Ask a dozen people that aren’t well-versed in the technology what blockchain is, and you’re liable to get a variety of different answers. Many will likely tell you that all Bitcoin and other crypto transactions are completely anonymous but that’s one of the most common misconceptions — that it’s not public.
Contrary to popular belief, the majority of the activity on blockchain is indeed traceable. While Bitcoin does offer a level of anonymity in that transactions are only linked via an electronic address, they do track how much is sent from one address to another in a public ledger.
Some experts refer to this as “pseudonymous privacy,” meaning that you can preserve your privacy as long as that electronic address, your pseudonym, is not linked to you. But as soon as someone connects the pseudonym to one of your anonymous books, your ruse is over.
Once that happens, your entire writing history under your pseudonym becomes public and even your purchase history is revealed. This isn’t simply limited to Bitcoin either, multiple government organizations have already established relationships with several major exchanges in order to provide mapping of transactions.
So if you’re hoping to use Bitcoin or other altcoins in order to make anonymous purchases, this raises an important question — how easy will it be to link you with your transactions?
Actually, fairly easily.
Thanks in part to those tiny bits of code embedded into websites that send information to third parties about how you use the site, aka cookies and web trackers. While many trackers simply send bits of various information to Google, Facebook and other third parties regarding page usage, browsing habits, and purchase amounts, etc, others actually provide personal identifiable information, such as your name, address, and e-mail.
Of course most of this sharing of information is for the purposes of advertising and analytics, but many times extra information is also sent. Unfortunately, many merchant websites have information leaks that, although likely unintentional, are far more serious and can directly reveal the transaction details on the blockchain to numerous trackers.
The way that your basic transaction information leaks during ordinary purchases, it can be quite simple to link you with the transactions you make. This is true even if you go as far as utilizing additional privacy protections like CoinJoin and unfortunately, this also means that government agencies, law enforcement, and those ever-present malicious users can readily collect and analyze that transaction information, further helping them trace your entire purchase history.
And the threats to your blockchain anonymity don’t stop there.
Even when the leak only includes the amount and time of the purchase while keeping the exact transaction hidden, it’s still possible to make the link back to you. While this process is a bit trickier, it can still be done by the determined.
All the interested party has to do is use the exchange rate at the time of the transaction and convert the amount to the appropriate crypto, then search the blockchain for a transaction for that amount at that time. This reveals the address of the user and from there, it’s rather easy to trace that address’ purchase history.
However, it’s a little harder than it sounds. There can be a gap between the time the user visited the page that leaked the information and the time when they actually made the purchase. Most blockchain purchases are time-stamped, so if the time difference is off considerably it can be a lot more difficult to accurately trace the purchase. Additionally, the leak may only reveal the cost of the product but not include shipping, so the actual total purchase price may not be reflected.
While there are several tools that you can use to help protect your anonymity, such as: CoinJoin, AdBlock Plus, Ghostery, and uBlock Origin, comes they can miss certain trackers and sometimes entirely prevent your purchase altogether. While they are far from perfect, these types of defenses can be quite effective.
So while blockchain does indeed provide a certain level of anonymity, it’s in no way a 100% “secret” way to conduct business.
