How is Blockchain verifiable by public and yet anonymous?

• Toshendra Kumar Sharma
• July 11, 2018

The blockchain is the next big thing. The prime reason behind this is that blockchain is a highly versatile technology coming with myriads of features making it useful for application in various fields. When we talk about blockchain, then one of the most talked about feature is the anonymity. However, a contradicting statement arises from here, if blockchain is complexly anonymous then how it is verifiable. In this blog, I will be highlighting on these features and trying to find whether it is verifiable and still anonymous?

Let’s start it off- 

Well, we all agree with the fact that blockchain technology always comes together with cryptocurrencies. It is the underlying technology of these currencies, and one of the key characteristics of cryptocurrencies is that it allows the users to perform anonymous transactions.

Anonymity is imperative– When we talk about cryptocurrency transactions then maintaining the confidentiality becomes imperative. This is to ensure the security of transactions which is otherwise not possible in the current system of fund transactions.

Confidentiality- Most of the platforms involve system and method which facilitate the computation which is publically defined but maintains the privacy of the input data.

It is important to understand that anonymity is an important feature of the crypto word. However, with this feature, we also have many raised eyebrows which question the openness of usage. It is true that anonymity of transaction will also bring in many illegal transactions as it becomes difficult to know about the sender. This is primarily because of the continuously changing address of the sender’s wallet. Well, there is much more to this than this statement which I will be highlighting ahead.

How is blockchain verifiable yet anonymous?

We all know that blockchain ledger is public and maintaining anonymity is a daunting task. Thus, we consider Bitcoin pseudo-anonymous. By pseudo-anonymity, we mean that a person will be linked to a public Bitcoin address, but no one will get to know the actual name or address. To explain this in simple words, suppose a person sends a sum of money, then the receiver will get to know that the sender is linked to a bitcoin address but will not know the actual address.  Hence, we say that bitcoin or any other alt currencies are not entirely anonymous. There are various reasons for keeping everything hidden, the primary ones include :

• Company-specific information
• Law-enforcement related issues
• Maintaining privacy

To explain this in simple words, I can say that blockchain.info in its system keeps on chaining the address for a given wallet. This discourages the ability to trace payments done to a particular wallet. Some of the other platforms like Private Instant Verified Transaction (PIVX) makes use of the mixing mechanism to attain anonymity.

Cons–

Whereas on one side the anonymity poses to be beneficial for many, at the same time, this creates a problem. I am talking about Tralfamadore, the new dark-net market. It makes use of Etehreum smart contracts as a new medium working as a crime-as-a-service model. This issue doesn’t end here; people are also using this platform to make extortion attempts via ransomware which demands cryptocurrencies as a payment medium. Some of the major ransomware families like Locky, Petya, and Wannacry—have demanded Bitcoin for payments.

The Bottom Line-

The crux of the matter is that Bitcoin blockchain is public and distributed to nodes. It is verifiable which means that anyone can check all the transactions. However, there is a catch in this; one can get to know that there is a person linked to the Bitcoin address but cannot get to know that each address as explained above. Another point that I highlighted before was that people make use of various methods like mixing mechanism to maintain the anonymity. Decentralization and anonymity is the key for any cryptocurrency transaction; however, with its rising pace, we also witness some points of concern like how far it is good to continue to do the transaction without government control, lack of regulatory authority and maintaining pseudo-anonymity.

With all these concerns, Bitcoin blockchain and other cryptocurrencies continue to grow at a breakneck pace paving the way for a new financial revolution. Yes, it’s true that blockchain transactions are verifiable because you can trace the origin but at the same time it continues to hide the entire details, and thus, it is pseudo-anonymous.