Bitcoin is anonymous. A myth that many still believe. But this is simply not true, since we already know that Bitcoin itself is not anonymous, but pseudonymous. What does this mean for the people who would want to use Bitcoin in an anonymous way? Is there any solution?
Bitcoin is pseudonymous
Bitcoin is very much transparent. In fact, it is much more transparent than any bank ledger or government ledger and on top of it, can be verified by anyone. Yet, there are tools and techniques that can help any sovereign individual to start using this global monetary network without anyone else knowing about their whereabouts.
Can Bitcoin be thought of as anonymous? There are two different ways how one can look at it, but Bitcoin as such is not anonymous. It can become anonymous with the use of some tools, but on its own, Bitcoin is not anonymous. Then why do people think about it as anonymous?
Because at the first glance, it looks like Bitcoin is anonymous since there is no name attached to the receiver and the sender. There is only an address in the form of a long string of letters and numbers. Yet, Bitcoin is pseudonymous, which means that there are some details or data from every transaction that are recorded. These are for instance the transaction fee, the transaction size as well as the addresses of the receiver and the sender.
And here is the main confusion point for most people who are not knowledgeable about Bitcoin. While the addresses of both the sender and the receiver look like long strings of numbers and letters, they in fact represent a wallet or an address. And if this wallet is connected to your real identity, this means that your bitcoins are not anonymous. It is basically like having a bank account linked to you.
To put it simply, if you have ever done a KYC verification on any cryptocurrency exchange and then bought bitcoins with this address, unless you use some form of private or anonymous tools, which we will talk about later, these bitcoins are connected to your identity. This means that they are easily traceable.What can you do once you buy Bitcoin through KYC exchange?
CoinJoin as one of the privacy tools
Maybe Bitcoin in itself does not have the power to be completely anonymous. However, there are people who want to have their financial freedom as well as financial privacy under control, who will be described later. What is important to acknowledge here is that everyone has a right for financial privacy, not only those special groups of people mentioned in the intro.
Bitcoin can become this tool, especially if there are other softwares or features used. One of these tools is CoinJoin. CoinJoin is a type of anonymous transaction that helps Bitcoin users enhance their privacy, through multi party transactions. Thanks to this, the ambiguity of this process makes sure that no one knows who owns which output of the transaction.
What CoinJoin does is simply mix all the inputs and outputs, so it is not clear who is the end receiver of the transaction and who was the sender of that given transaction. This is done by pooling the bitcoins together and then redistributing them randomly to the receivers solely based on the amount they should receive.
This ensures that surveillance analytics companies such as Chainalysis have it more difficult to track the on-chain transactions of people, giving the anonymity right to the hands of the people that need it the most.
Whir – CoinJoin on steroids
Whir is a new, simple and fast way of how anyone can send their Bitcoin transactions without the fear of being traced back to them. Whir is completely anonymous, as it does not require any KYC or ID proofs and provides a service with the discretion of its clients in mind.
Currently, the service works very similarly to some CoinJoins, but it has a little twist. You do not need any special wallet or address to use Whir. You simply generate an address from the Whir website and use it to send the transaction to whoever you need, just like you would in any Bitcoin transaction, but now with complete anonymity. As of now you can use this service to send from 0.001 BTC to 1 BTC.
Moreover, Whir does not need any accounts or logins, does not track IP addresses or uses and tracking script and for those, who would want to go a bit further into security and privacy, Whir offers a Tor version as well. Thus, this project shows that it has the privacy of the Bitcoin transactions at its core as one of the most important goals.
This is also portrayed through the transaction fees that Whir charges. As of now, Whir charges 1 % of the transaction flat, which means that you do not need to go deep into your pockets to improve the financial privacy of your Bitcoin stash.
Who can benefit from this?
Anyone can find a reason as to why they educate, invest or build their business around Bitcoin. Thanks to this, Bitcoin has the power to help people all around the world and has attracted the attention of hundreds of millions of people in its short history. What are the reasons why Bitcoin is used by people all around the world?
While some tend to mostly look at it or invest in it for the possible gains it provides, others are looking for more fundamental value that can significantly improve their lives. The potential price rise is not that important for people who are struggling with the current financial system and its inclusion.
Billions of people all around the world are living under oppressive governments, dictatorships and corrupted leaders are one example of that. These people can have a really difficult time with inclusion in the financial world for several reasons. For instance, some of them may lack a KYC or an ID document that is needed for verification to open a bank account. These people are unable to function properly if they cannot transfer money.
Others, who are openly disagreeing with the regime that is in the jurisdiction they live in and they try to change it or oppose it, might be under heavy control and surveillance of the government. The activists and freedom fighters can have a tough time fighting or defending what they believe is right, if they are unable to use the financial system. Thus, they would need a tool that gives them an option to freely transfer wealth without anyone being able to stop them.
There are people all across the globe, whose job is very dangerous. Investigative journalists for example can have an incredibly difficult time on their travels when it comes to finances and money. Moving all the time as well as being often very close to people that do not want anyone to get close can lead to serious threats and dangers. These people would need to be very careful about how they spend their money or how they move it around.
Moreover, there are people all over the world who are very conscious about their privacy. This also means that they are very careful with their financial privacy and the freedom to transact. Without this, it is very difficult to transfer any value whatsoever. These people tend to be very careful about their digital whereabouts and try to keep their identity for themselves, which in the world of KYC banking system can be immensely hard.
What do all of these, and many others have in common? They show that there is a need for a monetary network without the need for third parties. For a system that works automatically, but most importantly equally for everyone and anyone who needs to transfer value across time and space.
But there is one more important factor. And that is privacy. For most of the problems that these people or groups of people can have, there needs to be a solution that keeps them anonymous and private so they can continue doing what they need to do.
And Bitcoin in combination with tools such as Whir, can help these, and many other people, to become part of the financial world that they were so far either intentionally or unintentionally excluded from. Nothing more than a mobile phone with internet connection is needed for that, which is one of the main reasons why Bitcoin is attracting so much attention.
Conclusion
Bringing all of this together leads to one simple solution. Bitcoin transactions over Whir are more private and secure for a reason. Whir as such solves issues for countless different groups of people all around the world, which can have various incentives and needs when it comes to financial privacy.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.
