What is Bitcoin Anonymity? How is it achieved?
Bitcoin is a permissionless distributed system, where users do not need to set up an account or require any email address, user name, or password to log in to the bitcoin network. Instead, they will use the public key-based cryptosystem, generate public and private keys, and add these keys to their wallets.
The bitcoin address is used for transactions, not the user name or identity. These are some anonymous addresses through which the user performs all the transactions. However, others will not be able to guess who is the actual user. And a single user can have more than one address as well.
A bitcoin address mathematically corresponds to a public key based on the digital signature algorithm (ECDSA) used in bitcoin. It is like the generation of the hash of the public key along with other operations. There are multiple versions of bitcoin addresses; different addresses apply a different set of operations.
The board idea is that the user has the public key, and applying a 160-bit hash algorithm (RIPEMD160) on the public key, the bitcoin address is generated. Each person can have many such addresses, each with its own balance, and it isn’t easy to know which person owns which account. This particularly provides the anonymity of bitcoin transactions. The bitcoin network user can always see the transactions inside the blockchain but no way to identify the corresponding user.
References:
- NPTEL lecture series on Blockchains Architecture, Design and Use Cases by Prof. Sandip Chakraborty, IIT Kharagpur.
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