I hope this is not a duplicate.
I have seen lot of people confused between terms "PRIVACY" and "ANONYMITY". Context is Bitcoin transactions and protocol. What does privacy and anonymity mean in Bitcoin?
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1 Answer
Slides of my presentation: https://docs.google.com/presentation/d/1N6jT6SbBl3OxohbdEQj_f1su9nf9UqetAgLYu6RfeWQ/edit
Privacy: Things that a person doesn't want to share with everyone
Anonymity: Share things with everyone but not be associated with you IRL
When considering Bitcoin Protocol or Chain, these terms are confusing or used at lot of places without mentioning the difference. To achieve anonymity in bitcoin transactions (Real identity should not be linked with bitcoin transactions), users should follow best practices and still consider that no technology can help in 100% anonymity. Privacy is involved at different levels while using Bitcoin. If considering full node, lot of information is involved that you might not want to share with other nodes or not use others nodes and use your own node. Running node over Tor or i2p also helps in avoiding real IP being linked with any transaction. Once transaction is confirmed or even in the mempool, everyone can look at the address, amount and other details which may sound less private but this information is not really helpful for any spy until it is associated with real identity or any KYC exchange etc. Last but not least, never share information about your transaction on social media.
Things go wrong when you don't follow the best practices. Examples are many but one:
https://bitcoin.stackexchange.com/a/101959/
Basic things:
Use your full node
Do not re-use addresses
Use coinjoin and payjoin when required
Do not share information about transaction on social media
Use non-KYC exchanges like Bisq for trading
Bitcoin blockchain is like people sharing their nudes, everyone can see them, they are all blurred, few have information about real face etc.
Transactions being public doesn't make Bitcoin less anon or private. Privacy and Anonymity depends on the user, system and their interaction. There is always scope for improvement.
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I think what you're calling anonymity is more often called pseudonymity. Anonymity means that no information at all can be inferred about your identity, and this is generally not the case for Bitcoin (on-chain transaction linkage, P2P behavior, ... all reveal information). I also think it's incorrect to say "transactions are private by default". There are certain measures to not gratuitously leak information, but what level of privacy is sufficient in a certain context is very much up for debate, and a complex and unsolved problem. Commented Mar 5, 2021 at 1:52
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Made few changes in the answer. Don't agree about anonymity part. As long as real identity is not linked with a bitcoin transaction, it can be called anonymous. Agree its incorrect to say "transactions are private by default", removed it.– user103136Commented Mar 5, 2021 at 1:58
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Identity doesn't need to mean real-world identity. Your IP address is identifying information, and the ability for an attacker to link your IP address to transactions you create implies the system is not anonymous, for example. Commented Mar 5, 2021 at 2:13
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If you use a mixer like coinjoin (same if you go via Monero forth and back) don't co-spend the mixed coins afterwards with other unmixed coins otherwise the mixing operation was useless. I was able to de-mix 22% of a coinjoin transaction because the users did this privacy mistake. 22% sounds not dramatic but have in mind that only one mistake in 100 transactions can reveal all addresses in your wallet.– tempoCommented Jun 14, 2021 at 8:47