There is a common misconception that Bitcoin is a completely private form of payment, free from tracking. However, if you look a little closer, you’ll see that this digital currency reveals a lot more information about you than you think.
Bitcoin transactions are public, traceable, and permanently stored on the Bitcoin network. A Bitcoin address (public/receiving address) is created privately by each user’s wallet and is the only information used to determine where bitcoins are sent. However, once an address is used, it becomes marked by the history of all transactions it has been involved with. Anyone is then able to see the balance of said address and all past transactions linked to it. Since users usually have to reveal their identity in order to receive services or goods, Bitcoin addresses do not remain fully anonymous.
There are, however, ways in which to further protect your privacy when using Bitcoin. Let’s take a look below.
GENERATE A NEW ADDRESS
You don’t need to use the same address each time you receive Bitcoin. In fact, you should make sure you use a different address for every Bitcoin transaction you receive. You can also use multiple wallets for different purposes. This allows you to isolate each of your transactions so it isn’t possible to associate them all together. People who send you money cannot see what other Bitcoin addresses you own and what you do with them.
DON’T PUBLISH YOUR ADDRESS PUBLICLY
Publishing your Bitcoin address on a public space such as a website or social platform is not a good idea when it comes to staying private. If you do so, any funds you move with this address to one of your other addresses will be publicly tainted by the history of your public address. Anyone that has access to your address will be able to see all transactions relating to that address using a blockchain explorer.
HIDE YOUR COMPUTER’S IP ADDRESS
Because the Bitcoin network is a peer-to-peer network, it is possible to track transactions' relays and log their IP addresses. Full node clients relay all users' transactions just like their own. This means that finding the source of any particular transaction can be difficult and any Bitcoin node can be mistaken as the source of a transaction when they are not. You might want to consider hiding your computer's IP address with a tool like Tor so that it cannot be logged.
MIXING SERVICES
There are online mixing services such as Coinjoin that offer to mix traceability between Bitcoin users by receiving and sending back the same amount using independent Bitcoin addresses. Of course, such services require you to trust the individuals running them not to lose or steal your funds and not to keep a log of your requests. Make sure you do your research to understand the risks/benefits associated before working with such services.
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