Is Bitcoin Really Anonymous? – CNET


illustration of a bitcoin

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a few weeks ago, $3.6 billion in bitcoin was seized from a Manhattan couple who were arrested and charged with money laundering in connection with a 2016 hack of Hong Kong cryptocurrency exchange Bitfinex. It was the largest financial seizure in the history of the Justice Department.

Law enforcement went to great lengths to track down the illicit funds, including tracking the stolen bitcoin through a complicated network of transactions spanning multiple countries. It took six years, but the authorities finally caught up.

From the beginning, bitcoin and other cryptocurrencies have been associated with anonymity and privacy. The notion of invisibility with technology was promoted in the 2008 original. White paper introducing blockchain technology through bitcoin.

Because cryptocurrency allows for direct peer-to-peer transactions conducted over the internet, the idea is that only two parties are involved in the activity. No banks, governments or middlemen needed. But considering bitcoin’s bust of $3.6 billion, as well as other recent examplesHow Anonymous Are Crypto Transactions Really?

Bitcoin has now caught up with main investors, and this principle of private transactions has become much more precarious. If this financial activity can be traced, then cryptocurrencies like bitcoin are more pseudonym how anonymous.

To understand how anonymity and cryptocurrency are related, CNET sat down with two blockchain technology experts: Dr. Steven Gordon, who teaches a course on cryptocurrency and blockchain at Babson College; and Feng Hou, head of digital transformation at Marymount University, who works on the implementation of blockchain technology.

This is what they told us.

Are bitcoin transactions anonymous?

No. Bitcoin transactions can be traced, as evidenced by the recent raid in Manhattan, as well as last year’s Colonial Pipeline hack, in which authorities were able to get it back part of the ransom payment from the attackers.

“While there are certain ways that cryptocurrency provides a level of anonymity, keep in mind that no one today can claim 100% anonymity at this time,” Hou said.

How are cryptocurrencies tracked?

the Federal Focus on Crypto-Related Crimes, combined with the increasing sophistication of law enforcement tools to track illicit cryptocurrency payments, means that such transactions are not anonymous. But aside from the increased resources devoted to stopping crypto crimes, there’s a simpler reason why these kinds of transactions aren’t really anonymous to normal Americans.

Cryptocurrency transactions are recorded on a blockchain, which is generally public. At the same time, cryptocurrency exchanges are not necessarily linked to an identity, which provides a bit of anonymity to users. As long as there are select goods and services You can buy directly using bitcoin, in most cases, it must be changed to the local currency to spend it. And converting bitcoin to US dollars, a heavily regulated currency backed by the federal government, creates a distinct paper trail.

“If you want to use bitcoin or any other cryptocurrency to buy things,” Gordon said, “then you’ll probably need to transfer the cryptocurrency to dollars at some point.”

To convert bitcoins to dollars, you generally need to find a company that provides this service, such as a cryptocurrency exchange, money transfer service, or select banks. Companies like these usually comply with the “know your customerprinciples, meaning identity verification is required to use the service. As Gordon said, “Regardless of how anonymous or pseudo-anonymous bitcoin is, services that transfer bitcoin to dollars are not anonymous, and therefore the transaction would not be anonymous “in any meaningful sense”.

How are suspicious crypto transactions reported?

KYC refers to a financial services industry standard that protects against money laundering and other financial crimes. For example, institutions under the Federal Deposit Insurance Corporation they must have a clear relationship with their customers to develop a “customer risk profile,” which is used to identify and report suspicious transactions to authorities.

That means banks and other financial institutions are required to have customers’ personal information on file to be insured. Even though the FDIC does not insure crypto, cryptocurrency exchanges operating in the US have adopted KYC standards. Both base of coins and FTX.US require customers to confirm their identities. It’s also worth noting that the FDIC, along with other regulatory agencies, is looking for new laws for crypto assets.

Is any cryptocurrency truly anonymous?

There are cryptocurrencies that people say they are 100% anonymous. However, any claims of totally anonymous transactions should be treated with skepticism.

“We know that through forensic analysis, we can always get to the bottom of the matter,” Hou said. “So to make this clear, any cryptocurrency that claims to be 100% anonymous, we have to take it with a grain of salt.”