Are cryptocurrencies anonymous? Anonymity and privacy are two of the perceived characteristics of cryptocurrency and the blockchain technology. It's a rampant myth that's going around for years, and the primary reason why many are attracted to invest. However, there's more to these claims than meets the eye. Using cryptocurrency isn't complete anoymous, but there are some cyrpto projects that are pseudo-anonymous, and a few that take users' data and privacy seriously.

For years, cryptocurrency and the blockchain techology was advertised as completely anonymous. Bitcoin transactions, as the first cryptocurrency, was marketed as untraceable and anonymous digital cash online. Mailing lists and communities then were abuzz ahout Bitcoin and cryptocurrency, saying that suers can be anonymous, and anyone can assume a different identity. However, as the crypto adoption increases, it becomes clearer that these claims aren't true.

Of the top two biggest crypto projects by market cap, Bitcoin and Ethereum, neither truly allow its users to conceal their identities. And this goes for most cryptocurrencies that aren't as popular. Bitcoin transactions are actually fully traceable. Many experts are saying that it's even much easier to follow the funds on the blockchain. So, why are transactions traceable and what happens to the promise of privacy and anonymity?

To explain crypto's promised anonymity (or lack thereof), we'll need to revisit the basic principle of Bitcoin and most crypto projects. The idea behind Bitcoin or other cryptocurrencies is that it's basically guaranteed by not a corporation, bank, or government, but by a blockchain. The blockchain is a transparent and public record of all transactions. So, by this principle alone, it's difficult to imagine a truly private transaction if all transactions are verified and added by validators, and copied out to thousands of computers worldwide.

Some may argue that the blockchain only records transactions between Bitcoin or crypto addresses. Each transaction record doesn't carry any identifying information like name or address. But a few researchers tried testing the claim if these transactions are truly private and anonymous.

For example, a researcher from the University of California San Diego looked into the issue to discover whether the blockchain indeed offer any form of privacy, or if there's a way to see patterns and get insights about the transactions and its users.

As part of her research methodology, she tried clustering Bitcoin addresses and discovered that sometimes dozens, hundreds or even millions of crypto addresses 'could provably' be shown to belong to a specific service or individual, or even a site on the dark web. From here, she showed that it's possible to follow the money from these clusters and see how the funds move.

Aside from this nature of the blockchain, it's also difficult to establish anonymity and privacy in Bitcoin, cryptos and the blockchain because of the 'Know Your Customer' or KYC policy. Cryptocurrency exchanges are legally required by aUS law to conduct due diligence through its KYC protocol, which means that users must first present proof of identification before they can set up an account or complete a transaction. As such, it's difficult to say that complete privacy and anomymity is possible with Bitcoin, cryptos and the blockhain.

But this doesn't mean that we can't enjoy some form of privacy, security, and anonymity when using the blockchain. Privacy and anonymity are still possible, but the level and quality of anonymity varies depending on the blockchain that you're using. In short, some crypto projects are less private and anonymous, and there are a few that integrate privacy and anonimity in its protocol.

Top anonymous and highly private cryptocurrencies

Bitcoin and Ethereum, the top two cryptocurrencies, are only 'pseudo-anonymous'. In these blockchains, the users get a public adddress that can be theoretically traced back to a cryptocurrency exchange or an IP address through a network analysis, thus revealing the user's identity. If a crypto address can be linked to someone's identity, then there's no privacy in the blockchain.

But if you're really looking for more anonymity and privacy, then there are a few crypto projects that are more anonymous and private. Let's take a look at these top anonymous cryptos and why they matter.

Zcash

Zcash is a privacy-focused cryptocurrency project that's developed from the Bitcoin core code. The blockchain promotes private and secure transactions which rely on a protocol known as zero-knowledge proof which allows encrypted transactions to be validated and confirmed.

On its official website, its developers say that all transactions are encrypted, and the "users' addresses, their transaction amount and memo field are completely private". There are two addresses available for the users: the shielded Zcash address and the transaparent Zcash address. If you use the shielded Zcash address, the transaction history and wallet balance is not traceable. But if you use the transparent Zcash addres, the holdings and all tranactions are publicly available. According to some reports, only 5% of Zcash is stored ysing the shielded address.

Dash

Dash is a crypto project based on the Bitcoin and was launched on January 18th, 2o24 by Evan Duffield. On its first few years of development, Dash focused on speed and fungibility, making it a convenient alternative to fiat money. One of the key features of Dash is the 'Private Send', an option for users to transfer funds anonymously. The blockchain lets you keep your transactions and balance private.

The blockchain's anonymity and privacy are possible through its mixing protocol, which allows private transfers by mixing transactions between different addresses and combining funds, making it difficult to trace a specific transaction. The process is completed in a decentralized network of servers called 'masternodes'. However, not all Dash transactions are done using private send.

Monero

Monero is one of the top cryptocurrencies by market capitalization, and arguably offers the best privacy and anonymity for users. It's a privacy-focused cryptocurrency that's developed on a distributed ledger technology. Monero boasts several privacy-enhancing technologies such as Stealth Addresses, RingCT, and ring signatures to protect the identities of the senders and receivers of Monero. The RingCT or the Ring Confidential Transactions keep amounts private.

Final thoughts

It's difficult to attain a truly private and completely anonymous cryptocurrency and blockchain. The growing regulatory pressure is one of the top reasons why the crypto industry is struggling to promote complete privacy and anonymity. For example, in the US, cryptocurrency exchanges are required to conduct KYC checks. Binance have been in the news lately, and it's now requiring due diligence as part of the onboarding of its users.

But as the blockchain and crypto continue its popularity, some new technology and innovation are introduced that help enhance privacy and anonymity. For example, Ethereum tried offering private transactions through the Aztec protocol. Among the available cryptocurrencies today, only Zcash, Dash, and Monero can lay claim to a tag of 'safe and private' blockchains. Among these three, Monero is considered by many as the most private and secure cryptocurrency. The Monero blockchain relies on several privacy-enhancing technologies such as the RingCT that keep your funds private.

Owen

I write about Bitcoin and cryptos, the latest news on AI and tech, and follow the latest trends in online gambling, including provably fair games. Educator by profession, with a passion for writing.