Are Bitcoin Transactions Anonymous?
Bitcoin has never been anonymous. It’s pseudo-anonymous at best. The blockchain has never been truly anonymous. This is a myth perpetuated by people that don’t understand what the blockchain is. Blockchain “on chain” records have always been accessible. This is the entire purpose of a public ledger–it removes the need for a trusted third party (i.e. a bank).
It is an open, public ledger. Every single transaction ever made is fully visible to the public. There is nothing anonymous about it. Never has been. Never will be.
As soon as they pop onto an exchange or trade for fiat they are public. This is a cold, hard, solid fact. Who would have thought keeping a public ledger of every transaction ever was not very private? One only needs to match a suspicious wallet with an identity, and suddenly one can see all the transactions that person has ever done. Considering the tools at the disposal of the NSA and other US government agencies, this matching is probably not all that difficult.
Many people still have the perception that crypto is an anonymous black hole. Actually, it’s exactly the opposite. Every transaction is immutably recorded. And while you may not know WHO is behind it, by examining the end point – purchase, exchange, conversion to Fiat authorities can quickly uncover the identity of the perpetrator. If you are willing not to ever spend your crypto on anything, you may be safe if you actually self-custody it. If you place it with crypto outfits like Coinbase, they know who you are and the government which comes with warrants can get that data and they already have for IRS. For the IRS there is nothing easier to collect the taxes than to get your wallet addresses. They know exactly how much you made and lost.
The whole ledger of bitcoin transactions is public – anyone can see everything. After you get cooperation from crypto-exchanges in connecting the anonymous bitcoin wallets to specific owners of dollar bank accounts you “cracked” everything – the whole chain of transfers all the way down to the creation of specific tokens. And everyone needs an exchange to convert bitcoin into dollars if they want to buy something. Easy-peasy.
This is one of the reasons why distributed ledger technology behind crypto is so ideally suited for government and banking. It automates many processes done through people and opaque computer systems and does so at a fraction of the cost. But that’s another public misperception about crypto which is yet to be revealed.
Since the Colonial Pipeline ransomware incident and its aftermath it has been clear that the US government has the means to track BTC transactions and seize crypto assets. Once a law enforcement agency is able to connect a cryptocurrency transaction to an individual they can break into the chain by flipping the individual and then go up and down the chain, thus identifying further individuals. Often, because of the motivations for using cryptocurrency, this uncovers a string of crimes. I would recommend Tracers in the Dark, by Andy Greenberg as a engrossing telling of stories of how law enforcement has used this technique to break child porn and drug dealing sites (AlphaBay).
Bitcoin transactions were always public, but most people assumed they were anonymous. It was one of the advertised appeals of the network/ledger. There is a reason it had (and still has) such a strong appeal for people engaged in criminal activities.
Bitcoin was never anonymous: it literally works by recording all transactions in a public ledger, readable by anyone. When BTC is sold and turned into USD, classic financial tracking and KYC regulations come into play.
The only real privacy mitigations so far developed are mixing services that blend your transactions with those of many other BTC users to obscure origin, but it’s very likely any chain of transactions traceable through one of these services would be regarded as presumptively money laundering, resulting in seizure of the funds when an attempt is made to convert them into USD.
