As I hang out with a large circle of liberty minded people the topic of Bitcoin comes up frequently. Generally there are two schools of thought when it comes to Bitcoin; the school that believes Bitcoin is our salvage from government controlled money and the school that thinks Bitcoin is a fad that will die out soon enough.
Although I find many things to like about Bitcoin anonymity isn’t one of them. People often tout Bitcoin as being anonymous and state that as a huge plus. The problem comes from the fact that every Bitcoin transaction ever made is forever stored in the Bitcoin network. This means if somebody is able to tie a Bitcoin wallet ID to a person they could begin the process of tying other walled IDs to people. This can be done pretty easily through data mining (or, if the first wallet ID was discovered through computer access, potentially looking through the user’s Bitcoin address book).
Well somebody finally did some experimentation and demonstrated what I’ve been saying:
Anonymity is not a prominent design goal of Bitcoin. However, Bitcoin is often referred to as being anonymous. We have performed a passive analysis of anonymity in the Bitcoin system using publicly available data and tools from network analysis. The results show that the actions of many users are far from anonymous. We note that several centralized services, e.g. exchanges, mixers and wallet services, have access to even more information should they wish to piece together users’ activity. We also point out that an active analysis, using say marked Bitcoins and collaborating users, could reveal even more details. The technical details are contained in a preprint on arXiv. We welcome any feedback or corrections regarding the paper.
Arguments about the merits of Bitcoin as a competing currency to currently government controlled monies are still relevant but please stop claiming the advantage of anonymity. If you want the most anonymity in your transactions use physical commodities. Any electronic currency system needs to ensure transactions are valid in order to prevent counterfeiting, and thus devaluation. The only way to do this is to know the entire history of each monetary unit which necessarily involves keeping records of every transaction. As transactions occur between individuals some method can always been used to tie a specific monetary unit to a particular person.
Physical commodities aren’t reproducible without physical effort which negates the need to have some kind of record of every transaction that commodity has been through.