Bitcoin is private, but is not anonymous. Bitcoin is pseudonymous using a public key (a string of numbers called a bitcoin address) to secure transactions. The public key isn’t tied to any identifiable information, although in theory it can be sued to glean information about a person over time.
How Anonymous is Bitcoin?
Contrary to popular belief, bitcoin is not, strictly speaking, anonymous. In fact, it’s pseudonymous; your identity is tied to a fake name (or pseudonym). With bitcoin, this fake name is simply your public key, a long string of numbers which acts as your bitcoin address.
So, on one hand, bitcoin provides more anonymity than other Electronic Payment Systems run by third-parties. Your bitcoin possession and transactions aren’t tied to your real name, your email, or your physical address – only your randomly-generated bitcoin address.
However, bitcoin provides less anonymity than cash transactions in that all of your transactions are publicly available to the entire bitcoin network. In other words, because the transaction block chain acts as a “public ledger”, anyone can readily see the records of all of the transactions that have ever involved your bitcoin address. However, notice that your anonymity isn’t compromised unless someone can connect your bitcoin address to your real-world identity.
Analysis of the Bitcoin Network
The public nature of the transaction block chain means that there is a lot of data available to those looking to analyze the network. Bitcoin public ledger readily provides anyone looking for it with detailed information about both the nature (such as time, values, recipient and sender public keys) and the context (the full history of who owned the bitcoin before and after a transaction) of every transaction ever made.
Because of the availability of this data, it’s possible for intelligence agencies, marketing firms, and even individual researchers to try and glean information about your real-world identity by analyzing the bitcoin network. Hypothetically, network analysis techniques could be used over a long period of time to determine the identity of the person tied to a bitcoin address.