One of the essential qualities of cryptocurrency trading is how anonymous it operates. People generally like the idea that they cannot be traced when dealing with the market, and perhaps, it is time to review how true this myth is.
During the early period of the existence of crypto, there was no doubt that it was largely anonymous. Many crypto enthusiasts believed this because it hides illegal transactions like terrorism and money laundering. Eventually, as more people began to join the crypto space, the question of how undisclosed the digital currency began to develop.
There are calls from various governments that cryptocurrency trading should have a regulation where it can monitor and eventually discover criminal acts from people who use crypto for the wrong reasons. This move has created the idea that you can trace an individual who makes transactions on the cryptocurrency market. Let us look at the following concepts to see if crypto is genuinely anonymous.
What Is Cryptocurrency?
Cryptocurrency is a word that has been around since 2013 and has ushered in a new era of digital finance. So what makes it different from the local currency? Local money serves as a medium of exchange and store of value, meaning you can use it to purchase goods and services, and you can also save the money with the hope that it will maintain or increase its value.
The government controls and distributes fiat currencies to other commercial banks through the central banks, giving the market to spend, save or invest. However, cryptocurrency stands out because it operates digitally and cannot be accessed except on the internet.
In addition, crypto is decentralised, meaning that there is no central body or individual with the power to control the currency. It also operates in a free market system where the forces of demand and supply determine the value of the money.
How Is Cryptocurrency Anonymous?
Generally, as a cryptocurrency dealer, your identity is secret, and there are digital signatures that serve as the identity of traders during transactions. These digital signatures are a pair of keys that can be used to seal transactions.
Furthermore, the same person can receive the keys repeatedly, creating different identities. However, the blockchain records these transactions on a public ledger with pseudo names.
The use of false names that contains a combination of letters and number does not guarantee total anonymity. As a trader in the crypto space, your address serves as your identity because it links your transactions to you.
Therefore, cryptocurrency maintains privacy but not anonymity. Being anonymous means having no name. However, your crypto wallet gives you a pseudo name with a mix of letters and numbers.
Most crypto users cannot remain anonymous when exchanging local money for cryptocurrency. Before any exchange platform can verify you as a user, you need to tender your personal information to register, primarily for security reasons.
So it is no surprise that government bodies could use transactions data on the blockchain and information from exchange platforms to track individuals.
This mode of tracing has helped the government uncover fraud and money laundering. For instance, a couple was found guilty in New York recently. The Federal Court accused them of conspiring to launder over $4.5 billion in cryptocurrency stolen from the 2016 hack of Bitfinex.
The financial investigators noticed that the couple was transferring the money from the exchange waller into the bank, which led them to trace the transaction to real-life people. According to the crypto experts that headed the investigation, the transparency of the blockchain outlined loopholes in the trade.
Conclusion
This post has uncovered the myth about cryptocurrency maintaining confidentiality during transactions. The blockchain serves as a database for cryptocurrency deals, and most names are a false representation of the real dealers.
Crypto exchanges that own wallets are also regulated companies that conduct “Know Your Customer” research before registering new users. So there is still more room for cryptocurrency development, and as the industry grows, the barriers will reduce.
