Private vs Anonymous

Private is not anonymous but pseudonymous

In the new model of trade specified In the Bitcoin protocol’s description of privacy, this is described in the white-paper as fire-walling identity. It has been sometimes misinterpreted as being anonymous.

The traditional model involves the parties sharing their identities with each other and other intermediaries such as correspondence banks, credit companies, and even processing groups. The same intermediaries, whether they are trusted third parties to the transaction or otherwise, are privy to the details of the individuals involved in an exchange.

When describing privacy, in relation to identities the Bitcoin white paper refers to the ability to keep public keys anonymous in the context of participants outside of those who require knowledge of the transaction.

But looking it as a whole, rather than anonymity, it is privacy. It is about keeping details away from the public. This of course does not apply to those who were involved in the exchange and certainly not those who are required by law to monitor such exchanges. Those who are involved in an exchange have to perform the record-keeping of transactions and identities dependent on what regulations the service providers are working in and what the local jurisdiction requires them to store.

The realisation of this misconception lead to the creation of anonymous blockchain systems like Monaro and z-Cash but instead of using the term anonymous, they were dubbed privacy blockchain which was intended to mislead regulators who typically take a while before they catch up to new technology innovative methods.

In the recent past, some of the blockchains started using mixer services to achieve such anonymity which is being shut down by various jurisdictions. In other attempts, there was introduction of Segwit protocol on the bitcoin blockchain, which removes the digital signature out of the public storage in the block. Digital signatures associate with identities and when that is not publicly stored on blockchain, it allows for creating anonymous systems around it.

To summarise, any system which allows for anonymous money exchanges will always be a magnet for those looking to engage in illegal and criminal activities. This is why the Bitcoin protocol specifically mandates that blockchain integrates a digital signature when dealing with money. All digital signatures will require a system which will be used to create signatures which in turn, will require associated identities. If any system is built either by changing the protocol or by working around it, it will violate the legal requirements of money handling services in most countries where it operates and will be considered illegal.