Last updated on March 18th, 2015 at 10:39 am
One of the main features people usually link to Bitcoin is anonymity, but is Bitcoin completely anonymous ? On the one hand, it is entirely anonymous. On the other, it is completely transparent and trackable since all transaction are recorded in a public ledger.
Bitcoin is what you’d called pseudonymous. Sending and receiving bitcoins is like writing under a pseudonym. In Bitcoin, your pseudonym is the address to which you receive Bitcoin. If your address is somehow linked to your identity it’s exposed.
Since all transactions on the Bitcoin network are recorded on the Blockchain people will now be able to know the amount of Bitcoins you own on this address, which addresses sent you money and which received money from you.
If for example you’re requesting donations on your website with a specific Bitcoin address – that address is no longer anonymous.
So what can you do to remain completely anonymous ?
First it’s best to use a new Bitcoin address for every transaction you conduct. This is a good start although this won’t guarantee complete anonymity. This is due to the fact that if you use multiple inputs for a transaction and one of these inputs comes from a compromised address – all of your input addresses will now be exposed.
For improved anonymity you should use multiple wallets. This can be done through tools like MultiBit which allow you to manage several wallets from the same client.
Creating a new change address for your inputs can also improve anonymity as a new address will be created once you get back change from payments you’ve sent. This featured is supported by the Bitcoin Core client for example.
SharedCoin, supplied by Blockchain.info, mixes your Bitcoins with other users’ coin so that it’s harder to analyze the history of the coins.
Additional less conventional methods include hiding your computer’s IP address and using mixing services which trade out your bitcoins for ones with a different history.
Source for composing this aritcle – BitcoinSimplified