What Exactly Are the Differences Between Pseudonymous and Anonymous Transactions?
The invention of cryptocurrencies comes with the original intention to make transactions untraceable to both the sender and the recipient. This motive is not intended to promote fraud but to create a financial independence where interference by government agencies would be reduced or eliminated.
The drive towards anonymity was supposed to prompt confidence in financial dealings and to remove the complications attached with revealing one’s identity in making payments.
This original intention has raised a lot of questions over the years as to whether transactions involving Bitcoin – The pioneering cryptocurrency is actually anonymous and a clear answer now exist to validate this claim.
The Pseudonymous Nature of Bitcoin
Bitcoin is often described as an anonymous currency because it is possible to send and receive bitcoins without giving any out any of your personal information. However, achieving reasonable anonymity with Bitcoin can be quite complicated and perfect anonymity may be impossible.
The reason for this is because every transaction made by every bitcoin wallet address is stored permanently on the blockchain giving rise to the possibility of tracing a transaction to the initiator and or recipient.
As of today, bitcoin is pseudonymous that is the complete anonymous status. Infact, in the original Satoshi Whitepaper, a recommendation was given by the developers to users to use different wallet addresses for transactions so as to maintain a predefined level of anonymity but this recommendation has proven ineffective over time.
Anonymity of Cryptocurrencies
Following from the inadequacy of bitcoin to shield the identity of users as well as the record of transactions.
Cryptocurrencies such as ZCash and Monero are able to fully anonymize transactions through the use of added cryptographic features such as zero-knowledge proofs and coin mixing, which enable transactions to be verified as correct without anyone knowing information about the transactions themselves, such as the token holders and amount of cryptocurrency being transacted.
Any difference between Pseudonymous and Anonymous Transaction
Yes, there are some core noticeable differences between this two and they are highlighted below;
The loopholes associated with pseudonymous transactions owns with the fact that they can be traced in the case fraud as was seen In March 2015, the assets of 28-year-old Czech national Tomáš Jiříkovský were seized; he’s suspected of laundering $40 million in stolen Bitcoins.
Another major difference is the flexibility of coins exhibiting anonymity. Flexibility affords interchangeability from one unit of a cryptocurrency to the other thus eliminating possibilities of linkage with previous transaction records. This fungibility is a feature absent with pseudonymous transactions.
Another difference in analyzing both transaction model is in the cost difference. Generating anonymity may cost extra and as a result most cryptocurrencies like ZCash offers anonymity as optional. In 2018, Alex Vikati after her research into the privacy of ZCash wrote
“Despite the privacy focus of Zcash and its forks, anonymity is actually optional for these networks. One reason is that it can be computationally expensive, taking up to 40 seconds and 3+GB of RAM, to anonymize a ZCash transaction. As a result, some ZCash wallets don’t support anonymity at all”.
Developers may not need to worry about this additional requirement in the case of pseudonymous transactions.
Can we attain complete anonymity all over?
Bitcoin is described as the mother of all coin and is by far the coin with the highest market capitalization of $63,768,964,228.41 as at the time of writing this article.
With the fact that bitcoin was designed to be pseudonymous, attained absolute anonymity all over the cryptosphere might seem too far-fetched a conclusion to make now.
The original intent of cryptocurrency is anonymity. True investors believe that is the only way to attain the much-desired financial freedom and thus routes more for its development whereas most governments are against it because of the fact that it would reduce their regulatory potency thus doing everything they can to bring them under subjection.
Who would win in this war can only be determined with time?