Chapter 5:
Bitcoin and Privacy
Section 1: Understanding the Pseudonymous Nature of Bitcoin
Bitcoin is often described as pseudonymous rather than anonymous. While Bitcoin transactions don't directly reveal personal identities, they are recorded on a public ledger called the blockchain, which is accessible to anyone. Here's a closer look at the pseudonymous nature of Bitcoin:
- Pseudonymous Transactions: In Bitcoin, users are represented by cryptographic addresses rather than their real-world identities. These addresses are randomly generated and do not directly disclose personal information. However, transactions can be traced back to these addresses on the blockchain.
- Address Reuse and Linkability: One challenge to privacy in Bitcoin arises from address reuse. If a user reuses an address for multiple transactions, it becomes easier to link those transactions together, potentially revealing a user's spending habits and patterns.
- Transaction Graph Analysis: Sophisticated techniques can be employed to analyze the blockchain and infer relationships between addresses. By observing transaction patterns, such as common inputs or outputs, it is possible to make inferences about the identities or activities of certain users.
