Is Cryptocurrency Really Anonymous? A Very Important Difference Between Anonymity and Pseudonymity
Bitcoin was the first crypto and in the earliest years it was considered to be anonymous.
0:35 Is Bitcoin Anonymous?
1:31 Chain Analysis
2:55 Buying Bitcoin Anonymously
4:47 Coin Mixers
6:14 The Rich List
6:59 Most Anonymous Cryptocurrencies
Bitcoin was the first crypto and in the earliest years it was considered to be anonymous. The very first use cases of Bitcoin were buying and selling (mostly illegal) goods online via dark markets. The first dark market was called Silk Road and had a reputation for having anything for sale. Imagine a global eBay for criminals.
In those early days, Bitcoin was the coin of choice for buying and selling. A Bitcoin address is a long string of numbers and letters (both upper and lower case) which people believed made it impossible to trace. While each wallet address is unique, they all look the same because we humans do not process random strings of numbers and digits easily. However, wallet addresses are not actually anonymous — they are pseudonymous, which means that they act as a placeholder for the wallet owner’s identity.
When Silk Road founder Ross Ulbricht was arrested by the FBI, they were careful to ensure that he was arrested with his laptop open and that he was signed into the admin system — they needed to physically connect the man with his online presence.
That market had been a middleman to process transactions, which meant that the FBI were now able to link together buyers and sellers and their Bitcoin wallets. While there were many thousands of wallets at that time, this provided the launchpad for authorities to analyze the blockchain and connect wallet addresses with real people and their real addresses. The process of connecting these dots is known as chain analysis and is now a widely used process to track criminal transactions.