Anonymity in Cryptocurrencies
Cryptocurrencies are defined as anonymous digital currencies. It is widely assumed that the real-world identities of the persons who engage in cryptocurrency transactions are secret and will remain secret. Digital signatures serve as identities of the par
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Abstract Cryptocurrencies are defined as anonymous digital currencies. It is widely assumed that the real-world identities of the persons who engage in cryptocurrency transactions are secret and will remain secret. Digital signatures serve as identities of the parties involved in cryptocurrency transactions. They are essentially composed of a pair of keys, the secret key and the public key, which are used for signing transactions. These keys are issued as many times as needed thus creating different identities for the same person. Since transactions are recorded with these pseudo names, it is thought that the real identities may not be linked to the transactions. Unlinkability has to be achieved for complete anonymity. However, recent studies show that real-life identities can be linked to addresses of these cryptocurrencies and transactions which use them. Therefore, it is safe to say that most cryptocurrencies are pseudonymous rather than anonymous. In this chapter, the problem with anonymity and its implications in accounting will be discussed. In addition to this, protocols and services, which make it harder or even impossible to link addresses and transactions to their senders and recipients, will be reviewed. Keywords Cryptocurrency · Blockchain · Bitcoin · Altcoins · Anonymity · Pseudonymity
1 Introduction Cambridge Dictionary defines anonymity as “the situation in which someone’s name is not given or known” (2019). Therefore, the concept of anonymity in cryptocurrencies is related to disguising the real identities of those who are involved in cryptocurrency transactions.
H. B. Hazar (*) Department of Business Administration, Istanbul Aydın University, Istanbul, Turkey e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 M. H. Bilgin et al. (eds.), Eurasian Economic Perspectives, Eurasian Studies in Business and Economics 14/1, https://doi.org/10.1007/978-3-030-53536-0_12
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When Bitcoin, the first successful cryptocurrency, was introduced, it was said that the identities of those involved in Bitcoin transactions are kept secret. The way to keep the anonymity in Bitcoin transactions is to use a public key instead of a real identity. Nakamoto (2008) states that privacy can be achieved by keeping public keys anonymous. The public can follow the transactions, i.e., anyone can see that a certain amount is transferred to a recipient from another person. However, the public does not have information that links the transaction to any real-life person. Cryptocurrencies like Bitcoin are believed to be anonymous in the eyes of public because there is no need to use one’s real name. “Bitcoin addresses are hashes of public keys” (Narayanan et al. 2016, p. 165). The hash of one’s public key is his identity. No one needs to use his real identity so that the related transaction is accepted into the blockchain network. However, Nakamoto (2008) warns us about the possibility of linkability of the public keys to r
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