Over the last couple of years the term internet currency has been gaining the popularity in the public eye. A Bitcoin is an electronic currency that is managed and created through the use of digital encryption technology known as cryptography. They are used to buy things electronically, they are similar like euros, dollars or yen which are also traded digitally. But bitcoins are decentralized. It means that no single authority or institute can control the Bitcoin network. That’s why it is differentiated to the conventional money.
The Misconception:
A few years back, it was strongly perceived that anyone could buy or sell anything with Bitcoin and can never be tracked. It was widely used by the libertarians, computer scientists, or even criminals. But the whole scenario changed when law enforcement and federal bureau of Investigation closed the “Silk road” which was the widely popular online illegal drug emporium and took notice against all the law abiding activities. Many people fell and sent to prison by the FBI, including, a 30 year old Frenchman Mark Karpeles, who was arrested and charged with embezzlement of $390 millions from the now shuttered bit coin currency exchange. In September 2015, a 33 year old American Trendon pleaded guilty to running a $150 million Ponzi scheme. In march, the assets of 28 year old Czech national Tomas Jirikovsy were seized by the law officials as he was suspected of laundering the stolen bitcoins that was around $40 million in worth. Most of the Bitcoin users were criminals or other law abiding individuals who were attracted by considering the anonymity factor, but now it has turned to be a powerful tool for initiating a crime. The shift to a virtual currency reflected a worrisome and huge shift in behavior of criminals who for decades have preferred the Bitcoin as their favorite medium of exchange. By 2013, millions of dollars of bitcoins were being stolen or being swapped for illegal drugs on the silk road. But the new shift helped to create the software systems and encryption that defeats the anonymity and make the Bitcoin as one of the transparent and safest mode of performing digital transactions.
How is anonymity defeated?
Unlike the conventional paper money, Bitcoin has no physical notes, no gold backing and no federal reserves. When the bitcoins first released many law officials were against this because they believe that this technology will motivate the individuals to make financial crime and it will be hard for them to track or spot the illegal activities. But fortunately the new academic researches works like a blessing. They defeated the anonymity and helps the law enforcement to do their job. The latest arrests and convictions have rolled in and demonstrate a steady shift in the illegal transactions.
Bitcoin use the following ways to de-anonymize the user.
First of all, the Bitcoin transactions are recorded and available to the public through a comprehensive database (known as the block chain) which maintain a complete record of all the Bitcoin activities. Secondly Bitcoin users are required to provide the scan ID documents, and large financial activities must be reported to the governmental authority. It means that when you use the Bitcoin medium to pay for any service or goods you purchased, you will need to provide your information like your address, name, contact number to the seller for delivery purpose. These types of information can be used by law enforcement officials to link the real identities for tracking or spotting the illegal transactions or fraud activities.
Third and most importantly the prime factor is that all transactions over he Bitcoin system are traceable by anyone and completely transparent. The Bitcoin system is impractical to hack due to its advanced cryptographic technology. The strength of the system security is an advantage and as a user, you don’t have to worry about the digital currency being taken down by the hackers as it an impossible task. Having a trustworthy Bitcoin system on board will solve many problems and encourage people to and use the platform more confidently.
If the Bitcoin is secure then why Should I mix my coins?
Bitcoin is not doubt, an excellent ways to make your payments, donations, purchases without the inflated transaction. But as mentioned above, many people have accumulated the millions of Dollars of Bitcoin so the transactions are not anonymous anymore. Anyone can trace or check your data, your information and even your visible balance. Even the purpose behind this is to provide a secure platform, but for some it will be frustrating and annoying to compromise on their privacy or security.
In order to protect your privacy from a third party access, it is recommended to periodically exchange your bitcoins for different ones which are not related to the original owner or either to use a quality mixing service. Bitcoin mixing also known as the Bitcoin tumbling it the process of using a third party service to distract the association between the address where the bitcoins are sent to and a Bitcoin address sending coins. This mixing is essential for anyone who doesn’t want the world to know about their transactions or privacy information which are public due to the Bitcoin Block chain ledger record. Most people mix the coin by themselves, however, some people who are new to the digital world prefer to take the help of mixing service providers.
There are so many mixing companies that can help you to mix coins. Bitmixer.io or Bitcoin fog are the popular mixing service providers. Though these companies also have the systems that can store your Bitcoin information like where the coins sent and who received them, but these companies claim to delete the logs after the transaction has been completed. The wise method to mitigate the risk is that you should hire a different mixing service each time.
We are all criminals in the eyes of the governments of the world whether you use Bitcoin or not.
you are absolutely right
Paradoxically, you need to trust those mixing companies. If you really need privacy, go through those secure coins like Monero , Dash or Zcash.
yes you are right dear
Very informative article. Sometimes people want to keep these information private not because they did anything wrong. It's just a choice as it is none of other people business what they do with their Bitcoin.
I would argue that Bitcoin can be anonymous and having a Bitcoin wallet with Bitcoins in, depending on your method of acquiring them, will not give away your real world identity as no ID is required to set up a wallet, buy Bitcoins or use mixing and tumbling services. So it is not true that you have to provide ID to buy or sell Bitcoins of any amount. Localbitcoins.com for example allows you to meet up in person to exchange cash for Bitcoins and you only need to provide an email address to set up accounts enabling buying or selling of very large amounts £50k+. I have never provided ID to complete Bitcoin transactions even with real world retailers, just a delivery address. While Bitcoins can be traced through multiple wallets and transactions via the public blockchain this in itself does not provide any links to personally identifiable information. It took over 7 years of investigation to get the Silk Road operators (if I remember correctly from the documentary 'Deep Web') and they still only prosecuted a tiny number of them and these were seriously high volume Bitcoin users. I am a bitcoin miner and there is no way any of my mined Bitcoins can be traced back to my real world identity, unless as your article stated, I purchase goods or services that require a delivery address, then at that point a link could be made. This information would need to be obtained outside the blockchain through coordinating retailers records, then various other agencies to link the address to me and only government agencies would realistically have this capability. So Bitcoin can be 100% anonymous if you are extremely careful about your internet security and tumble coins directly before making any real world purchases, using dead drop addresses and don't access your Bitcoin wallet from your home internet or a personal computer potentially linking you Bitcoins to your IP address or a personal computer with personally identifiable information on it. Also don't store Bitcoins on a personal computer for the same reasons, cold (off line) storage is the safest and most private with a seed or private key to reinstate it when needed and never use your mobile devices to do anything Bitcoin related. However this level of security would only be used by serious criminals and the average users privacy would not be compromised as the resources it takes to identify you this way is only worth it, if you are involved in serious crime and known to law enforcement who are targeting you. I also want to point out that criminal activity is no longer the biggest use of Bitcoins, not that I think your article claimed this but it is a widely held belief, and that any serious criminal activities still use the corrupt financial and banking systems. ISIS receiving £2 million per day in illegal oil revenues for example is not done through the Bitcoin network. I say this as it harms Bitcoins reputation to present it as predominantly a way to fund serious criminal activity because this isn't a true reflection of the diverse uses it now has.