Anonymity in Crypto

Busting the Myths

Monero.org Lumi Blockchain Wallet

Anonymity is one of the fundamental characteristics that drew people’s attention to cryptocurrencies in the first place. Not because we all want to buy illegal stuff online or dodge taxes. The majority of crypto users simply want their private lives to stay, well, private.

However, it’s not that simple. Although Bitcoin and other cryptocurrencies do offer a higher anonymity level comparing to, for example, VISA, they are not completely invincible.

Unless you step up your cautiousness, don’t expect untraceable transactions.

What Compromises Anonymity

The moment you want to convert crypto to fiat and back, major problems emerge. Local authorities monitor the work of all businesses, including exchanges and other financial organizations very thoroughly. Regulators oblige them to implement KYC and AML procedures. The aim behind these policies is to make sure your identity as a customer will be checked, and then double and triple checked.

KYC, aka Know Your Customer, can vary depending on the company’s general approach to the whole regulation situation. The normal check can become even stricter if something about your background looks suspicious or risky. Or if you plan on transferring a big amount of money.

So when you want to purchase your very first BTC or ETH on a well-established crypto exchange, prepare, at the very least, to send them a scan of your ID. You may be also asked to send a selfie, holding your ID, or even pass a video interview.

Once it’s done, your identity is no longer a secret and the government (or whoever regulates such things) can trace all your transactions back to you. This can easily be done if you do not use different public keys for different transactions.

The first rule of safety is pretty simple: one address (or one public key) for every different transaction. For this, use only HD wallets, which automatically create a new address for each new transaction.

But, apparently, creating multiple addresses in some cases may still not be enough for a perfectly untraceable transaction.

When you receive BTC (works for all the other crypto) from different addresses and after someone decides to pay someone in BTC, your wallet compiles the transaction by pulling BTC from different addresses and uses these addresses as inputs.

What does this mean?

Read more about it on our blog!