This article is part III in a blog series dispelling the myths around Bitcoin. View the complete series here
When we hit the streets to talk to people about Bitcoin (check out our Crypto Street Pulse videos here) we have literally been told by an interviewee that the only reason he would buy Bitcoin would be “to buy drugs.” Seriously.
There’s a common misconception that Bitcoin is completely anonymous and untraceable, making it a choice payment method for illegal activities on the dark web.
The truth is, every transaction that occurs on the Bitcoin network, or blockchain, is recorded in a public ledger. That record of transactions is open and transparent to anyone who cares to look at it.
The ‘anonymous’ part comes in because the identity of the individual completing the transaction is represented as a unique multi-character address. This masked identity does make Bitcoin somewhat anonymous, but not private, and certainly not untraceable. In fact, due to Bitcoin’s fully open ledger, transactions are increasingly monitored by many governments.
Monitoring the Blockchain
The IRS recently teamed up with four other nations to create an international tax force “to reduce the growing threat to tax administrations posed by cryptocurrencies and cybercrime.” These governments are using what is called forensic blockchain technology, such as that provided by New York based firm Chainalysis, to act as blockchain detectives and track the movement of Bitcoin.
“As Chainalysis software becomes more widely deployed, the number of jurisdictions in which cyber criminals can use bitcoins with impunity will be very limited.” — Warwick Ashford Place
This innovation in the realm of blockchain transaction analysis seems to be partly responsible for the decreased use of Bitcoin amongst criminals. According to a recent article published by Bloomberg, use of Bitcoin by criminals has decreased drastically over the last 5 year from 90% of Bitcoin transactions to 10%.
Privacy Alternatives to Bitcoin
If you valued complete privacy, that’s where privacy coins such as Monero, Cloak, Dash, or Z Cash come into play, which truly are anonymous and untraceable. These ‘privacy coins’ use varied methods that leverage their blockchain networks to further mask the identity of senders and receivers of transactions.
So sure, shady people can use Bitcoin if they want to, but its not likely to disguise their shady activities from the multitude of government agencies who are closely monitoring the Bitcoin blockchain. Turns out cash is far more untraceable and probably better suited for illegal activity than Bitcoin.
But why are these government agencies bothering to monitor Bitcoin transactions if you can’t even buy anything with it? The next article in this series will discuss the misconception that Bitcoin is useless as a useable currency and share what you can actually buy with Bitcoin right now — but why you might not want to!
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In case you missed it, the full series of Bitcoin downsides turned upside down is available here.
If you are new to Bitcoin, or just finally ready to take the plunge, our free training will show you everything you need to know to purchase your first Bitcoin. Included are tutorial videos and accompanying written instructions so you can feel confident!