Many crypto critics treat digital assets exclusively as a tool of scammers and criminals since they mistakenly consider them completely anonymous. In fact, cryptocurrencies like Bitcoin and Ethereum are pseudonymous. This means that by default, the address owner is unknown. However, as soon as the user somehow reveals his identity, for example, uses an exchange for withdrawing funds, where he passed the verification procedure, his transactions can be monitored. In the same way, it will be possible to find other wallets belonging to a person because coins are usually sent between them several times. Nevertheless, it is still possible to maintain privacy using cryptocurrency.
Disclaimer: the purpose of privacy, in our understanding, is not to promote crime but rather to increase the security and freedom that today’s Internet users are deprived of.
Blockchain Is a Glass Safe
Blockchain is called a “glass safe,” where all transactions are under lock and key, but at the same time in plain sight. Everything we do on the blockchain can be observed and analyzed without much effort. Let’s say Bob sends Alice 10 ETH. Now he knows the address of her crypto wallet. He can visit one of the analytical resources, Etherscan, and find almost all the information about her financial life. How much and when she gets, and how much and whom she sends. For the convenience of the curious, there is even analytics that shows when there was a maximum and minimum in the wallet. And the cherry on the cake — he can leave comments on Alice's wallet if he wants to discuss with Alice the expediency of her purchases.
Who personally, and especially which business is ready for such openness? The state, banks, and social media have already removed privacy with universal permission. In the blockchain, it does not even need to be taken away — it simply does not exist. The blockchain is completely open, and everyone can conduct an analysis. And to connect a specific address with a particular person or company, it is enough to find one transaction performed on the wallet of someone who can identify the payer. For example, when transferring cryptocurrency to a PayPal account, it will not be difficult for the latter to analyze the transaction history and understand what else their client paid for.
Moreover, the international KYC and AML requirements oblige users of a payment system or an online cryptocurrency exchange to disclose their identities and confirm them by sending documents. As you understand, this also does not contribute to privacy.
Therefore, not everyone realizes that cryptocurrency is not capable of providing the necessary level of privacy by itself.
However, although blockchain transactions are freely available, it is still possible to maintain your privacy.
Ensure you always follow these essential things to protect yourself in crypto.
Some users believe that to use a VPN, they need to have specific technical skills. In fact, this is not the case — most Virtual Private Network services have a user-friendly design and allow you to activate all functions in just a few clicks.
There are a vast number of both paid and free VPN services. You have to decide for yourself whether you are ready to pay for a VPN, but it should be noted right away that you should always pay for quality. Free VPN services may not work due to a large flow of users, low speed, and a limit on the amount of traffic, but most importantly, they can monitor your actions and sell your data.
Use a Separate Email
Most crypto exchanges and services can be used without providing personal data. For example, Binance sets a withdrawal limit for accounts with unidentified owners of 2 BTC per day. However, you still need to sign up and provide your email to use the service.
If you have only one email via which personal and work correspondence passes, so when it is hacked, hackers can cause severe damage to both your reputation and financial situation. It is safest to allocate a separate email for crypto needs. Do not forget to come up with a complex password.
Don’t Use the Same Crypto Address
More than half of all cryptocurrency transactions go through wallets that have ever been in use. Recall that the cryptocurrency blockchain is open to everyone. If someone manages to associate one of the addresses with a specific person, then the attackers will have a whole history of moving funds of a particular person.
Creating a new Bitcoin address is free, it can be done in less than a minute. Don’t refuse this point and save your own privacy. However, remember that the choice of a crypto wallet should be approached with special caution. Use non-custodial services that do not have access to your private keys, such as SimpleHold.
Keep Your Passwords in a Safe Place
Where do you store your seed phrases and passwords? Are they written out on paper, separated, and located in safe places? Or hidden in a .txt file on your computer? You will probably be surprised, but many people prefer the second option. And in vain — getting to digital files is much easier than breaking into your house and looking for hidden notes with cherished combinations.
Use Crypto Mixers
A crypto mixer is a website or application that accepts coins and mixes them with various others. They have been successfully used for several years and effectively cover routes. The principle of operation is simple — the service accepts the cryptocurrency from users, then uses algorithms to mix and send coins to different wallets. Since transactions are mixed, such a service has a name — mixer. After the mixing is completed, the coins will be returned with a service fee deduction. This fee usually depends on several factors, including the number of mixes and the number of coins sent.
Use Private Cryptocurrencies
In 2014, the private cryptocurrency Monero was launched, and in 2016 Zcash. They make it impossible to track transactions and determine who sent how much and to whom. The only thing that can be seen is the proof of the transfer in the wallet, visible only to two transaction participants. Dash and Verge, launched in 2014, are also considered private cryptocurrencies. However, they do not provide actual data privacy, as all information is available to so-called Masternodes.
As it is not difficult to analyze, Monero remains the leader among private cryptocurrencies and has the largest community. However, the coin is often criticized due to slow transactions and the complexity of mining.
In 2016, a new elegant solution appeared — the Mimblewimble (MW) protocol. In 2018-2019, two new coins based on Mimblewimble entered the market — Grin, and Beam, and more recently, the old man Litecoin also adopted MW. Mimblewimble is a protocol, in the best cryptographic traditions, published under the pseudonym Tom Elvis Jedusor, that provides anonymity and high scalability, confirming transactions without the need to store the entire history of the chain. In addition, Mimblewimble lacks the very concept of an address on the blockchain. Instead, miners ensure that no new coins are created during the transaction at each transfer of funds between users and that the parties performing the operations have confirmed ownership of their coins using private keys.