Cryptocurrency has hit a big goal – wide-spread media attention. Mass awareness, which most investors are hoping is just the precursor to mass adoption. Convincing people to ditch their traditional banks for a digital wallet however is a whole new hurdle. One of the biggest topics that most potential newcomers raise is ‘anonymity’. Here, I am going to give a beginner’s introduction to the anonymous nature of cryptocurrency.
Bitcoin was, for a long time, a popular form of currency for illegal transactions on the deepweb. This is because it was impossible for anyone to link an account to an individual person, thus transactions were anonymous. And since anyone can create an account without a third-party, there would never be any records to dig up. This is still the case today, but now with more and more ways to (legally) spend your coins.
When you setup your own digital wallet, whether through a website or a device such as a Ledger, you are creating your own unique private key. This key allows you to access your coins, which are stored on the blockchain. This is also the address you provide when you want to receive coins or tokens, and this is where anonymity is potentially surrendered. The very nature of blockchain technology (and what makes it so robust) means that every account and every transaction is recorded on the chain.
If someone were to know or find out YOUR unique address they could, very easily, visit etherscan and look up your account. They would know exactly how many coins your hold, their USD value and every transaction in or out that you have ever made. This is, understandably, where some people turn their noses up.
Due to this, privacy coins and privacy protocols are becoming more and more popular amongst the crypto community, with Ethereum adopting privacy solutions in future updates and coins like Monero and Zcash offering anonymous transactions.
Purchasing crypto the standard way requires registration and ID verification with one or more of the major cryptocurrency exchanges such as Coinbase, Binance and Bitfinex. They ask for very thorough validation so it can leave some people feeling a little vulnerable and naked after submitting sensitive information to an online entity.
For more anonymous ways to purchase crypto you would be looking at peer-to-peer exchanges such as LocalBitcoins, where buyers and sellers are linked up to each other on an individual basis. No names given, just a record of the transaction on the blockchain. In some cases they will even facilitate meet-ups for a physical exchange although most would not recommend this for obvious reasons.
Bitcoin ATMs, which are exponentially popping up all over the world, are also a viable alternative to online exchanges. They still require the use of a credit card or debit card, which would be registered in your name, but there is no registration process and no ID verification.