Numerous advantages are prescribed to cryptocurrencies. In particular, crypto is known for the possibility of helping its users to maintain their anonymity, which can be considered a significant advantage in the modern days. Many modern hosting providers offer the possibility of purchasing servers for cryptocurrency – like UK VPS with crypto payments and many others. However, you might ask yourself, is cryptocurrency really so anonymous as described and how exactly does it help you maintain anonymity?
In today’s article, we’ll explore these questions.
Anonymity of cryptocurrency
Cryptocurrency vs. traditional banks
Traditional banks are closely interconnected with governmental authorities. Your account is directly linked to your name, your passport, and other information related to you being a citizen of one particular country. Therefore you can’t make any financial operation without it being registered by your bank. Whether this information can be used somehow against you and your interest is another discourse, but the fact is that you will leave traces and they can be directly linked to your personal identity.
When it comes to cryptocurrency, everything works here in a different way.
Cryptocurrencies are not based on centralized human-led organizations like banks. Instead, they rely on the technology of blockchain. Blockchain is a decentralized public ledger that is powered by a network of devices that are interconnected and store information about entire transactions in the form of blocks that are linked in chronological order achieving in this way an autonomous operation which is at the same time secure and reliable. Other than that, blockchain itself is not something that would require personal information from its users. Users are associated with their address, which is their form of identity within the blockchain network.
Aspects of cryptocurrency’s privacy
Another thing to keep in mind is that while technically your blockchain transactions are done without any link to your personality, services that provide you with the possibility to create crypto-wallets and benefit from cryptocurrency and blockchain networks may often require your personal information when you create your account. Given that blockchain is a public ledger, meaning that the information about entire transactions is open, you don’t reveal your identity directly, it can still be traced. For this reason, cryptocurrencies are often referred to as pseudonymous rather than anonymous.
Exchanges and KYC
Although your personal information doesn’t take part in blockchain transactions, to benefit from them you’ll likely have to access some of the common exchanges. The thing is that exchanges will require your personal information to know your customer verification (KYC). Besides that, exchanges may report about their users if suspicious actions take place. Again, though you don’t reveal your identity by the mere act of transaction within the blockchain, you can theoretically still be traced by someone through the exchange.
Some firms analyze blockchain networks and monitor what is going on in them. These have various methods to de-anonymize the users they are interested in and these techniques also becoming increasingly sophisticated.
Legal and Regulatory Factors
While the government itself doesn’t have anything to do with blockchain networks, governments may have an influence on exchanges, forcing them, for instance, to implement stricter KYC and Anti-Money Laundering (AML) procedures. Besides that, they can contact chain analysis companies to provide them with information about the transactions and individuals involved in them.
If privacy is one of the primary reasons for you to use cryptocurrency in general, you might be interested in ways to increase it. What you may find helpful are privacy coins. Privacy coins are a number of cryptocurrencies that have been designed specifically with an eye on enhancing security (common examples: Monero, Zcash, etc). They implement various cryptographic techniques to make transaction details less clear, making it harder to trace them back to the origin. Keep in mind, that privacy coins increase your privacy, but don’t guarantee 100% of it.
Your eventual level of privacy when using cryptocurrency depends in many ways on the practices you apply while using cryptocurrency. In other words, if privacy matters to you, you have to do everything possible to keep it, even though you already use a relatively private currency. For example, if you use a wallet that is tied to your identity and perform transactions on the darknet, then your identity can be revealed. If you share your crypto wallet address publicly, you shouldn’t expect that your transactions will remain untraceable. For this reason, to get the most privacy out of your cryptocurrency experience, the best thing you can do is to study the subject and apply all possible privacy practices.
Cryptocurrency is a pretty young phenomenon that has, however, become a game changer in a bunch of scenarios. Cryptocurrency reveals itself also as a way more private and valuable asset, which, however, is not a once-and-for-all solution and still requires you to pay attention to your actions if you want to maintain maximum privacy and security. We hope that this information has provided you with valuable insights, stay tuned!