Anonymity in money transfers is a highly complex subject. It can be discussed from many perspectives – the reasons why people insist on staying anonymous, payment systems that allow anonymity, the impact of digitalized finance on anonymity, etc.
Cryptocurrency is closely involved in all discussions related to anonymous payments as it’s the first workable model for financial decentralization. In their very nature, Bitcoin and other cryptocurrencies were envisioned to avoid any association with users’ personal and bank information. However, a quick glimpse at the current crypto landscape tells us that the leading crypto services are centralized entities that differ in no respect from any other traditional digital payment systems.
Digitalization has speeded up the processing times of transactions to a certain extent but didn’t solve the information exposure. On the contrary, it has only worsened it — all that unwillingly shared information with centralized banks is now circulating in a borderless vacuum called virtual reality.
In this article, we’ll go through all anonymous or partly anonymous possibilities for financial communication with a closer view of cryptocurrency.
Privacy Concerns About Money Transfers
The users’ mood toward transaction privacy falls down to two general opinions: compliant users who don’t object to the regulatory norms that require personal check-ups before executing a transaction and users who’re trying to evade the check-up layer at any cost. This is a more diverse group of users — part of them are hiding from law enforcement, while some are just trying to keep a low profile.
The thing is that law enforcement has established firm cooperation with banks for tracking down suspects for any kind of financial manipulation. For any sent or received amount, either through wire transfer or credit card, authorities can request from your bank a detailed statement and all information the bank possesses (full name, address, phone number, and email account).
This government control isn’t restricted to central banks only. All other money-transmitting services like MoneyGram, Venmo, and Western Union have the same responsibility.
Apart from legal disputes and tax evasion, most traditional money transmitters reveal your identity to the transaction recipient regardless of whether it’s an individual or a corporation. And this is perhaps the primary motive behind the development of alternative payment systems, including digital currency.
In 2009, Satoshi Nakamoto introduced the public to Bitcoin, which he defined as a peer-to-peer electronic cash system, or the first cryptocurrency that will enable people to transact digital cash with each other outside the range of centralized institutions.
The model that Satoshi presented in his whitepaper replaced the centralized control with an automated mechanism — a proof-of-Work (PoW) blockchain, whereby all interested participants can take part in the validation of the transaction. Apart from finding a human-free solution for transaction execution, the most revolutionary part of Satoshi’s creation was the approach to keeping transactions on the decentralized ledger.
On the blockchain, there are no credentials, no bank accounts — the user is represented by their wallet address, which is a long, random string. On that account, all transaction records are open to the public. That’s why it’s better to say that cryptocurrency is pseudonymous, not anonymous or private. The thing is that you can see all bitcoins that have been spent since 2009, but you can’t identify the user based on his Bitcoin address.
The general public was ignorant of the Bitcoin blockchain at the beginning, due to the lack of knowledge of the technical part of the system. But soon enough, they started to understand the mission of decentralization behind Bitcoin and other crypto projects like Ethereum (ETH) and Litecoin (LTC).
Is Crypto Anonymous?
Ironically, the immense growth in popularity and trading volume killed the anonymous/pseudonymous nature of crypto trading. Crypto-providing services nowadays can’t evade compliance with AML/CFT norms and other government regulators anymore. Both centralized crypto exchanges (CEXs) and peer-to-peer (P2P) platforms require users to complete a self-revealing KYC (Know Your Customer) verification form to get permission to use their trading services.
This shouldn’t come as a surprise — governments were caught unprepared by the crypto boom, but they couldn’t neglect billion-dollar market caps and the involvement of crypto in the dark market for long.
After the striking scandal with Silk Road and a series of Ponzi schemes, things started moving in a more regulated direction in the crypto ecosystem. Cybersecurity experts have developed sophisticated methods for catching crypto criminals through their IP addresses and other digital footprints left online, even if they use a VPN (a virtual private network).
On the blockchain side, advanced cryptographic technology makes it extremely hard for external sources to trace the departure point of a given transaction. Reasonably, out of the hundreds of available blockchains out there, some are more private-oriented than others. Now, let’s see what’s the best you can get in terms of anonymity in the realm of decentralized finance.
Best Anonymous Cryptocurrencies
The following cryptocurrencies have built-in features that obfuscate the sender’s address and the transaction amount, but this doesn’t mean that law-enforcement measures can’t be applied to their users.
BCN is built on the CryptoNote technology, which is claimed to be the first technology that can provide both un-linkable and untraceable transactions.
By untraceable, we mean that monitors can’t easily find out who sent a certain amount to another wallet, while un-linkable refers to the inability of users to gather whether different transactions were sent from a single source.
The intractability is achieved through so-called ring signatures that chain transaction data together, and that’s how their readability becomes opaque. To be in-linkable, CryptoNote employs one-time keys as an improvement to the ring signatures. This key technique is powered by the Diffie-Hellman Key Exchange method, and, as its name suggests, it produces “disposable” keys for each transaction, thus making each transaction unit.
In the current crypto market, Monero is the most popular “private” altcoin even though it was designed as a Bytecoin hard fork when its reserves started becoming exhausted. However, Monero stole the limelight from its ancestor, making a mainstream coin with high chart ranks and a market cap of around $3 billion.
Accordingly, XMR uses the same underlying technology as BCN to offer its users the best possible conditions for executing a private transaction. Originally, developers named the cryptocurrency Bitmonero but soon changed its name to Monero, the word for coin in Esperanto.
Dash is another veteran in the elite company of most private coins. It was launched in 2014 under the name DarkCoin, but because of the negative reference, developers changed its name to Dash, which stands for digital cash.
Dash popularity lies in the ability to offer cheap and fast transactions but also a layer of privacy that Bitcoin, for example, can’t provide.
Namely, Dash uses masternodes — a higher form of regular nodes, which get 45% of the total block rewards in exchange for quick transaction execution and privacy. However, the use of masternode gives a certain level of centralization to the Dash network, which is against the core blockchain principles.
Traditional Payment Methods for Anonimous Transactions
Back to mainstream finance, there are a few ways to stay anonymous but, once again, not for law enforcement but for the potential recipient.
Create a Fake-Name Email Address on PayPal
It may sound unusual, but yes, you can hide your real name from a PayPal transaction. That’s because most websites require bank account details (the card and the account number) and a valid email address to make a PayPal payment. If you use an email not related to your real name when creating a PayPal account, you still meet all these requirements and stay anonymous for the recipient. For example, you can easily open a Gmail account with generic content like “AnonymousSender90” as a username and send the funds anonymously through your PayPal account.
Finally, you can use this username-show-only method with GooglePay and ApplePay cash apps but only for purchasing goods or services, not for making online money orders.
Gift Cards and Vouchers
Prepaid vouchers have proven to be a very effective method for sending or spending money online.
Thus, Amazon gift cards allow you to redeem the voucher without sharing your personal info or billing address with the retailer — all you have to do is insert the card number to make a successful transaction. Certainly, there are many other voucher systems on the modern market, but we take Amazon as an example because it’s a trustworthy brand with a widespread network of retailers and easy availability. However, note that all pre-paid gift models are tailored for relatively small purchases. For instance, the highest gift amount you can find on Amazon is $500.
Paysafecard is another well-developed pre-paid system that successfully operates in over 40 countries, including Canada. This model is based on vouchers that contain a 16-digit PIN code without any requirements for submitting bank accounts or personal information. These vouchers can be easily bought at local retailers with cash. Paysafecard owners can then pay for various online services by inserting the code on the “website counter.”
Microsoft, XBOX, and League of Legends are some of the most popular businesses that accept Paysafecard as a valid payment method.
Contribute Anonymously to GoFundMe
We’ll complete this article with charity payments. From what we’ve covered so far, you can conclude that it’s not that easy to stay anonymous, and donations don’t seem to be an exception. Yet, the world-renowned fundraising organization GoFundMe does offer an option for making a charity payment without revealing your credentials.
Once you visit their website and find a good cause, you can see that people are donating organized in pools. You can join a certain pool and contribute without listing your credential. In the end, you’ll be recognized simply as others involved who wished to have their identities withheld.
A Few Words Before You Go…
Considering the number of people who are googling and “foruming” shortcuts for anonymous money transfers, it’s not difficult to conclude that the world hasn’t moved past the anonymity hype. While intentions for such ghost payments can be humble or mischievous, it all falls on the fact that anonymity is hardly possible with online payments — digital footprints have turned out to be more traceable than physical ones.
Cryptocurrencies are the perfect example of the anonymity myth. Satoshi Nakamoto built a revolutionary technology that doesn’t record any form of personal details, yet you can’t buy a fraction of Bitcoin without an identity checkup today.