Is it Really Possible to Trade Cryptos anonymously?
When bitcoin was first launched in 2009, most people praised it for its revolutionary money payment system. Tech leaders praised the fast payments, advanced security features and the ability to complete transactions anonymously. But as people would later realise; bitcoin does not offer anonymity. This led to the invention of other digital payment methods that provide the much-needed anonymity.
Bitcoin’s Privacy Problem
Most bitcoin experts already know that bitcoin does not offer complete anonymity. Instead, it offers pseudonymity. Like a book writer using a pseudo name instead of her real name, bitcoin users are given two types of addresses to represent them:
- A public address – a long string of characters you show someone who wants to send you bitcoins or other cryptocurrencies.
- A private key – a long string of characters other people see when you send them cryptocurrencies. It’s also the address that enables you to withdraw coins.
With these two addresses, bitcoin allows you to complete payments without revealing your real name and private information. However, that does not mean interested people cannot trace you.
Ways your identity is revealed through your bitcoin Addresses
When a user publishes his name online
Nowadays, it’s common for website owners to ask for donations through their website or social media accounts. If the bitcoin address owner also publishes content on his site using his real name, people will know both his bitcoin address and real name.
Trading on regular exchanges
Most modern bitcoin exchanges are required to enforce Know Your Customer Regulations (KYC). This means the exchanges have to ask for your real names, addresses, utility bills and other personal details that makes it easy to trace you.
Fortunately, there are also few exchanges that enable relatively anonymous purchases.
Buying goods online with bitcoins
Since most merchants ask for your name and address to deliver goods, they can associate your bitcoin address with you. Here is an example of how an angry online retailer once revealed his customer’s identity because of a botched bitcoin-related transaction.
Traders who use an e-commerce retailer will most likely also have their names and addresses available to customers. This makes it possible to identify the name of any bitcoin address.
Cryptocurrency Payment Networks that Offer Anonymity
Since bitcoin transactions and those of select other altcoins do not offer anonymity, other cryptocurrencies able to solve this problem have emerged. There are more than 10 cryptocurrencies that promise to offer anonymity when completing transactions, but their degree of anonymity varies.
Top 5 Cryptocurrency Networks that offer Anonymity
Monero is touted as the unrivaled cryptocurrency network for completing anonymous payments. Like bitcoin, Monero was designed by a person who used a pseudonym, ‘Nicolas van Saberhagen. A username with the pseudonym, “thankful for today” would later code the final Monero concept.
How Monero enables anonymity
- Use of ring signatures – this is a complex cryptographic method to hide the sender’s identity.
- RingCT- this concept enables senders to hide the amount of Monero coins they are about to send.
- Kovri – this technology enables users to hide their IP address when sending transactions. The technology also enables users to hide the fact that they are completing transactions using Monero.
- Stealth addresses – this concept enables Monero users to hide the recipient’s identity.
ZCash is one of the top 20 cryptocurrencies in terms of market capitalization. Zcash is most popular for its ability to enable anonymity. But unlike Monero, the Zcash anonymity feature is optional. Users can, therefore, send money under a pseudo name or enable anonymous transactions.
How Zcash Provides Anonymity
- Zcash cryptocurrencies are sent as notes with the amount and the recipient’s address.
- The recipient’s address is an encryption that contains 2 public keys.
- One of the public keys is again encrypted in such a way that only the coins’ recipient knows can decrypt the message.
- The recipient uses a key received in the process to decrypt who sent the coins and how many coins were sent.
- Zcash also includes an additional security step to ensure that users cannot send the same transaction twice.
Private Instant Verified Transactions (PIVX) is a less known cryptocurrency network whose unique aspect is to provide anonymous payments. It also enables swift settlements. It uses a proof of stake system to validate transactions (a system that makes coins not mineable) but instead rewards PIVX coin holders.
How PIVX Provide anonymous Payments
- Uses the same master nodes available on DASH.
Komodo is yet another less known cryptocurrency network with better anonymity than most digital payment networks. Its system of enabling security is similar to that of Zcash zero-knowledge proofs system. Komodo is also designed to enable atomic swaps – a new invention that helps cryptocurrency owners switch cryptocurrencies fast and efficiently.
How Komodo Provide Anonymity
- Uses the Zero-Knowledge Proofs systems, a Zcash invention that hides the details of a transaction. This means that the sender’s address and that of the recipient are encrypted. The amount of Komodo coins sent can also be hidden.
DASH is arguably the second most popular cryptocurrency (after Monero) in terms of providing anonymous transactions. But of late, there have been debates about the network’s ability to provide complete anonymity. Those who argue against DASH claim that an individual wallet’s weaknesses may make the process less secure. However, no one has been able to hack the DASH technology so far and most users say that DASH transactions are anonymous.
How DASH Provides anonymity
- Uses a technology called “Private Send Mixing” that mixes 3 different transactions to make it difficult to tell which payment came from which sender.
There are two major ways to complete payments anonymously: use a cryptocurrency network that provides anonymity or use a simpler coin exchange service such as Changelly. However, research extensively to know which technology works best for your situation.