Bitcoin is not anonymous, but, rather, pseudo-anonymous. By now, most Bitcoin veterans know this. It’s less obvious to many, however, why Bitcoin is not really anonymous by default, and what can be done to de-anonymize Bitcoin users – and what Bitcoin users can do to reclaim their privacy. Below is an advanced beginners guide to get a better understanding of the nuances of Bitcoin and anonymity. How do Bitcoin transactions work? To better understand Bitcoin’s anonymity, it’s necessary to first understand how Bitcoin works on a basic level. Most importantly, the Bitcoin protocol effectively consist of a series of transactions. These transactions are basically a package of different kinds of data, among which are transaction inputs and transaction outputs. Inputs refer to Bitcoin addresses used to send bitcoin from , and can only be spent using the private key associated to that address. Outputs effectively refer to addresses used to send bitcoin to . Each Bitcoin transaction transfers bitcoin from one or several inputs to one or several outputs (therefore, transferring bitcoin from one or several addresses to one or several addresses). It’s possible for a transaction to simply have one input and one output. But that is rare, as it would require that the amount of bitcoin to be sent (the output) precisely equal the amount of an earlier amount received (the input). Instead, it’s quite common that a transaction consists of multiple smaller inputs in order to make for one larger transaction. If someone, for instance, controls three different inputs of one bitcoin each, and needs to send 2.5 bitcoin to an online store, the software will merge all three inputs into a single transaction. And it’s even more common that a transaction consists of multiple outputs. This is because Bitcoin uses change addresses . Change addresses […]
