While known for being ‘impossible to counterfeit’ and boasting the ability to offer its users total anonymity while making purchases, Bitcoin certainly seems like the ideal currency for the future.
In its early days, you could be mistaken for thinking that virtual currency such as Bitcoin was used mainly by dodgy dealers, cybercriminals and conspiracy theorist. But over the last few years, it has become popular amongst a range of respectable businesses and consumers.
Last year, we heard from the likes of Overclockers UK, who praised the cryptocurrency, calling it an ‘excellent opportunity to generate sales’.
Global firms started accepting it – one example being Microsoft adding Bitcoin as a payment option for its digital content.
It was reported last year that over 28,000 UK shops were now offering Bitcoin for cash, including big names like Tesco and Asda.
While the excitement seems to have died down somewhat throughout 2015, Frost & Sullivan has now revealed the anonymity that Bitcoin promises may not be that anonymous after all.
“True anonymity in Bitcoin is only a myth, currently,” declared Vijay Michalik, research analyst for Digital Transformation at Frost & Sullivan.
“There is full visibility of all transactions. While they're only linked to a pseudonym and not a real-world name or address, every transaction is viewable through a number of different blockchain browsers.”
Blockchain analysis, as a relatively new market sector within Bitcoin, demonstrates the weakness of pseudonymity.
Its main function is a data source for exchanges other financial services businesses to comply with financial regulations. They collect metadata, incidental information attributed to transactions, and IP addresses linked to nodes and use these to identify and blacklist criminals.
True financial privacy doesn't exist on the Bitcoin blockchain, believes Michalik, warning that without a redesign, this should be a serious concern – not only for the politically oppressed, criminals and crypto-anarchists.
“Blockchain analysis techniques can only improve. It's believed that huge swathes of addresses could be de-anonymised over time. It doesn’t take much to put everything together once you have a few pieces of the puzzle. This would leave a complete history of your financial information publicly available, forever,” he claimed.
“For most users, income and complete spending history would be available for anyone to see. From friends to colleagues, commercial businesses, governments and criminals,” comments Michalik.
“For businesses operating in Bitcoin, cash flow, supply, demand and other competitive information would be exposed to their rivals.
“In this case, Bitcoin is a worse option than traditional finance channels.”
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