Is Bitcoin anonymous?

The simple answer is no – It’s pseudonymous not anonymous. Anonymity implies that transactions can be made without an associated user identity, which is not the case with Bitcoin. All transactions take place between what’s known as a public address.

This is essentially your online identity when it comes to sending and receiving Bitcoins.
Considering all transactions are stored forever on the blockchain – once a public address is linked to an identity that actor is undisputedly accountable for all past transactions relating to their public address. A best practice for those keeping a low profile would be to use a new address for each transaction, known as multi-input transactions.
The problem lies in pooling the value of the accounts together. The outgoing transaction will still include multiple addresses as inputs, proving they are in the same wallet and belonging to the same identity. Thus if your name is linked to one address, you can be linked to all the others.

Other techniques involve using multiple wallets or mixing services. Mixing services essentially pool coins from multiple users, mix them up and then randomly send them back in equal proportions to how they arrived. Whilst this is most effective for remaining anonymous, it requires trusting an anonymous third party with your hard earned bitcoins… worth the risk ? I think not.

Whilst Bitcoin is not anonymous, you can get pretty close if you’re careful. Since your identity is not linked to the public address when it is generated, the only way to link you to your pseudonym is through your activity. As with many applications on the internet, if you are smart and aware of the risks you can protect your identity. If you are careless, you may live to regret it!