Not so long time ago, the Czech government adopted a law restricting cryptocurrency anonymity. Now cryptocurrency exchanges are forced to adhere to the policy “Know Your Client” – and to recognize the identity of clients before carrying out each operation. Why do the authorities of different countries of the world see a danger in the anonymity of transactions and what are the cryptocurrency developers ready to answer? Read this article!
Cryptocurrency anonymity: popular myths
World government, the creators of cryptocurrency, criminal organizations and government agencies launched a real struggle around the topic of anonymity cryptocurrency.
At the same time, casual users of Bitcoin and Altcoins, who simply seek to preserve privacy and protect their transactions from undue attention, are becoming victims of this struggle.
The original concept of Bitcoin, among other things, focused attention on his anonymity. However, the perception of this term by the world community was significantly different from the meaning invested by developers.
Rather, they just wanted to say that in order to carry out transactions, the user does not need to identify himself and can be limited to using a pseudonym.
At the same time, at the dawn of crypto-economics, criminal organizations perceived a statement of anonymity as an opportunity to simplify the implementation of illegal schemes, hackers as an additional way to make money, and ordinary users as a way to protect funds. How these myths were dispelled – you will see it below:
- Myth 1. Due to the anonymity of cryptocurrency, they can be used freely and safely to engage in the illicit trade in arms and drugs
Dispelling the myth. In 2013, US intelligence agencies arrested William Ross Ulbricht, founder of the online market for Silk Road, where you could buy weapons, drugs, stolen goods and pirated software, and Bitcoin acted as an exchange currency. Soon, Silk Road was restored, but the second time it was a special service trap to catch dealers.
· Myth 2. Thanks to the anonymity of cryptocurrency, they can be used to freely and illegally launder illegal money.
Dispelling the myth. Blockchain is not the best way to launder money. A good proof of this was the arrest on July 2017 of a 38-year-old Russian for laundering more than 4 billion dollars through bitcoins. The American and Greek special services tracked the transaction history and eventually, without any problems, detained the Russians on the territory of Greece.
· Myth 3. Due to the anonymity of cryptocurrency, they can be safely and safely stored on cryptocurrency exchanges
Dispelling the myth. In 2014, hackers broke into the MtGox exchange, stealing 850,000 bitcoins. Shortly thereafter, the head of the exchange, Mark Karpeles, stated that 200,000 bitcoins were “found” in the wallet of the old format and the number of losses dropped to 650,000 bitcoins. Hackers have not been found yet.
Cryptocurrency anonymity: how to lose and how to save?
Blockchain is a family of protocols that allows you to exchange values without circumventing territorial jurisdictions. Creating a personal wallet, the user does not need to check passport data or somehow confirm his identity, so it’s impossible to track who committed the transaction.
On the other hand, all transactions remain forever in the blockchain. The balance, the size of the transaction, as well as all previous payments are tied to the payment. All Bitcoin transfers are recorded in a block with a list of transactions, which require complex calculations to guess the hash function to close. And this is a good defense against criminals.
However, if someone knows the transaction hash or wallet number, he can see the complete chain of transaction addresses, senders and recipients using the publicly available software. Therefore, Bitcoin can be called pseudo-anonymous rather than anonymous.
How can I lose anonymity:
· Withdrawing funds from a cryptocurrency exchange to offline.
· Paying Bitcoins for purchases, specify the real delivery address.
· Using Coinbase, BitPay, BitPay, Xapo, SatoshiTango, Bitwala, CryptoPay, and Wirex debit bitcoins.
· Having lost the secret key to the wallet (here we are talking not about the loss of anonymity, but about the loss of Bitcoins. But we decided to remind you of the inability to recover the key by writing this item into the security block).
Today, there are a number of companies that check the reliability of cryptocurrency transactions and thereby reducing their anonymity. Here are just some of them:
· BIG's QLUE platform. Uses a number of algorithms, monitor suspicious transactions in order to combat financial crime.
· Chainalysis. Top software providers for Bitcoin ecosystem are included. The company cooperates with special services and Interpol, creating products that allow qualified to evaluate risks in the blockchain and fight against cybercrime.
· Numisight Created an application that monitors the status of the blockchain.
· Elliptic Developed a program for law enforcement and banks, allowing to find illegal actions in the Bitcoin register.
It must be said right away that law enforcement agencies often see operations in the amount of several million dollars involving suspicious wallets. Ordinary users are not likely to be in the focus of the special services.
Yet for those who especially appreciate their anonymity, there are a number of tips:
· When making transactions, use services that hide IP addresses (TOR, VPN, and others).
· Create a new address for each transaction: it will be more difficult to identify the user's identity and the balance of coins.
· Do not pay Bitcoins for purchases that require the introduction of personal data (for example, shipping addresses).
· Use bitcoin mixers.
· Switch to anonymous cryptocurrency.
On the last two points is worth more detail further.
Cryptocurrency anonymity: what is a bitcoin mixer?
When it became clear that the anonymity of Bitcoin leaves much to be desired, a new solution was created - bitcoin mixing (Bitcoin mixers).
These are third-party services like Bitcoin Blender, Helix, and Bitmixer.io, which transfer customer money between hundreds of thousands of wallets for a small commission (1,3%). As a result, bitcoins are sent to the client’s wallet, but the connection of the transaction with the original wallet cannot be established.
In mixers, the mixing of funds is carried out with the participation of all users, anonymizing means at the moment. At the same time, the transaction time significantly increases this and sending the bitcoins to the mixer, and returning them back, and the anonymization itself (the higher the amount of funds, the longer the search for participants for their distribution takes).
Users do not have the ability to control or even observe the algorithms of the server platform mixers, they actually give Bitcoins to the owners of the mixer – and get them back only after the completion of the anonymization process.
There is a danger that the owners of the mixer service may disappear along with other people’s bitcoins on any given day. To protect yourself, you can, for example, use the Bitcoin wallet Dark Wallet, which already has a mixing function.
Maximum anonymity of cryptocurrency during transfers
If anonymity in transfers is a matter of principle, and donating money to third-party services is not ready, you can alternatively use one of the three most popular anonymous cryptocurrencies.
Anonymous cryptocurrency appeared in 2014 and has long been staked a place in the top 20 cryptocurrencies. Unlike Bitcoin, where user operations can be easily seen, Monero uses CryptoNote, a confusing code, and users can customize the number of mixes for each of the transactions. After that, the information in a distorted form is recorded in the blockchain.
Crypto Coin came out in 2015 as an anonymous alternative to bitcoin. The PrivateSend technology automatically shuffles transactions similar to services to mixers. However, the anonymization process does not take half an hour, as in the case of mixers, but 5 seconds, and is protected at the protocol level by the decentralized network of Masternode Darkcoin.
Cryptocurrency appeared in 2016 and is considered one of the most anonymous. Thanks to the toolkit SNARK, which eliminates the need for data exchange to conduct a transaction, payment information is not included in the blockchain. A cryptographic protocol with a unique mathematical concept hides the origin of the payment and the amount, and the only public information is the time of the transaction. In other words, it becomes known that the operation was carried out, and by whom, to what extent and where it is not known.
In the case of these and similar cryptocurrencies, sharpened specifically for maximum anonymization, the only way to lose anonymity is to exchange cash for cryptocurrency on the exchanges practicing KYC (counterparty identification before the financial transaction) and AML (anti-money laundering). At the same time, making an exchange in a decentralized exchanger or finding a person who needs a reverse operation, it remains possible to preserve their identity anonymous.
As a rule, the anonymity of cryptocurrency is not considered one of the key criteria for investor decision making, however, there is always a certain segment of users who see increased anonymity of one or another cryptocurrency as a significant technological advantage that will allow it to remain competitive in the market in the long term.
However, in the context of anonymity discussions, it is necessary to remember the most important rule: the activity of special services is aimed at offenders, and if you conduct activities legally, even the pseudo-anonymity of Bitcoin and other top cryptocurrencies is quite suitable for you.