Cryptocurrency Privacy issues: Problems and Misconceptions

Cryptocurrencies are often portrayed in the media as a way to send and receive money in complete and total secrecy. 

But is crypto REALLY anonymous? Is it possible to send money or funds anywhere without being identified, monitored, and tracked down? Or is it an objectively worse method of transferring funds than regular bank payments as far privacy is concerned?

Hollywood and pop culture suggests that cryptocurrencies are the best way to move funds around anonymously.. 

But as we will find out in this article, that isn’t entirely the case. Let’s go on a deep dive on the privacy issues surrounding cryptocurrency, its problems, and misconceptions surrounding it—and how YOU can keep your on-chain activity private. 

The question of privacy

Recent research shows that cryptocurrency and the blockchain technology that underpins them are rife with key privacy issues. The relative lack of privacy solutions in the blockchain sector suggests that greater efforts should be taken to refine the technology such that it complies to a certain standard and expectation of privacy. 

The rise of blockchain technology in recent years has sparked a wave of excitement with its potential. Crypto has brought profound innovation in various industries and serious disruption in others. But it has some techno-pitfalls inherent within the technology—with the issue of privacy threatening to push the issue to breaking point. Societies and economies are, after all, organized around data, implying far-ranging consequences for privacy. 

Privacy in an online world refers to how individuals control their online identity, and expectations surrounding privacy are subjective for every individual and their situation. It makes sense to have smarter technologies that recognize these situations and nuances, but in the case of cryptocurrencies, a full-featured solution that works within the context of the current year. 

Despite the existence of privacy coins like Monero, the reality is that blockchain technology and the Internet of Things have the potential to compromise individuals’ privacy. In fact, the exact features that make cryptocurrencies such a viable, secure technology for payments make it a powder keg for privacy. 

Is cryptocurrency anonymous?

The short answer is no—save for a few exceptions, the great majority of cryptocurrencies, including all the major ones like Bitcoin and Ethereum, aren’t anonymous.

Rather, the bulk of cryptocurrencies are pseudonymous. But instead of the dictionary definition of the term referring to replacing your name with a fictitious one, your personal identity on the blockchain is instead substituted by the alphanumeric string that represents your crypto wallet address.

How does blockchain technology prevent full anonymity?

Cryptocurrency is built on blockchain technology. The blockchain is essentially a digital ledger that tracks whenever a token was created on-chain and how it has been transferred and moved between wallets since it was created, creating an immutable, permanent record on the blockchain that prevents fraud. And since the purpose of any ledger is to be able to pull information from it when you need it, that wouldn’t be possible if the ledger were completely anonymous. 

Therefore, any transactions performed on the blockchain are permanently recorded—including the parties that executed them. While your real name won’t appear, your wallet address will. 

While there are ways to circumvent this design flaw as we will discuss in the following sections, the basics of the technology remain largely unchanged in the present day.

Can your wallet address reveal your identity?

Pseudonymous doesn’t necessarily mean your personally-identifiable information is out in the open for all the world to see. The pseudonymity of the blockchain makes the risk of anybody linking your crypto wallet to your real-world identity slim to nil. 

But “slim to nil” doesn’t mean it’s impossible. 

In particular, if your crypto wallet is linked to a centralized crypto exchange who knows who you are  through the mandatory know-your-customer (KYC) processes most exchanges require, they could theoretically pass that information forward. 

It’s also entirely possible for hackers to gain access to your credentials to said accounts and link it to your wallet—and the rest of your recipients.

But apart from hacks, security incidents, and other risks, there’s no direct way to link a crypto wallet address to a single person. 

After all, your name isn’t linked to a wallet (at least in public). However, anybody can freely look up a crypto wallet, its contents, its transaction history, and try to link it with someone’s real-world identity or known crypto transactions.

Is crypto more traceable than cash?

The fact of the matter is that cryptocurrencies are significantly more traceable than cash because of the inherent design of the open, transparent public ledger that is the blockchain. 

Cash, on the other hand, isn’t governed by a ledger. For instance, you can spend a $20 bill at a shop right now, and by tomorrow, it could already be half the world away without anyone’s knowledge. 

While banknotes can be traced using the serial numbers imprinted on them, they can only be traced when the physical note is in your hands. 

It wouldn’t help you track others that are out there either. Meanwhile, with the right tools, training, experience, and even more patience, it’s entirely possible to track the entire transaction history of a cryptocurrency and the wallets it has passed through—even its present owner—anytime, anywhere, and anyplace.

How to keep your privacy on the blockchain

As we have mentioned earlier, privacy solutions have long been in the works within the realm of blockchain technology. That said, one of your best option for a bit of privacy is using a crypto swap platform.

• Private crypto swap platforms. Private crypto swap platforms like Houdini Swap have emerged as the most logical and intuitive way to retain on-chain privacy by keeping sending and receiving addresses private while remaining fully compliant with existing laws and regulations. To date, Houdini Swap is the best crypto swap platform for swapping, sending, and bridging crypto privately under the current technological limitations. 

What is Houdini Swap and how does it keep your transactions private?

Houdini Swap is a liquidity aggregator enabling users to perform private and standard crypto swaps all in a simple, intuitive, and decentralized, non-custodial interface. 

Users can freely swap, send, and bridge their digital assets across a universe of blockchains. With over 4,000 cryptocurrencies and over 8 million token pairs available, no other crypto swap  platform offers as much variety and as much privacy options as Houdini Swap does while remaining fully compliant with existing crypto and AML regulations. 

Through its dual-exchange architecture that uses a randomized Layer-1 protocol as a privacy tunnel, Houdini Swap enables users to send, swap, and bridge transactions without revealing the ultimate source and destination wallet addresses through its Private Swap feature, enabling private swaps that don’t link back to either. Houdini Swap also provides an unprecedented level of privacy even for its standard swap option compared to other decentralized swap platforms, while taking less than a minute to complete transactions. 

No other private crypto swap platform makes transactions as simple as Houdini Swap. With over $1 billion in transaction volume since launching in 2023, Houdini Swap is fast making a name for itself as the go-to solution for cryptocurrency privacy in the present day—bar none.
Want to experience fully private crypto swaps? Try Houdini Swap today!