Bitcoin May Not Be So Anonymous, After All

Bitcoin is many things to many people. To some anarchists, criminals, and their antagonists in law enforcement, it’s primarily seen as a way to conduct financial transactions in private. To others, it’s also a volatile commodity for brave-hearted speculators and an increasingly efficient method to send money back and forth. The Bitcoin Foundation, which went on Monday to meet with regulators in Washington, would like to focus on the last point. The regulators care about how they can smoke out criminals.

That may be easier than it seems. Academics have been working on techniques to track Bitcoin transactions and—like many ostensibly private activities on the Internet—the transfers are vulnerable to tricks. While Bitcoin is regularly described as anonymous, it is more accurate to describe it as pseudonymous. Every transaction is stored in a public record called a block chain, with information on the accounts involved and the number of Bitcoins exchanged. This is a necessary part of the structure; analyzing these transactions is how the system makes sure that people aren’t using the the same coins over and over. While Bitcoin is not as transparent to regulators as credit-card transactions, it is much more so than cash. “Policymakers would never seriously consider banning cash,” (PDF) argues Jerry Brito, director of the technology research program at Mercatus Center at George Mason University, who attended the meetings in Washington.