Bitcoin Is Not Really Anonymous, But Pseudonymous


BitcoinThree words that commonly come to people’s minds when asked about “Bitcoin” are “anonymous,” “untraceable” and “currency used by criminals.” However, experts are of the opinion that common man’s impressions about the cryptocurrency bitcoin are all wrong. It is easy to dismiss it as a perception problem, but it has serious consequences. This is because it affects the attitude of lawmakers, regulators, investors, enforcement agencies, and even that of the general public towards this technology.

Jason Weinstein, a partner with Steptoe and Johnson LLP, who has also served a term as the deputy assistant attorney general in the US Department of Justice, was in charge of matters related to cybercrime as well as organized crime. Currently, he is serving as the Director of the Blockchain Alliance, and is also a member of the Coin Center’s, BitFury’s and Chamber of Digital Commerce’s advisory boards. In his opinion piece detailed below, Weinstein discusses as to why the misconception about the anonymity of bitcoin is contributing to hiding the fact that its technology is actually helpful in meeting the needs of the enforcement agencies.

According to him, a peep into history will reveal that technologies worth adopting are always used by criminals first. On the other hand, law enforcement agencies always adopt technology for the purpose of catching criminals that make use of new technology to commit the same old crimes. It has been like this since times immemorial. From email to online chat to pagers to cellphones and smartphones to PayPal, just to name some of the technological developments, law enforcement had to consistently catch up with criminals who use new technologies that have been designed to meet legitimate requirements for committing crimes.

Several examples of this phenomenon can be quoted, but the greatest is one that involves the Internet. The biggest challenge faced by law enforcement agencies involved in investigating internet crimes is dealing with anonymity. On a daily basis, agents and prosecutors are required to link numbers and characters with names of individuals. This becomes all the more difficult when people choose to use multiple IP addresses, chat names and anonymizing techniques like proxies and Tor.

The problems are further aggravated by the fact that web-based communication service providers are not required to comply with “know-your-customer” norms. Therefore, agents are never sure of the accuracy of the user identity they decipher. In spite of the challenges faced by them, agents/prosecutors have analyzed data from several sources and zeroed in on the offenders.

Bitcoin technology is the latest one to present such problems to the prosecutors and law enforcement agencies. Even though criminal/terrorist activities are rampant on the Internet, the press and the policymakers tend to present it as a problem caused by bitcoin. Nobody ever thinks of the World Wide Web as a “network of criminals.”

-1x-1Actually, the bitcoin presents a unique challenge, meaning it actually provides some advantages as far as attribution is concerned. This means that it is not anonymous. In fact, it is rather pseudonymous. This means that the bitcoin address of a user is similar to that of an account number. Therefore, it is possible to connect the user to an address and trace all the transactions.

A person makes use of an exchange/e-wallet for accessing the blockchain, but the exchange/wallet maintains a record like a bank. An individual may have many bitcoin addresses, but may not have many bank accounts. Therefore, the law enforcement can obtain information about a user’s address by means of a subpoena or any other lawful process. Even if a user receives bitcoin from a non-licensed source or uses anonymity techniques such as multiple addresses, mixing services, etc., the user will not really be anonymous. He/she will leave trails when transacting on the blockchain and exchanging bitcoin for currency.

Moreover, advanced and improved techniques to connect bitcoin addresses and users, analyze transaction patterns, mine data from the social media as well as other public sources and analyze IP addresses are already available. Further, people who use the mixing services believe that the service provider is not keeping any records.

Therefore, the attribution advantage offered by bitcoin is searchability, traceability and the blockchain’s permanence. Moreover, the blockchain ledger is publicly available. Law enforcement is in the process honing its skills in this area. Meanwhile, innovators are employing better ways to improve privacy. Despite all that, people who learn more about bitcoin would realize that the cryptocurrency bitcoin is more “cops” friendly than “criminals” friendly.

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