I've heard that many Bitcoin enthusiasts value anonymity. Why is that?
Anonymity means hiding one's identity to avoid personal disadvantage. Bitcoin transactions are designed not to be directly linked to individuals. Many Bitcoin enthusiasts are careful about their privacy and that of others.
In this article, I'll explain in simple terms why Bitcoin anonymity is important.
Summary of the Article
- Bitcoin anonymity is valued for safety and risk avoidance, as well as by Bitcoiners who cherish Bitcoin's inherent properties.
- Bitcoin combines transparency and anonymity, offering a new system not present in traditional finance.
- Some people focus on Bitcoin's characteristics as an alternative due to privacy invasions and access restrictions in existing financial systems.
This article was written in Japanese and converted to English using a translation tool.
Date of writing (Japanese version): February 2024
Why Bitcoin Enthusiasts Value Anonymity
I was told to be careful about taking photos when I planned to attend a Bitcoin-related event.
At Bitcoin-related events, photos on social media often only show people's hands or are edited to avoid identifying individuals.
About the Lightning Flea Market in Koenji
雰囲気を見ようとタグ検索するもビットコイナーのプライバシー意識が高いせいかほぼ手元の写真しか出てこない。笑#高円寺ライトニングフリマ https://t.co/dSy91ouTWB
— shinpei (@shinpecolife) November 19, 2023
Bitcoin enthusiasts are careful about how photos are taken to ensure safety and maintain anonymity. If it becomes known on social media that someone holds Bitcoin, it increases the risk of physical harm, fraud, or hacking targeting them or their family.
Additionally, regardless of Bitcoin, unauthorized photography and posting of identifiable individuals can be considered bad manners. Once an image is uploaded, it remains on servers and can be widely shared and saved by an unspecified number of people. Even if deleted, it is hard to completely erase it (resulting in a digital tattoo), so it is advisable to handle personal photos carefully.
Indeed, those managing their Bitcoin would want to minimize the risk of being robbed or threatened…
That's right. Moreover, many Bitcoiners value the "anonymity" that is a characteristic of Bitcoin.
Bitcoin's anonymity? What does that mean?
To understand Bitcoin's anonymity, it might help to first learn about "Bitcoin's transparency."
[Premise] Bitcoin's Transparency: Everything is Public
One of Bitcoin's major characteristics is its "transparency," allowing anyone with internet access to view all transactions. The accuracy of transactions and the flow of funds are visible, enabling transactions without involving central authorities such as governments, banks, or payment companies. Everything is public, making tampering difficult and preventing "central authority misconduct" that can occur in traditional financial systems.
You can see exactly how Bitcoin transactions are carried out!
With such a transparent system, what do you think would happen if there was no anonymity?
I get it! If there was no anonymity… addresses and names would all be exposed!
Bitcoin combines transparency and anonymity, offering a new system not found in traditional finance. For those who value Bitcoin's characteristics, both transparency and anonymity are important.
What is Bitcoin Anonymity?
I'd like to know more about Bitcoin's anonymity.
Bitcoin's anonymity is not just about protecting user privacy but also providing an alternative to services restricted by central authorities.
Privacy Protection
In Bitcoin transactions, users' personal information such as real names and addresses are not directly linked to the transactions. Transactions are associated with Bitcoin addresses, which are not directly tied to users' identities, allowing privacy to be maintained.
Main Information Disclosed in Bitcoin Transactions
- Sender and receiver Bitcoin addresses
- Amount sent
- Timestamp (date and time the transaction was added to the blockchain)
- Transaction fee
- Transaction ID
Bitcoin addresses can be easily created and used as disposable addresses.
Using a new address for each transaction can protect privacy more effectively!
Additionally, Bitcoin's anonymity is often referred to as "pseudo-anonymity." While theoretically, advanced analysis can potentially identify users from specific transaction patterns or addresses, it provides sufficient anonymity for everyday use.
An Alternative to Services Restricted by Authorities
Bitcoin is a digital currency that does not rely on central institutions such as governments, banks, or payment companies. It can serve as a valuable alternative for people who face access restrictions to financial services.
Examples of Restrictions by Central Authorities
- Bank accounts frozen by the Nigerian government crackdown
(In Chainalysis's "Cryptocurrency Usage by Country" study conducted in 2023, Nigeria ranked second globally for everyday cryptocurrency usage) - Account freezes by financial and payment service providers
(Accounts can be suddenly inaccessible due to suspected violations of terms of service) - Bank accounts frozen, entire balances seized, and card usage suspended due to administrative errors
(Refer to the quoted tweet below)
あのおおおおおお
— Jonathan Underwood (@junderwood4649) February 5, 2024
ビットコインのことを知った切っ掛けがですねｗ
行政の事務的ミスにより私が脱○者と間違われ、
銀行口座凍結＋全残高差し押さえ＋カードも使えない
↓… https://t.co/0kMpOmWDvf
Bitcoin with high anonymity might be a very important currency for those who have experienced restrictions from central authorities.
The internet has expanded people's capabilities and freedom, but it is also used by states as a tool to restrict freedom.
Considering that those imposing restrictions might keep increasing them, the value of Bitcoin, which lacks a central authority, seems significant.
Adaptability to Diverse Use Cases
Bitcoin was created not just as money but as a platform for money. It is designed with default high anonymity to support a wide range of use cases.
It provides a foundation not only for paying for goods and services but also for various financial activities and applications.
A highly anonymous currency can be used both in ways that require anonymity and ways that don't.
However, a non-anonymous currency cannot be used in ways that require anonymity.
I see! Bitcoin can be used for transactions without revealing personal information and for shopping online where you disclose your identity, so it seems versatile.
Lower Risk of Data Breaches
In existing financial systems, user personal information is collected and stored, leading to risks of data breaches and unauthorized access. However, Bitcoin transactions are not directly linked to personal information, thus reducing the risk of data breaches.
Examples of Data Breaches by Companies
- NTT Business Solutions (leak of about 30,000 personal information records / 2024)
An employee illegally took personal information and sold it to a directory company. - Tokyo Verdy Co., Ltd. (leak of about 2,700 credit card information records / 2024)
System administrator accounts were misused, and payment forms were tampered with. - Coinbase (attack on about 6,000 accounts / 2021)
User accounts were accessed unauthorized, and cryptocurrencies were illegally withdrawn. - PayPay Corporation (possible leak of up to 20 million records / 2020)
Security setting errors led to external access, leaking information of 2.6 million PayPay merchants, including addresses, sales transfer details, and business response history. - LINE Corporation (over 4,000 unauthorized logins / 2020)
Over 4,000 accounts were hijacked, leading to phishing activities by impersonators.
Reference：個人情報漏洩事件・被害事件一覧｜Cyber Security.com
There have been many information leakage incidents involving companies and municipalities, with over 100 cases in 2023 alone.
*Extracted cases with over 1,000 victims
The causes of data breaches by companies include attacks on administrator accounts, phishing attacks on employee emails, and insiders leaking information.
By the way, in Japanese cryptocurrency exchanges, the "Travel Rule" requires information such as the recipient's name and address when sending Bitcoin.
What! There's a regulation that contradicts the nature of Bitcoin.
If you manage Bitcoin with your own wallet, you're not affected by the Travel Rule…
But remember that exchanges are centralized services even though they handle Bitcoin.
Problems with Anonymity in the Existing Financial System
One reason why Bitcoin's anonymity is valued is that the existing financial system collects and tracks personal information, infringing on users' privacy.
- Extensive Collection of Personal Information
Collects data such as addresses, phone numbers, occupations, and incomes - Targeted Advertising
Displays ads based on purchase history from credit card transactions - Sharing Information with Third Parties
Companies that collect data share user information with partner companies and advertisers, spreading personal information without the user's intent - Risk of Data Breaches
Large amounts of personal data stored by financial institutions and companies are often targeted by cyberattacks (personal data is highly valuable and frequently bought and sold) - Monitoring Transactions
Financial transactions may be monitored under the guise of preventing fraud and money laundering
Indeed, when opening an account with a financial service, you need to provide a lot of personal information…
For those who feel that existing financial services handle privacy poorly, Bitcoin's high anonymity might be particularly noteworthy.
Those who are indifferent to privacy may not realize the importance of "wanting to protect one's privacy."
There are people and companies that try to infringe on others' privacy for various reasons…
It is important to respect those who wish to protect their personal information.
Q&A about Bitcoin's Anonymity
I want to know more about Bitcoin's anonymity.
I'll answer some common questions about Bitcoin's anonymity in a Q&A format.
Is Bitcoin Easy to Use for Crime Because of Its High Anonymity?
The term "anonymity" can lead to misunderstandings, but Bitcoin is considered unsuitable for criminal use due to its extremely high transparency as well as its anonymity.
While there are instances of Bitcoin being used for crime, they account for only a small fraction of all Bitcoin transactions. Most people use it for legitimate purposes such as investing and remittances.
Why High Transparency Makes Bitcoin Unsuitable for Crime
- Transaction records are permanently public, making it possible to identify individuals or organizations if certain triggers occur
(e.g., attempting to cash out Bitcoin used in a crime at an exchange) - Future advancements in technology could further enable tracking of funds
- Information sharing between cryptocurrency exchanges and regulatory authorities helps trace illicit fund flows
Fiat currencies are overwhelmingly used for crime, but those who want to tighten regulations on Bitcoin often criticize its high anonymity.
It's possible that those wanting to regulate Bitcoin are saying "Bitcoin is used for money laundering!" as a form of impression management.
Can Bitcoin Be Purchased Anonymously?
In many countries, including Japan, identity verification (KYC) is required when using cryptocurrency exchanges, making it difficult to purchase Bitcoin anonymously.
However, peer-to-peer (P2P) transactions between individuals can maintain a certain level of anonymity, so considering P2P transactions with a trusted party is one option. However, there are also cases of fraud in P2P transactions, so for those not accustomed to Bitcoin or investing, it is safer to use a cryptocurrency exchange.
For small transactions, using a Bitcoin ATM is an option, but the available ATMs are limited, and identity verification may be required depending on the location.
Attempting to buy anonymously increases the risk of fraud, and Bitcoin ATMs can be expensive, so it's important to keep these points in mind.
Can Bitcoin Payments Be Made Anonymously?
Payments using Bitcoin's Lightning Network can be made easily without providing personal information such as name or address. When making Lightning payments in stores, you simply scan the wallet address QR code, and the payment is completed in seconds.
When making Bitcoin payments on-chain from an exchange, you need to register various information about yourself and the recipient.
However, with Lightning payments, you can make payments without presenting personal information to a third party.
There are stores in Japan that accept Lightning payments, and events featuring Lightning payments are being held!
3/2 13時から開催の自由が丘ライトニングマルシェのポスターが出来ました！
— Koji Higashi (@Coin_and_Peace) February 14, 2024
前回に引き続きオリジナルグッズや、ハンドメイドのものだけでなく、日用品をライトニング決済で販売したり、他にも前回の高円寺よりさらにパワーアップしてます。
イベント詳細はこちらから↓https://t.co/1ApsYmDtN8 pic.twitter.com/N0Q9LJkfwF
[Summary] Bitcoin's Anonymity
Key Points
- Bitcoin's anonymity is valued for risk avoidance in terms of safety and because many Bitcoin enthusiasts cherish Bitcoin's nature.
- Bitcoin combines transparency and anonymity, a novel system that traditional financial systems do not offer.
- Some people focus on Bitcoin's characteristics as an alternative due to access restrictions and privacy violations by existing financial systems.
All Bitcoin transactions are public, so if there were no anonymity, addresses and names would be fully exposed.
Knowing personal information would increase the risk of crime, so it's understandable why anonymity is valued.
Banks and payment companies collect various personal information… it's used for targeted advertising, shared with third parties, and there's a risk of data breaches.
Many people around the world are attracted to the Bitcoin network, which can be used without an operator.
Bitcoin seems complicated and a bit intimidating, but I want to learn more.
Let's learn more about Bitcoin!
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Writer：Sigeru Minami
Creator of "Bitcoin-zukan.com."
Active as a handmade craftsman of Bitcoin goods.