Exploring Bitcoin’s privacy infrastructure

While Bitcoin transactions are pseudonymous, the participants and the amount of funds involved in a transaction are publicly observable. This makes it challenging to use the network while preserving one’s privacy.

Using a set of techniques known as chain analysis, outside observers can determine the transaction path of a user’s coins. Combined with information collected from side channels such as IP address information and data gathered from KYC procedures, this can be used to deanonymize individuals, learn what they’re using their money for, and figure out how much money they have in their wallets.