21 Questions About Bitcoin III
9. What does it mean that Bitcoin is pseudonymous and not anonymous?
As I mentioned before, Bitcoin transactions are public, permanently recorded on the blockchain, and anyone can view them at any time. However, this does not mean that anyone can easily find out how much BTC a specific person owns.
Let’s briefly summarize how a typical transaction works. A transaction is digitally signed with the sender's private key and then stored in the so-called mempool – a waiting room for transactions, from which it is later picked up by a miner and recorded into a block.
What does such a transaction look like? It contains no personal data – it does not state that Peter Novák, born on date XY, residing at address... is sending 0.01 BTC to Alžbeta Horáková. All information is replaced by strings of characters – Bitcoin addresses.
Example of such a transaction (from the public blockchain):
We can see that both the sender's and receiver's addresses are just long strings of characters. They do not contain a first name, last name, address, or any other personal data. In fact, your own wallet generates a new address for every transaction to increase anonymity and privacy protection. So, if you see in your app that you have, for example, 0.2 BTC, in reality, these bitcoins are split as follows:
- 0.01 BTC at address bc1q9r3…
- 0.05 BTC at address bc1qy47…
- 0.14 BTC at address bc1q84m…
Why then do we say that Bitcoin is not completely anonymous, but only pseudonymous? The reason is that if you have ever bought bitcoin through an exchange that requires identity verification (the so-called KYC – Know Your Customer), a link between you and your bitcoin address already exists. During verification, you might have uploaded an ID card, passport, proof of residence, or even a selfie with your document. Although exchanges do not usually publish this information, in the event of a government request or a data breach, this information can reach analytical firms or state authorities.
There are companies, such as Chainalysis or Elliptic, that specialize in tracking bitcoin transactions. Using analysis of transactions, user behavior, and public data, they can link multiple addresses and create a picture of who might be behind them. If they know that the owner of address A is, for example, "Peter," and several transactions linked to addresses B and C were sent from this address, they can very easily determine that these addresses also probably belong to Peter.
Bitcoin can be relatively anonymous if you use it cautiously, for example, if you acquire it without using centralized exchanges or identity verification. Otherwise, it is a pseudonymous network; your addresses do not have a name, but it is not hard to find out who owns them once you link your ID card with a bitcoin address during the purchase or sale of BTC.
10. Why is anonymity so important on Bitcoin? I have nothing to hide, after all.
Privacy is a fundamental value that should be a natural part of every financial system. In the traditional world, we use cash because it is anonymous. No one asks for your name, documents, or the reason why you are handing someone 50 euros in cash. That is where its strength lies – it enables free transactions between people.
If your bitcoin addresses are publicly linked to your identity, you become a potential target. You could face hacker attacks, phishing, extortion, or even physical threats. People who know that you own a larger volume of bitcoins may perceive you as a lucrative target.
A good example is an incident from January 2025, when David Balland, co-founder of the company Ledger (known for producing hardware wallets for cryptocurrencies), was kidnapped in France. Along with his wife, he was abducted from his home in the town of Méreau in central France. The kidnappers demanded a high ransom in cryptocurrency and caused him serious injuries during his captivity. This case shows that insufficient privacy can have truly serious consequences. Even if it may not seem important to you at the moment and you might tell yourself that you only have a small amount invested in Bitcoin, remember the people who thought the same when one Bitcoin cost only one dollar. Bitcoin tends to grow in the long term, and what you consider negligible today may have great value in a few years. And along with growing value, the risk also grows. Privacy is therefore not something to be taken lightly – it is a prevention against problems that could catch up with you in the future.
Another reason why privacy is important is the risk of censorship. In many countries, people have their accounts frozen daily – often due to political views, participation in protests, journalistic activity, or attempts to leave the country. In today's digital financial system, it takes very little to be denied access to your own money. As I mentioned before, during the Russian invasion of Ukraine in 2022, both states restricted ATM withdrawals, and people stood in long lines in front of bank branches, often in vain.
Financial privacy is not just about protection against crime. It is a fundamental human right. If someone decides to make public how they spend their money – it is their free decision. But if everyone is forced to reveal every single euro they spend, it is already an interference with personal freedoms and privacy.
11. How to ensure financial privacy?
There are several basic recommendations. First and foremost, it is important to realize that as soon as you buy cryptocurrencies through a centralized exchange that requires identity verification (KYC), this exchange stores all data about you. This data could be misused in the future – whether by hackers or made available based on a government decree. Your bitcoins will be forever linked to your identity, even if you later send them to other addresses. Many people think it is enough to exchange bitcoins for others or "mix" them, but as long as it is known that you once owned a specific amount, the exchange will never forget this data.
Whenever possible, do not buy bitcoins with a payment card – prefer payment in cash. The next step is using a new address for every transaction. Most modern bitcoin wallets offer this function today. You don't have to worry – there are plenty of bitcoin addresses and they won't run out. Every wallet automatically groups all transactions in the background and displays your final balance.
Some advanced wallets also offer a function called Coin Control, which allows you to choose from which specific transaction (or group of transactions) you want to pay a given amount. This gives you more control over what you share with the network.
Pay increased attention to anonymity when selling or exchanging bitcoins as well. Not all platforms and services are equally discreet. In some cases, it may be advantageous to use a personal exchange or anonymous decentralized platforms. And finally – for smaller transactions, it is very useful to use the Lightning Network, which does not record every payment on the main blockchain and thus significantly increases the level of privacy.
12. Why do some governments want to ban or restrict Bitcoin?
Simply put, because they don't understand it. Fear of the unknown is deeply rooted in the human psyche. It is a natural defense mechanism that we developed during evolution. Imagine a primitive man in the wild; the one who was more cautious and suspicious of strange noises in the bushes had a better chance of survival than the one who ran headlong toward the unknown. This instinct persists to this day. And that is why new technologies often provoke resistance – not because they are bad, but because we don't understand them.
It is not the first time in history that society – and especially the elites – reacted with fear to breakthrough inventions. An example is the printing press in the 15th century. Its inventor was Johannes Gutenberg, and his technology enabled the mass spread of information. Until then, books were the privilege of the elites – hand-written, extremely expensive, and available only to the chosen few. Suddenly, however, ordinary people could read too. This caused panic among church and political authorities, who feared losing control over the public. Today, we consider printing to be one of the most important advances in human history.
Another fitting example is electricity. When it began to spread in the 19th century, many politicians and public authorities considered it dangerous. Articles appeared warning against an "invisible force that can burn a person alive," and public lighting was accompanied by protests in many cities. Companies that had previously profited from gas lighting launched public campaigns against electricity. In some cities, they even passed laws restricting the construction of power lines or the use of electrical appliances. Today, we can no longer imagine life without electricity.
Bitcoin is going through a similar story today. It solves a fundamental problem – trust in money and the financial system – but it does so in a way that is unknown and difficult for many to understand. And that is why it is easier for some governments to ban it than to try to understand it.
An example of a change in attitude is Kevin O'Leary, a well-known investor and television personality from the show Shark Tank. In the past, he was openly skeptical of Bitcoin, calling it "worthless" and labeling it a "giant nothing-burger." In 2021, however, he completely changed his stance; not only did he invest in Bitcoin, but he called it a legitimate asset class and began to actively engage in the cryptocurrency space.
What caused this change? Simply understanding the technology. People tend to be afraid of things they don't understand. A lot of negative opinions about Bitcoin stem precisely from ignorance or a misunderstanding of its principles. Narratives like "Bitcoin is a pyramid scheme," "it finances terrorists," or "it is backed by nothing" can be very easily debunked; you just need to study how Bitcoin really works. Ignorance breeds resistance.
The good news, however, is that the number of politicians, economists, and public figures who are interested in Bitcoin and trying to understand it is constantly growing. Just recently, the Czech Republic approved a law on the so-called "time test," which allows exempting profits from holding Bitcoin from tax after a certain period. In the United States, several senators have publicly stated that they consider Bitcoin a strategic asset, and some even propose its purchase for national reserves (for example, Senator Cynthia Lummis).
Bitcoin is gradually making its way, and just like printing, electricity, or the internet once did, it will encounter resistance. But as history has shown, truly revolutionary ideas cannot be silenced forever.