the information will remain there forever, you cannot click on a kind of "delete account" type button.
"Okay, but what difference does it make if nothing is indicated about the reason for these transactions." You will be thinking.
Right. In the Bitcoin ledger, neither the identities nor the reason for the payment are recorded anywhere. But outside of Bitcoin a lot of data is left.
If we have 3 premises in mind, it is a matter of time that the necessary information can be had:
- The data does not expire.
- The machines work very fast and do not tire.
- Human beings are not machines: they make mistakes, leave tons of information every day, get tired and act slowly
Although it is true that there are very few cases where transactions have been tracked effectively, with the arrival of Big Data and algorithms this is beginning to change: Blockchain is beginning to tell secrets.
The new gold is called Big Data. Donald Trump is said to have won the American elections thanks to Big Data.
4 privacy leak points in Bitcoin
Due to continuous leaks that governments and cybercriminals spy on the data of citizens or competitors with impunity, many now understand the importance of privacy and pay for encrypted servers for data and voice or written communications.
And although Bitcoin seeks to solve this from its core, these are the main information leakage points that exist today:
Our IP
We must understand that Bitcoin is a P2P network: Our computer (or mobile) is connected to others. Every device connected to the Internet has an IP address and a computer knows who is connected to it at all times.
If that computer is set to spy, when your computer transmits a transaction for the first time it will be registered with your IP. Once you have the IP, it can be combined with other types of databases to start obtaining information about who you are, what you like, ...
Currently it is suspected that many governments have created nodes. and they store the information in case they need it in the future.
Use a web or light wallet (either mobile or computer)
They are not recommended. In all these types of wallets you are delegating your privacy to a third party (even your bitcoins in the web wallets).
When using this type of wallets, at least your IP will be exposed. This means that if, for example, you use a web service, the web service and its partners will know your IP, your browser, the device and operating system, which websites you have visited, ... The same happens if you use a mobile phone with a lightweight purse,…
Buy and sell bitcoins
Some platforms for buying and selling bitcoins can share information about their users, or be hacked, revealing the identities associated with addresses and Bitcoin transactions.
Related Bitcoins
Today, and increasingly, it is simple to track a Bitcoin transaction. The birth of Big Data and the techniques for analyzing trillions of data per second make Blockchain “sing”. In fact, everything indicates that a new profession is being born, we have named it: Blockchain Forensics.
9 Tools for Bitcoin analysis
From marketing companies to institutions (such as Europol, FBI and the like) they use Blockchain analysis tools on a daily basis to put face and make sense of Bitcoin transactions.
Some of the tools in this field, as of the writing of this chapter and which are known, are:
- Coinfirm
- blockseer
- Maltego
- Skry
- Chainalysis
- mumisight
- LexisNexis
- Blockchain.info and ink analysis.
- Google (Yes, sometimes people says who is next to his Bitcoin address, and a simple search reveals your identity)
Every so often a new analysis tool appears, capable of analyzing Bitcoin transactions in an even more incredible way, applying varied levels of artificial intelligence and mixing large data sources, and this new field has opened a very lucrative niche where new professions appear.
Possibly in just 3 or 5 years the amount of information that can be obtained by indicating only one Bitcoin address will be incredible. Without a doubt, the most incredible tools will be secret, operating in the shadows day and night.
As technological fans that we are in Bit2Me, we are aware that making sense of what happens on the Blockchain is an exciting challenge and, at least fun, that it can serve for positive things. However, the violation of anonymity will become a very simple reality for anyone to put into practice.
That is why the use of different good practices when using Bitcoin is recommended.
8 ways to improve your privacy in Bitcoin
There are many tips and good practices, but here is a selection of the most important.
Currently, Bitcoin users enjoy a certain level of privacy, and this depends on the amount of information they reveal about their real identity, what anonymity techniques and how much they apply when they use Bitcoin, as well as how often they use it.
VPN
A VPN or virtual private network allows you to connect two or more computers to each other securely. With a VPN it is possible to route all communications from one computer through another. This allows you to mask your real IP, but the VPN service may be corrupt or give up your IP.
TOR
The onion router It is free software that you install on your computer and it allows you to create a distributed communications network where, in principle, a person can surf the Internet with a very high degree of anonymity.
Most of Bitcoin's full clients allow using TOR.
But we must be aware that, just as in Bitcoin, spy nodes can exist in TOR.
Mixers
They are services that allow Mix one person's bitcoins with other people's bitcoins before they reach the destination. In this way, the bitcoins that each one sends are mixed into small pieces, each one receiving what they have but from multiple sources of origin and in different periods of time.
Normally, these types of services follow patterns easily identifiable by blockchain analysis tools. They can also become corrupt services, created by authorities, or simply by criminals who steal bitcoins from those who use it.
Uninfected software
Be careful not to download programs that may be developed by malicious persons or institutions. One recommendation is to use open software, download it from official sources, and check that the software integrity it's correct.
Different Bitcoin addresses
It consists of having your money divided into multiple addresses and using a different address for each payment.
If all your money is in one direction, by making or receiving a payment the other person might know if you have a lot or a little money. For example, if you have a lot of money you can be an interesting person to attack.
Not recommended use a single address, but multiple Bitcoin addresses.
Normally the wallet programs generate new addresses for each transaction where they send the remaining bitcoins (the addresses of change), however some do it in a predictable way, allowing the addresses to be linked easily: if someone manages to associate one of the addresses with a person, the rest of the addresses will be automatically linked.
Money exchange
They allow to hide the trail of bitcoins from the naked eye, as they are mixed with many others. Later you can make the withdrawal to a new address.
However, be aware that when using a centralized service, which keeps records, an information leak could occur.
Wallet with own Bitcoin node
One of the best practices is to have your own bitcoin node. Can be assembled in minutes and gives you control.
It is important for privacy not to use light wallets or web services. As in the previous case, whenever you delegate something to a third party you are removing layers of privacy.
This means that if for example you use a web service, the web service or its partners will know your IP, your browser, the device and operating system, which websites you have visited, ... The same if you use a mobile phone with a thin client, ...
The downside of the node itself is that it adds layers of complexity to the use of Bitcoin and not everyone wants to go through that.
Navigator
Your browser can inform third parties about the websites you visit, either the browser itself or the extensions it may have installed.
For example, if you want to see the balance of a certain address on blockchain.info, and you do it at a certain hour, when minutes before or minutes after your first transaction has been received, you will surely earn points to be related to that address.
In this link We leave you some examples of browsers that more respect your privacy.
"HOW COMPLICATED!! This is not done by anyone, well yes! the one who is aware that a lot is at stake» you will be thinking.
Effectively.
These good practices involve spending time getting to know them and their preparation, sometimes even spending money… And of course, what is normal and understandable is that, as we have said, hardly anyone does.
That is why Bitcoin needs to keep improving to take care of privacy, and bring it as standard, at the core.
7 Proposals to Improve Bitcoin Anonymity from the Core
To improve Bitcoin you need ideas, and also proposals on how to do things, that is, you need beeps (Bitcoin improvement proposal), what in Bitcoin usually precedes an improvement of its protocol or operation.
the coinjo
the coinjo It would be the closest version to a bitcoin mixer, but without intermediaries. This process uses smart contracts that automate the mixing of bitcoins at the protocol level. At Bit2Me Academy we have an interesting guide that shows you step by step how to use CoinJoin.
Similar to the coinjo, use smart contracts to mix simultaneous transactions automatically.
Nodes currently do not communicate with each other securely, with encrypted communications. This allows someone who is listening to the communications to know if a person is using Bitcoin or not due to the type of data being transferred.
Thanks to BIP151 this little BIG FAILURE would be avoided.
They serve to protect the privacy of the recipient. Publishing your Bitcoin address anywhere is not a good idea, especially when you have large amounts of funds there.
The same happens if you want to receive donations. The fact of publishing a single address where everyone donates generates privacy leaks. These types of addresses in practice allow each person to receive a unique address in which both parties agree to a communication through the Bitcoin protocol. Few purses have them, and it seems to be quite abandoned.
Similar to Stealth addresses but with a few differences that allow it to be a bit more practical. The objective is the same: to be able to publish an "address" that allows third parties to pay you but without them knowing the final address that receives the funds, but among the many differences it stands out that transactions involving Stealth addresses can be detected and censored by the nodes because they differ from normal addresses, while with the BIP47 proposal, in the eyes of the Blockchain and the nodes, it is a transaction between two normal Bitcoin addresses.
As a disadvantage it has that at the moment they would not be compatible with multi-signature addresses, a disadvantage that surely does not allow the proposal to go ahead.
This proposal would allow masking the amounts of bitcoins associated with each transaction. In this way it would be much more complicated to know which one is the direction of change in each operation and therefore it would be much more complicated to be able to analyze the transactions. Its creators defend that with this proposal and CoinJoin the private sector can be increased to very high levels.
This is an example of how the community that works developing Bitcoin takes care that their privacy is maintained in all corners of their software. BIP75 focuses on the payment protocol (BIP70) which allows another party to send you a payment request, but it has a problem: it can only be requested from wallets whose owner is online, that is, aware that this request arrives.
That is why the so-called "Store-and-forward" servers were added, which allows it to operate also in cases where the other party is offline. For this, this server is constantly sending the request. The problem comes now, these servers could store data from both parties during the communication, putting privacy at risk.
With BIP75, a fully encrypted communication is established between the issuer and the payment destination, maintaining privacy even through the intermediate server that does this work.
Recall that Bitcoin is constantly improving, version 1.0 of the program has not even come out, so the improvements are developing daily.
But the changes in Bitcoin are slow, sometimes too slow, and there are those who decide to go their own way to put their ideas into practice.
3 Altcoins with anonymity and privacy by flag
Normally the proposals to improve Bitcoin cannot be too radical, since they must be able to adapt to the current protocol.
That is why Altcoins take on importance, they are a relatively simple way to create a new cryptocurrency, since you have absolute freedom to innovate. If you still don't know what they are, we recommend this chapter of the Bit2Me Bitcoin Guide on Altcoins.
In fact, many of the cryptocurrencies that are created seek a specific objective, they are not a simple clone of Bitcoin. For example new functionalities never seen before or simply improve functions in which Bitcoin lacks.
This is the case of privacy and anonymity, points that have been the subject of so many debates that there are already several cryptocurrencies that have been born with the main objective of improving them.
Here are the top 3 cryptocurrencies that take privacy and anonymity to a new level, proclaiming transactions that are practically untraceable.
Welcome to the golden age of crypto.
Monero
One of the first to appear. It is known as the cryptocurrency that has the most privacy. With Monero, only the sender and receiver can see the status of a transaction on their Blockchain. To do this they use a cryptographic method that they have called Signature ring.
There are those who think that Monero is not scalable.
ZCash
Launched in January 2016 but started running in October 2016 it is known as one of the youngest but with a very large backrest. Its inner workings use a cryptographic model called zk-SNARK (Zero-Knowledge Succinct Non-interactive Argument of Knowledge).
The way this coin has been created is shrouded in controversy, and there are those who believe that ZCash it could be a scam.
Dash
Dash brings the CoinJoin theory to the core under the name “PrivateSend”. In this way all transactions are automatically mixed before reaching their destination.
Dash also has detractors who think that is a gotcha.
With their pluses and minuses (there are paranoids in every house), these cryptocurrencies are making their way with already quite high valuations. Time will tell what happens with them, but if the results are positive, some of the improvements that they implement will possibly end up being adapted in Bitcoin over the next few years.
More private Bitcoin wallets
Ledger, DarkWallet or Breadwallet are some of the best valued wallets when it comes to privacy. The organization OBPP (Open Bitcoin Privacy Project) has published a report analyzing the privacy of wallets.
What if something happens? Who are we crying to?
But then what happens when someone takes advantage of privacy to harm another party?
The great debate. We come to the other side of the coin.
While on the one hand the lack of privacy allows excesses for some, a 100% privacy would allow excesses for others.
Remember that in Bitcoin the goal is to achieve a scenario of absolute anonymity, and this means that transactions will be impossible to trace.
Tax evasion, terrorist financing, robberies ... All of this will happen. But, aren't they crimes that already occur daily with all forms of existing money?
Is Bitcoin's Job Curing The World's Lack Of Ethics And Morals? Or is your job improving the experience we have with money in the 21st century?
It is true that, in the same way that Bitcoin makes it easier for all kinds of people to move money, it also makes it easier for the bad guys. Suddenly Bitcoin allows a worker to send money home quickly and cheaply, but also for the criminal to hide money.
The reality is that the more Bitcoin is used, the more it will be involved in all kinds of crimes and scams. But let's not fool ourselves, like anything on this planet: The more cars are used, the more crimes there are using them, the more telephones there are also more crimes using telephones, the more knives too, ...
Bitcoin is booming, and Bitcoin crime will increase.
Is the problem Bitcoin?
Do you remember the initial example of the door: «When we go to the bathroom we close the door. It is not because we are doing something illegal, but for privacy. We don't want anyone to see what we're doing."
Well, we could be doing something illegal behind that door, but we would not therefore question the doors.
Should we destroy all the knives on the planet because there are people who use them to murder? Something absurd, right ?, because we are aware of its usefulness.
Money is the end of many crimes, it is not the crime.
And is that privacy and anonymity, like almost everything on this planet, are double-edged tools.
The debate is served. You have to balance the good it brings and the bad in order to reflect, but we cannot be superficial.
What do the authorities and institutions think about all this?
First to say that almost all governments consider Bitcoin legal.
The anonymity provided by Bitcoin is both a point of attraction and a challenge for financial regulation.
As the pace of currency adoption grows and scrutiny of the legal and financial systems increases, particularly in relation to anti-money laundering AML, statutes and Know-your-customer (KYC) controls, your true level of anonymity will become a subject studied more and more closely.
Despite its controversies, the European Police Office (Europol) is not entirely reluctant to cryptocurrencies admitting its many positive uses. This is what can be translated from the Internet Organized Crime Assessment (IOCTA) that they published in late 2016.
Thefederal reserve» from the UK too published a report in 2015 on the risk posed by Bitcoin.
In it you can see how Bitcoin and other ways (such as banks or cash) help money laundering. The conclusion of the analysis indicates that Bitcoin is not a risk greater than the existing ones, in fact, it is the one that poses the least risk.
Don't forget, take care of your privacy
Be that as it may, there is something evident: Privacy is very important and we must be able to guarantee it completely in our day to day.
Possibly we will learn this with scares already bad.
Your data does not expire and they say more about you than you know about yourself.
The average user should be aware that Bitcoin is undoubtedly less anonymous than cash. As long as the ignorance about its analysis persists, it will be really difficult to keep track of a transaction, but remember, your transaction will be recorded forever in the Blockchain, and surely soon that transaction will be able to make sense of it.
The problem is that privacy, as well as human rights or the defense of animals, does not disturb almost anyone's sleep, and the ratio of people who will want to actively benefit from it will be higher on the side of criminals That is why it is important that everyone makes an effort to raise awareness to quickly adopt those tools that facilitate it for all.
Bitcoin must be able to give absolute privacy by default and transparency when only the people involved require it (for example a city hall).
Without a doubt, we will have to rethink many things. There is no point in financing a democratic option in a dictatorial country or by donating on wikileaks as a terrorist. However, we can not be sinful, there are people who do not hesitate (with or without privacy) to violate the international human rights of third parties (or just scam) and privacy will be an incentive.
What do you think? Let us know on social media.
Finally, we leave you a chapter of La Sexta Columna (From minute 3) and a video of the famous computer scientist Chema Alonso, who is currently Telefónica's CDO, in which they both tell us about privacy.
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