It is a common misconception that Bitcoin provides users with the anonymity that it has become a place where illegal transactions can be made that authorities cannot track. However, this is the opposite of what Bitcoin creator Satoshi Nakamoto, known in the real world as nChain Chief Scientist Dr. Craig S. Wright, envisioned for Bitcoin. And this is evidenced in the Bitcoin white paper, upon which Bitcoin was based.
In an effort to educate the public and correct misinterpretations, Dr. Wright and engineering head of tokenization entity smart wallet at the Bayesian Group and Money Button founder Ryan X. Charles have created a YouTube series entitled “Theory of Bitcoin” featuring enlightening conversations about Bitcoin and blockchain technology. In order to get back to the basics, they created a 10-episode special discussing the Bitcoin white paper line by line.
In the first episode, the duo talks about the root of this misconception that Bitcoin is anonymous; and this is the fact that the network uses digital signatures to validate transactions. People think a digital signature provides anonymity to the user and allows their identity to remain hidden forever. But this is not the case at all.
“Digital signatures require identity. It doesn’t need to be public, that’s what people misunderstand. You don’t need to publicly attest, you need to attest before you use any of these things—and only from that point forward…. You can’t have a signature without an identity. The meaning of the word doesn’t allow that,” Dr. Wright explains.
A digital signature requires an identity—whether partial or full—it just not made public. But once a law enforcement agency orders for the identity to be given to them due to suspicions of criminal activity, then Bitcoin has no choice but to comply. As Dr. Wright has said from the beginning. Bitcoin needs to follow the rule of law in order for it to be valid.
“You don’t need to give away your full identity, you can remain pseudonymous. I’ve talked about this in the past. But you still have a legal identity. So, the law recognizes partial identity. It has in Britain for hundreds of years now. We have a thing like pseudonymous author payments. But notice when I say, “pseudonymous,” not “anonymous.” As an author using a pen name, you can still get paid for your copyright. And no one knows who you are,” Dr. Wright clarifies.
Here, it is clear as ever that a digital signature may be pseudonymous, but not anonymous. Saying that Bitcoin is anonymous is akin to entering into a legal agreement and signing as “nobody,” which is not valid in any court of law. Hence, authorities can definitely track down a Bitcoin user who has committed a crime.
What’s more, all Bitcoin transactions are recorded on the blockchain, which is an immutable public ledger that stores information in a chronological manner. A master copy is kept on all the nodes on the network, so it is impossible to erase the record of a fraudulent transaction. To all those who wish to use Bitcoin for illegal purposes such as money laundering, they better think again as all their transactions are being recorded on hundreds of computers.