Is bitcoin traceable?
When bitcoin burst onto the scene in 2009 and for a few years after, it was perceived by many as a completely private and untraceable form of payment, unable to be tracked or followed by any outside entity. As cryptocurrency grew in popularity and people’s understanding of it began to develop, it became clear that this was not the case.
Bitcoin, despite its initial perception as an untraceable currency, is in fact highly transparent. It is up to investors to take the steps necessary to protect the privacy of their transactions. Here is some background on how bitcoin transactions are recorded and tracked and a few things you can do to protect your privacy in the market.
How transactions are recorded
So yes, all bitcoin transactions are public, traceable, and permanently recorded in the bitcoin network in association with the transacting bitcoin address (or wallet). Bitcoin addresses are created privately by each user and are the only information publicly associated with transactions. Once an address is used, the entire history of its transactions becomes visible as well.
Anyone can view the transaction history of an address, and since the address has to be revealed to complete a transaction, fully anonymity is not possible. Transactions are instead what’s known as pseudonymous, meaning their identities aren’t completely hidden, but they are obscured to the public, in that the owner of the address isn’t explicitly known. Once a pseudonym (or address) is linked to its owner everything about the owner’s history on that address becomes evident.
How to protect your privacy
Despite bitcoin not being completely anonymous or untraceable, there are strategies you can employ to veil your identity from the public.
Use a new address for every transaction
For those wanting to keep their activity private, it is recommended to use a new bitcoin address every time you make a transaction. This will make it essentially impossible for outsiders to link any of your transactions back to you or to a common address. You can also use several different wallets and assign each one a different purpose, placing your transactions in isolation and making it more difficult to associate them with one another.
Be careful where you share
You shouldn’t share your address or wallet information publicly unless it is for something like donations and you are prepared for your information to be publicly known. Once someone links your address to you, they gain further insight into your transaction history.
These are a few of the ways to protect your identity when dealing in bitcoin, but there are also certain forms of cryptocurrency known as privacy coins that aim to further obscure a user’s identity.
Zcash uses a technology called zn-SNARKS to conceal sender and recipient information, along with the amount involved in the transaction.
Komodo originated as a variation of Zcash and thus also uses zn-SNARKS, in addition to several other security features. It includes a multi-chain architecture that allows users to create independent Smart Chains, atomic swaps that make trades secure and trustless while also safeguarding personal data, the ability to privately participate in crowdfunding events and more.
Monero is another privacy coin that’s been gaining popularity. When users send a transaction on Monero, six other random addresses are pulled from the blockchain and included in the transaction record, making it much more difficult to discern which address truly belongs to the sender or recipient.
Protect your investment with Compute North
Compute North offers next-level crypto mining infrastructure that allows miners to maximize their investments. Our U.S.-based colocation facilities offer high security for your hardware and data, low-cost renewable energy, remote access VPN, and more. Reserve your space today.