Bitcoin anonymity is more fragile than many believe, according to a research analyst at Frost & Sullivan.
As a decentralised cryptocurrency , which means transactions are encrypted and there is no central authority or issuer like a bank, Bitcoin is favoured by the politically oppressed, the criminal underworld and technophiles suspicious of traditional banks.
But the evolution of blockchain analysis – the piecing together of transaction details to reveal details of otherwise obscured transactions – and regulatory changes sought by numerous governments could expose the identity of users of the peer-to-peer digital currency, says Vijay Michalik, research analyst for digital transformation at Frost & Sullivan.
Lw enforcement can deploy blockchain analysis, which collects metadata, incidental information linked to transactions and IP addresses and establishes common connections, to identify and blacklist criminals.
Seeking to undermine the financial activities of terrorists and criminal gangs many governments are seeking to ban end-to-end encryption, which is also used in popular consumer software like WhatsApp or Apple’s iMessage.
Threatening the currency’s anonymity, which many of its advocates would actually like to see strengthened through protocol changes, such a move would weaken the currency’s appeal. Some civil liberty campaigners defend the anonymity principle on the grounds that Bitcoin serves as a safe haven from oppressive governments for political dissidents.
“True anonymity in Bitcoin is only a myth, currently,” says Michalik. “There is full visibility of all transactions.
“While they’re only linked to a pseudonym and not a real-world name or address, every transaction is viewable through a number of different blockchain browsers.”
As Blockchain analysis techniques improve, Michalik believes, swathes of addresses could be de-anonymised over time, exposing hitherto hidden financial information to the public – and government – gaze.
“For most users, income and complete spending history would be available for anyone to see, from friends to colleagues, commercial businesses, governments and criminals,” continues Michalik. “For businesses operating in Bitcoin, cash flow, supply, demand and other competitive information would be exposed to their rivals.
“In this case, Bitcoin is a worse option than traditional finance channels.”
Listen to the IFSEC Insider podcast!
Each month, the IFSEC Insider (formerly IFSEC Global) Security in Focus podcast brings you conversations with leading figures in the physical security industry. Covering everything from risk management principles and building a security culture, to the key trends ahead in tech and initiatives on diversity and inclusivity, the podcast keeps security professionals up to date with the latest hot topics in the sector.
Available online, and on Spotify, Apple Podcasts and Google Podcasts, tune in for an easy way to remain up to date on the issues affecting your role.
