Bitcoin technology has opened up a Pandora’s box of financial innovation. No longer do users need to trust third parties or banks with their life’s savings and transaction information. Nor must they be exposed to the inevitable loss of purchasing power resulting from overwhelming markets with new dollars, in a centrally executed process sometimes called ‘Quantitative easing’.tothemoonbtc

Bitcoin has opened up the market of currency creation to competition and liberated it greatly from the physical bonds that place money under the power of violent groups or individuals.

Like with all great innovations however, new choices are presented to us as to the ethical and unethical use of these technologies.

One of such technologies is the blockchain, the brilliant innovation at the heart of Bitcoin by Satoshi Nakamoto. This is a distributed list of every single transaction ever made which is updated throughout the network live.

If used with the right tools, the blockchain can be made either incredibly transparent or anonymous.

Before we can evaluate Bitcoin’s pseudonymity however, we must understand Bitcoin is not necessarily anonymous, and in some ways it is far from it.

Some research done in the recent years has revealed various ways to follow your Bitcoin and potentially link it to publicly claimed addresses, such as those at a forum or on your email signature.

And it gets worse. Another group of researchers from Pennsylvania state university developed tools that could link Bitcoin transactions to Ip addresses, and so potentially to individuals.

Philip, Diana Koshy and Patrick McDaniel managed to establish a strong link between about 1000 bitcoin addresses and IP addresses, with data collected for over five months.

Granted Philip Koshy says, ‘Even if you take no special precautions at all, 91.4% of all traffic was not amenable to analysis.’ Which are good odds. However, more dedicated and better funded investigators may manage to further de anonymize Bitcoin.

btcanon-5

And all of this is without considering the fact that if you bought your bitcoin through a fiat to Bitcoin exchange, it’s almost guaranteed that a log of your personal information and how much Bitcoin you bought is stored somewhere, ready to be claimed by whomever can either hack, talk or blackmail their way to such information. It is of course a central point of failure in anonymity.

But do not panic. Below we will dig into the good bad and ugly of bitcoin pseudonymity, as well as some ways you can increase your anonymity and privacy.

 

The Good.

The best thing to possibly arise out of Bitcoin’s pseudonymity is its potential for reputable anonymity. Does that sound like a contradiction? well it isn’t. Just consider for a moment that Satoshi Nakamoto himself was both anonymous and widely respected.

This means that journalists like wikileaks, inventors and or anyone really, no longer has to fear financial ostracism from the powers that be for speaking truths, liberating disruptive technologies, or in general just being overly awesome.

Bitcoin CAN be anonymous, if one takes the right steps. This potentially liberates individuals to communicate financial value to anyone they wish to, outside of the prying eyes of criminals and the arbitrary laws of corrupt governments. For example.

Argentinians can now escape the unbelievable institutional theft of over 25% yearly inflation enforced by their political masters. This is done through a legal monopoly over money counterfeiting by the Argentine central bank and president Cristina Fernandez’s stamp of approval.

North Americans, can finally inhale some Mary Jane and go on safe psychedelic journeys or other recreational drugs, without the risk of getting mugged at the back alley drug shop. Nor are they at great risk of being thrown into cages and have their reputations ruined for having ‘too much’ of this plant or the other.

Last but not least, Bitcoin’s decentralized nature may allow for a trustless and sound reputation system, if that is even possible. ID3 is an organization that claims to be dedicated to such ideals and has some impressive backing worldwide Bitcoin pioneers.

However, such a reputation system also comes with some incredible risks and ones which George Orwell warned us about. This brings us to the bad and the ugly.

 

The Bad

The United states is leading the charge when it comes to tracking fiat to Bitcoin purchases. Many exchanges have a verification requirement if customers want more than two to three thousand dollars worth of Bitcoin. Some have limits per month or require even more of your personal information to go further.

These steps are arguably being taken by fiat to Bitcoin exchanges as a way to prevent having the regulatory boot fall upon them under the guise of ‘failure to comply with know your customer (NYC) laws”.

Whether you think such identity controls are a good idea or not. It is clear that Ben Lawsky does, and that there is a strong enough of an incentive for regulators to attempt it. After all, Bitcoin disrupts the status quo of current financial systems from top to bottom.

It is not beyond my imagination, to see the future of Bitcoin be one where cash to Bitcoin transactions are deemed illegal or shunned by the media. Nor one where all Bitcoin purchases online and through BTMs must require some kind of ID. Some BTM’s already require biometric data to sell you Bitcoin. We are not too far from this.

As this type of Bitcoin customer tracking becomes the norm, political forces will have a new tool to control and block certain parties from purchasing Bitcoin. Likely under the guise of terrorism.

This will drive the cash to Bitcoin prices up and bring the market back into the darkness for those whom don’t trust third parties with their personal information. At Least in the countries that follow this orwellian practices.

“But if you are honest, you’ve got nothing to hide, right?”

Like the meme goes, some things are just better done in the dark. Also keep in mind that few things reveal more about your personal life than how you spend your money.

If the honest have nothing to hide and should have no privacy, than it makes the NSA and the Military industrial complex’s secrecy rather concerning. In which case, this war on privacy is great. Perhaps one day all government financial transactions will be NYC compliant and viewable on the block chain. In fact, this should probably be on the “Good” category.

Except the exact opposite will likely be the case. Government funded military action and ‘under the table’ or top secret activities will likely be funded with Dark Wallet or Darkcoin, at the same time as they condemn these technologies in the media and enforce NYC for Bitcoin purchases.

And just to be perfectly clear, I have no problem with anonymous Bitcoin technologies like Dark wallet or Darkcoin, I cheer them on actually, they seem to me natural, inevitable and empowering responses to the orwellian regulatory and surveillance attempts. #jointhedarkness!

So yeah. Bitcoin is hardly anonymous, unless you mine it, buy it with cash or in another way that does not require your personal information.

 

The ugly

Perhaps the ugliest thing about Bitcoin’s pseudonymity, is the misconception that by using Bitcoin, no one knows what you are using your money for.

Yeah the banks may not know, and your average Bitcoiner won’t know either or care, but the alphabet soup agencies have the funding to try and uncover your purchases and if you are a big enough fish, there’s likely one or two big fishermen trying to get a piece of you.

The last thing to add to this bag of ugly, is that Bitcoin is known for the unsettling amount of scams that surround this emerging internet economy. Fact is, unlike real life identification of a sleazy sales guy, virtual identities are arbitrary to modify and create. Making the pinning down of con artists rather tricky.

That, coupled with a new digital currency that few understand ontop of an information network that few know how to secure, makes crypto currency startup investments a game not for the faint of heart.

Rule of thumb is, if you don’t control your private keys, you do not own them. And truth be told, there’s no recourse to protect you yet, if the site you had your coins in gets ‘hacked’.

So be careful.

 

How to get the most out of Bitcoin’s built in privacy and anonymity.

If you want to get large amounts of Bitcoin. The best approach to doing it with optimal privacy is by buying it from local Bitcoins and not using their escrow service.

Yes, it can be sketchy and anxiety provoking to meet a stranger and hand him a bag of money in exchange for some digital bits, but there’s safe ways to do it.

Make it a lunch date, bring a friend if you wish. Do it during daylight and wait for at least three confirmations before handing over all the cash.

If you like your seller, keep bringing business to her. Start small and build your way up if you wish. Trust your gut.

Always use new addresses, if you want to keep your Bitcoin privacy and avoid Bitcoin flow analysis. Reusing addresses links your transactions and other addresses you own and is the beginning of building a virtual fingerprint for your Bitcoin finances.

Reputable wallets like Mycelium that use “HD wallets” are great privacy wise as they automatically generate new addresses any time you send or receive Bitcoin. All of these are generated out of a ‘Seed’ which is a one back up deal. Make sure you keep that seed safe and you won’t have to back up every new address you generate, like the ‘good’ old days.

You may want to use Tor for risky Bitcoin purchases. Or in general, But that is a slightly more technical approach. Its benefits are also debatable right now.

I’m not an expert of Bitcoin privacy and anonymity, but Kristov Atlas is. He has a book called ‘Anonymous Bitcoin’ dedicated to helping you keep your Bitcoin all to yourself, in private ways. The book is an impressively smooth read and the deepest store of information on the topic that I am aware of. You can get it through this affiliate link -consider it a tip?- or through this direct link.

Cheers! Happy Bitcoining.