Anonymity

Anonymity in cryptocurrencies allows you to send and receive digital assets without having to give up your real identity to the party on the other end of the transaction, whether you’re the sender or receiver of funds.

When you open a traditional bank account, you’re required by the bank to submit identity verification information like your name, social security number, address, and possibly a government-issued ID.

Outside of centralized crypto exchanges (CEX) which have the same type of Know Your Customer (KYC) identity requirements and identity verification as banks, you could send a crypto payment to another person without ever having to share any of that information with that person or crypto service you’re using to make the payment.

Only the two parties involved in a transaction might know who is on the other end of a transaction.

Your identity stays hidden, you stay anonymous, and the digital assets are sent to anyone with a wallet address, anywhere in the world, without a middle man to question what you’re sending, how much you’re sending, to whom you’re sending it and why.

While your identity does stay hidden, not everything about the transaction is anonymous and hidden.

Due to the public and permanent nature of most blockchains, the transaction itself is stored online, “in the cloud”, on the blockchain, forever, for anyone to see.

Transactions details are visible, such as sender and receiver addresses, what was sent, how much, at what time, how much it cost in fees, and how long the transaction took to verify, but the identities of the address owners are hidden.

Every transaction a wallet address makes is visible to the public.

This level of transparency is what makes most cryptocurrencies pseudonymous as opposed to completely anonymous.

The anonymous nature of cryptocurrencies, while not perfect, was still one of the early use-cases for early adopters on the Dark Web.

Related Terms

Pseudonymity

In blockchain security, the pseudonymous nature of certain blockchains keeps a network user’s identity hidden from other network users while still linking all of the transactions made by that person to a pseudonymous identity that CAN be tracked by almost anyone.

Desktop Wallet

A common type of crypto wallet used to securely store and manage your private keys on a computer hard drive. They’re considered more secure than web-based wallets, since you can only access them from wherever your computer is located, and again, you control your private keys.

Wallet

Made up of a unique public address called your public key (similar to your bank account number) that you can share with the world, your friends, family, and other businesses and companies that you trust, to send and receive digital assets. A wallet also stores a private key (much like the PIN that you use to access your bank account at the ATM), which, when combined with the public key, confirms ownership of the wallet, and allows you as the wallet owner to view the digital record of your wallet transactions, and allows you to perform actions such as buying, selling, withdrawing, and swapping funds.

Hardware Wallet

A type of cryptocurrency wallet that’s based on a physical device, such as a USB thumb drive with buttons and a screen, that stores your private keys to your cryptocurrency funds. A hardware wallet is considered a cold wallet in that it isn’t connected to the Internet, keeping your wallet (and wallet funds) away from hackers and theft.

Software Wallet

A form of cryptocurrency wallet that’s based on software, so installed as a mobile app or accessed via a website, or installed as software on a desktop or laptop computer. The software itself stores your private keys that are used to access your cryptocurrency funds.