How Blockchain Analysis Groups Jeopardise Your Online Anonymity

Cryptocurrency has changed all the spheres of our life a lot including not only finances, but also data sharing, internet communications, services and many others. Now we deal with the completely new world that has almost now limits and grows exponentially with every hour!

This new market has undergone a series of difficulties, just like any other financial system. This newborn space created a huge number of new powerful investors. The majority of them believes that Bitcoin, Ethereum and other cryptocurrencies leave no trace in the internet, and that is one of the main reasons why they use them. However, they are wrong. Frankly speaking, any cryptocurrency has nothing with confidentiality. All these users have to deal with pseudonymity.

Imagine that you wear a mask when you stroll around the town. The same effect is offered by “pseudonymity”. Behind the mask, you are safe, but at the same time anyone is able to tear this mask from you with one sweep. The same is with your Bitcoin: your holdings wear a mask of a public address that is linked with the wallet, and with you. It is simple to find out who is the keeper. 
This public address keeps all the history of transactions made with your Bitcoin during the time you use that very wallet. It is traceable up to the initial exchange service you used to buy Bitcoin on fiat (the currencies issued by the country government). For making such a purchase, you had to provide all the personal data, as it was required by the KYC and AML rules aimed at user identification and anti-money laundering.

After the verification, you got an access to Bitcoin transactions, which include sending cryptocurrencies to your wallet. However, even users who keep all their Bitcoin on their exchange service accounts without sending them off to any wallets fall under the same rule: the history of all the transaction is kept on the blockchain and can be seen by anyone. 

To keep a long story short, your personal data is already bound with your pseudonymous wallet IP address. The only thing that masks your wallet is its public address. The whole system seems confidential until the moment you understand that there is a profound blockchain analysis, which tracks all transactions and records their data. 

Many companies and services have managed to develop tools and schemes of highly sophisticated blockchain analysis. We are talking about Blockseer, Chainalysis, Elliptic and others. Their specialty is to collect and analyze blockchain transfers using different complicated algorithms, which search for trends and links between IP addresses with the aim to find connections and uncover the persons who stand behind these transactions.

Recently, Chainalysis has informed the public that they had to let the IRS, the American tax agency, use their service for the identification of suspected tax cheats and fraud offenders who use Bitcoin to hop the stick and tax payments. Based on this information, we can assume that such a cooperation is not an exception, but a common practice in the cryptocurrency world.

Now, there are a few tools, which can help you keep your personality safe from the others. One of them is a Bitcoin mixer. Such services help their users brake the connection between your wallet with personal information and all the cryptocurrency services you use. The link between your old and new addresses is broken, and it becomes impossible even for the most sophisticated algorithmы to detect your Bitcoin transactions. The history of your operations will be even safer, if you start using end-to-end encryption and VPN to cover the traces in the internet.