When you think of cryptocurrencies what’s the first one that comes to your mind?
Bitcoin. And it’s no surprise. Bitcoin is by far the biggest crypto currency.
But what most people don’t realize is that it isn’t as powerful as they think. Crypto, and block chain technology were created for one reason – de-centralization.
With crypto, people can create their own currencies that are not backed by the Government.
And that’s a great thing, because it gives you more freedom. There are TONS of coins that all have different purposes. That’s why so many crypto currencies exist.
But there’s one huge flaw with Bitcoin….
It’s super easy to track. In fact, it’s almost impossible to be private with your crypto when you use Bitcoin.
That ruins the whole point of “de-centralization”.
Because if the Government can see all of your money, when you’re spending it, and who you’re sending it to, then they can also take your money from you just like any Central Bank Digital Currency.
This is not being talked about enough, and that’s why I am dedicating my next two newsletters to this topic. Today, I will explain how easy it is to track Bitcoin, and in the next email I will talk about one of my favorite crypto-currencies and how it solves this problem.
Please keep in mind, these articles are not financial advice, and I have no financial motive for writing these articles. They’re for educational purposes only.
With that said, let me start by some basic definitions:
- Block chain – The block chain is a database that’s shared across a peer-to-peer network. Basically, it is a ginormous server that’s stored on computers all over the world.
- Exchange – A crypto exchange is where people go to buy and sell cryptocurrencies.
- Wallet Address – A wallet address is the ID of your crypto storage wallet. Similar to how bank accounts have routing numbers and bank acct. numbers.
- KYC – (Know your customer), some crypto wallets and exchanges are KYC meaning you need to prove who you are before you can use their products.
Bitcoin transactions can happen two different ways. Peer to exchange or peer to peer. And any time a transaction happens, it is recorded on the block chain.
When someone makes a Bitcoin transaction they have to decide two things. 1. How much Bitcoin they are sending and 2. Who is receiving it (Wallet address).
These transactions can easily be tracked by what’s called a “blockchain explorer”.
All you have to do to is go on a blockchain explorer and enter the bitcoin wallet address that you are trying to inspect. That will show you all of the transactions made from that address as well as the addresses that sent coins to it.
Not only that, but you can also see exactly when the transactions were done. That means patterns and spending behavior can easily be figured out as well.
One of the most common forms of tracking used by the Government is something called Taint Analysis. It looks at a string of transactions to see where the coin came from and where it’s been.
Of course, the Government is saying that this is a good thing because it can help them track criminals, stop money-laundering, and find people who are funding illegal activities. But don’t forget the implications that come with this.
Remember when Canada froze the bank accounts of members of the Freedom convoy for peaceful protesting?
What’s the point of crypto currency if it’s not taking the power away from the Government and returning it to the people?
If you are still adamant on using Bitcoin here are some things to consider:
- Don’t reuse your wallet addresses. Every time you are paid in Bitcoin, create a new address. And when you use that Bitcoin, do not send it to any of your other wallets. This will connect them.
- Do not use your real name. I know this sounds obvious, but you’d be surprised at how many people use their real name when setting up these accounts. And on top of that, do not use KYC crypto exchanges or wallets.
- Finally, storing your information on cold or hardware wallets are a lot better than software or KYC wallets. And definitely do not keep your crypto in an exchange.
Like I said, this is not financial advice, and even with those things I mentioned above Bitcoin will never be truly private, which in my opinion takes a lot of power away from it.
But don’t worry, if you agree with me, stay tuned for the next article where I talk about one of my favorite privacy cryptocurrencies and how they address this issue.
Thank you!
Eric Meder