Digital currencies like Bitcoin are categorized as cryptocurrencies. This term might create the impression of high privacy and security, where ownership remains entirely anonymous. However, this is not entirely accurate.

When using Bitcoin for purchases, sellers can learn about your financial situation, including the amount of Bitcoin you hold, its source, when you receive it, and how you spend it. It’s a complete privacy nightmare.

Bitcoin stores every transaction in a Public Ledge that anyone can see. This ensures transparency and allows everyone to monitor the integrity of the system. It is easy to see what each Bitcoin wallet (account) contains.

Each wallet has a private and a public encryption key. The public key is known to everyone and is like an account number. While people can see the public key, they cannot identify the owner. When you receive funds, the sender uses your public key, and when you send funds, your public key appears as the source of the transaction. Only the account holder knows the private key, which is essential for authorizing outgoing transactions from the wallet.

Imagine you bought a book online using Bitcoin and provided your name and address for shipping. The seller will then know who owns the wallet associated with the public key you used and how much Bitcoin you own. They can track any transaction on your wallet since its creation, including who sent you money, how much and when, as well as to whom you sent money, how much and when.

Similarly, if the transaction took place at a grocery store with a camera, the store owner could associate your face with your public key, revealing your identity. This information could become a lucrative business, much like the personal data market.

Thus, cryptocurrencies like Bitcoin do not protect user privacy and are therefore not suitable for real business scenarios. Other cryptocurrencies, called privacy coins, have been developed to address this issue. But do they really solve it? We’ll explore this in the next article.