Pseudonymity

Pseudonymity describes shielding your true identity from the public and instead using a fake name or made-up identity.

It isn’t the name of a famous dinosaur!

It actually refers to one of the foundational aspects behind most public blockchains, that being blockchain security.

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.

Pseudonymity is a welcome function of blockchains, as it aids in personal privacy and security while transacting on public blockchains.

Anonymity, on the other hand, prevents transactions and network activity from being linked to anyone. If you are anonymous, your true identity is completely hidden and unknown.

Satoshi Nakamoto is a perfect example of pseudonymity in crypto. Satoshi Nakamoto is the inventor behind Bitcoin, but we don’t know his real name or true identity.

The varying options of user privacy are what many in the crypto industry come to believe as one of the main reasons why cryptocurrencies appeal to so many people.

Users are shielded from having to share personal details with a company or government and can still transact money across borders with anyone, anywhere.

However, that same focus on user and transaction privacy in crypto has become an area of debate in an industry battling illicit activity, con men, and just bad people hoping to hide in the shadows.

The pseudonymous and anonymous nature of cryptocurrencies has resulted in governments and institutions forcing regulations on popular crypto businesses, regulations that eventually trickle down to the user.

Financial regulations in the form of KYC and AML checks are becoming more and more common across cryptocurrency exchanges and other crypto apps and services, taking away the ability to stay private on mainstream services.

Centralized crypto exchanges have become the primary onramps for people moving money into the crypto markets, so it’s easy to understand why regulators are focusing their time and energy on those types of organizations. Decentralized crypto exchanges hope to appeal to a wider audience by offering trading accounts that only need the user to connect their crypto wallet to the exchange to gain access to the exchange’s services. KYC information is not required.

Related Terms

Know Your Customer (KYC)

Regulations imposed by governments and regulatory agencies on financial institutions and services providers that require them to identify and verify their customer’s identities. The purpose of requiring KYC information primarily revolves around complying with anti-money-laundering programs that have been required by banks and other traditional finance companies and institutions for years.

Anonymity

It keeps your identity hidden, you stay anonymous, and allows you to send or receive digital assets with anyone that has a crypto wallet address, anywhere in the world, without a middle man like a bank to question what you’re sending, how much you’re sending, to whom you’re sending it and why.

Polkadot (DOT)

Polkadot (DOT) is an open-source blockchain protocol for cryptocurrencies, dubbed the “blockchain of blockchains”, that allows different, incompatible networks to communicate with each other and share data, using a multichain design.

Geoblock

Geoblocks implemented by crypto services like cryptocurrency exchanges usually block the IP addresses of large collections of users from connecting to their websites or mobile applications. These blocks are accomplished by comparing a user’s IP address to a list of allowed and not allowed IP addresses. IP addresses identify a person’s location in the world, and crypto services can use that information to block specific locations by country, region, state, city, or even just an individual IP address.

Blockchain

Blockchain networks are at the heart of cryptocurrencies. A blockchain is a database, or digital ledger, made up of a series of interconnected blocks containing transaction data created on the network over some period of time. Each block in a blockchain also contains a unique identifier unlike any other block in the chain called a hash. Think of the hash as a fingerprint identifying that block for all other blocks. Distributed ledger technology (DLT) is another name frequently used in relation to blockchains.