Bitcoin right now is not really anonymous . While Bitcoin addresses aren’t necessarily linked to real-world identities, they can be. Monitoring the unencrypted peer-to-peer network, analyses of the public blockchain and Know Your Customer (KYC) policy or Anti-Money Laundering (AML) regulations can reveal a lot about who’s using Bitcoin and for what. This is not great from a privacy perspective. For example, Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own; similarly, businesses may not want to leak transaction details to competitors. Additionally, the fact that the transaction history of each bitcoin is traceable puts the fungibility of all bitcoins at risk. “Tainted” bitcoins, for example, may be valued less than other bitcoins, possibly even calling into question Bitcoin’s value proposition as money. There are potential solutions that may increase privacy and improve fungibility in Bitcoin. But most of these solutions are either partial, works-in-progress or just largely theoretical. To reclaim their privacy right now, therefore, some bitcoiners have begun to utilize one of its competitors: the altcoin Monero. The Bitcoin Scenario Perhaps the main reason Bitcoin does not offer a whole lot of privacy is that different transactions are easily linked together. This is because all Bitcoin transactions consist of inputs and outputs. Inputs refer to addresses bitcoins are sent “from” and outputs refer to addresses bitcoins are sent “to”. Naturally, then, outputs from one transaction become inputs in the next. The receiver of one output and the sender of the subsequent input are usually the same person. Moreover, since most transactions are made by one person only, all input addresses typically belong to that same person as well. Meanwhile, that one person usually sends bitcoins to only one other person per transaction. That […]
