Bitcoin Transactions Aren’t as Anonymous as Everyone Hoped

An increasing number of online merchants now offer the ability to pay using the cryptocurrency Bitcoin. One of the great promises of this technology is anonymity: the transactions are recorded and made public, but they are linked only with an electronic address. So whatever you buy with your bitcoins, the purchase cannot be traced specifically to you.
This is handy for some, but the anonymity is by no means perfect. Security experts call it pseudonymous privacy, like writing books under a nom de plume. You can preserve your privacy as long as the pseudonym is not linked to you. But as soon as somebody makes the link to one of your anonymous books, the ruse is revealed. Your entire writing history under your pseudonym becomes public. Similarly, as soon as your personal details are linked to your Bitcoin address, your purchase history is revealed too.

That raises an important question for people hoping to use Bitcoin to make anonymous purchases: how easy is it to link them with their Bitcoin transactions?

Today we get an answer thanks to the work of Steven Goldfeder at Princeton University and a number of pals. These guys say the way information leaks during ordinary purchases makes it straightforward to link individuals with the Bitcoin transactions they make, even when purchasers use additional privacy protections, such as CoinJoin.

The main culprits are Web trackers and cookies—small pieces of code deliberately embedded into websites that send information to third parties about the way people use the site. Common Web trackers send information to Google, Facebook, and others to track page usage, purchase amounts, browsing habits, and so on. Some trackers even send personally identifiable information such as your name, address, and e-mail.

In this way, information about a transaction leaks onto the Web, where governments, law enforcement agencies, and malicious users can readily collect and analyze it.