Blockchain technology came with a lot of promise, one of them being transparency in transactions. It achieves this through its decentralised nature and yet simultaneously promising anonymity, akin to killing two birds at the same time with a stone. Decentralisation ensures that every transaction made on the blockchain network is publicly available and can be viewed by any user, nonetheless concealing the identity of the transactors.
The ability of the blockchain to conceal the identity of users has remarkably been described by many as ‘anonymity’, a word synonymous with words like confidentiality, privacy, and unnamed. At the inception of Bitcoin users and enthusiasts believed blockchain technology can make users anonymous, a commentator on a Bitcoin Forum put it this way in June 2013
“It’s totally anonymous”
“The FBI does not have a prayer of a chance of finding out who is who”
However, the case of Ross Ulbricht of the Silk Road and an illegal drug sale to the tune of $1 billion was an eye-opener to believers in the anonymity of blockchain. If this was not enough to ruffle users and enthusiast, the asset seizures of Tomás Jirikovsky for suspicious money laundering activities of $40 million of stolen Bitcoins, Trendon Shavers’ $150 million Bitcoin security fraud case, Mark Karpelés’ sleaze of $390 million from Mt. Gox should be enough to raise questions over this ability of blockchain technology to mask user identity with a digital key.
Anonymity on Blockchain Network
Blockchain is an immutable list of encoded record where a user is known as Mimi, for example, is represented by a digital key “2ekifoOfhgSbkdbeJdiwhRI5hfo88udoSP” and a public key “05g9ghk804la7124jdb64abxv78v9z02ahi3ddd62jfo11bnm8gsv5dk95hav5nx”. If Mimi were to transact with Ray, Mimi would share a public address with Ray, resulting in a shared secret i.e Mimi’s private address + Ray’s public address and vice versa. Only the payer and payee are involved in the transaction because the rest of the network has been shut out of the exchange, however, they can check the transactions and hashes back to the genesis block. Any attempts to alter anything data will change the hash value, ultimately resulting in an inability to verify the transaction. Thus, the shared secret provides an avenue for a transaction to be deciphered and enciphered leading to completion of the transaction. This format of digital transaction is said to be cryptographed. This is as simple as it was thought to be.
Many users like Ray and Mimi prefer to be anonymous for various reasons which could be protection from cybercriminals, privacy concerns, protection of a firms secret information, pure criminal intentions or outright liberty from overbearing financial regulations.
Deanonymizing Users on Blockchain
Law enforcement agencies, scientist and technologist beg to differ on the anonymity of blockchain networks (after more than half a dozen convictions, why wouldn’t they!). In September 2015, FBI Assistant General Counsel Brett Nigh made an extraordinary statement
“investigators can follow the money”
The paradox of the anonymity of blockchain transactions is that while providing distributivity in efforts to be transparent, it unintentionally provides a forensic trail, not just any trail – a permanent trail on several nodes. Detectives like trails, trails are leads and it gives them something to follow. For the law-abiding citizens, there is nothing to worry about, but for people who are concerned about excessive regulatory policies and for cybercriminals, this ain’t cheering news.
Researchers, mathematicians, computer scientist and technologist helped create cryptocurrencies, these persons still offer their services to law enforcement agencies by helping investigators to crack cases. In other situations, the government can subpoena a network’s administrator or any person(s) responsible for its smooth operation. A research by a couple Philip and Diana Koshy in 2014 showed vulnerabilities in the blockchain network. They built a software with which they partook in the network, the Koshy’s observed that by isolating single transactions sent out by the network at certain times, they were able to link it to several other transactions, creating a chart of more than 1000 IP addresses. Interpol, FBI and other law enforcement agencies even create fake nodes on networks with which records are stored patiently waiting for exploitable carelessness on a network.
Another tool used to compromise the anonymity of networks are Web trackers and Cookies. Web trackers and cookies leak information from merchant sites to third parties like Bing, Facebook, Google, etc from where vital data like browsing habits, page usage and purchases are monitored and analysed. Sometimes, private information like email address, name and even home address are sent. Law enforcement agents and hackers are persistently on the prowl for information they can analyse. A study led by Goldfeder observed that of 130 businesses that accepted Bitcoin, 53 sent out information to over 40 third parties. This data is sent out for the purposes of advertisement and analyses as claimed, as unintended as it may seem, it’s enough information with which user privacy can be compromised.
How Blockchain is Fighting Back
Since users can be deanonymized by law, mistakes or attacks against a network, it’s safe to say blockchain is pseudonymous as opposed to anonymous. Users are only anonymous until their data is revealed, even misplacing a private key is enough to not only deanonymize a user but also cause the user huge financial losses. However, as cryptocurrency enthusiast, scientist and technologist discover these flaws, several techniques for plugging these loopholes have been devised. Anonymity is one feature attracting participation in cryptocurrencies, a lack of it would be discouraging to intending users. These techniques include single addresses for each transaction as originally proposed by Satoshi Nakamoto in the original paper, mixing whether centralised or decentralised, Darkwallet, Tumblebit and anonymous-centric cryptocurrencies like Zcash, Dash and Monero are some other techniques with which networks are battling to remain anonymous.
As the battle rages on and more drama unfolds; cryptocurrency users and sympathisers, law enforcement agencies, cybercriminals and libertarians all hope the balance tilts in their favour in this interesting circle of uncertainty.