Bitcoin is not anonymous. It is almost the opposite: a public, permanent, and globally readable record containing all transactions that have occurred since 2009. Governments, companies, and curious individuals read this record all the time, and none of them need permission to do so.
What it offers is pseudonymity. Instead of your name, addresses appear. As long as no one knows that an address is yours, it is just a sequence of characters. The problem is that a single link between an address and a person can cause everything connected to it to be exposed — forward and backward, forever.
Links are discovered through heuristics, and three of them account for most of the work. The first is common inputs: if a transaction spends five pieces at once, it is assumed that the five belonged to the same person because it was necessary to have the five keys to sign. This is why consolidating UTXOs, as the lesson on transactions mentioned, freely provides a list of everything that is yours.
The second is identifying change. In a transaction with two outputs, the one with a round value is usually the payment and the other the change; the one that uses the same address format as the inputs is usually the change; the one that is spent minutes later along with other pieces of yours, too. None of these clues are certain, but together they are almost always correct.
The third is the simplest and most common: reusing addresses. Every payment received at the same address becomes a line in the same statement, open to the public. The beginner's trail already asked for a new address for each receipt, and this is the reason in full.
The point where this stops being theory is registration. When you buy on an exchange that requires documents, that address now has a real name attached to it in an existing database. Chain analysis companies — Chainalysis was founded in 2014, and it is not alone — sell exactly this work to governments and financial institutions.
And the record does not forget. In 2012 and 2013, someone diverted 69,370 bitcoins from the Silk Road market. The coins remained untouched for seven years. In November 2020, the U.S. government located the person and seized everything, retracing the path on the blockchain calmly, long after any conventional trail had disappeared. In a public and eternal ledger, time works for the investigator.
What really helps is a short list. A new address for each receipt. Do not mix, in the same transaction, coins that came from sources you do not want to link. Run your own node to avoid giving your address list to an external server. Use Lightning for small payments, so they do not enter the blockchain. And for those who need more, coinjoin: several people jointly create a transaction with identical value outputs, so the common input heuristic points to a group instead of a person.
Regarding coinjoin, it is necessary to be factual: it is legally disputed territory. In April 2024, the founders of Samourai Wallet were arrested in the United States on charges of operating unlicensed money transmission, and another well-known wallet ended the service for Americans in the same week. The rules vary by country and change.
It is also worth naming what is theater. Passing coins through an exchange does not erase anything — it just transfers the record to its database. Doing a coinjoin and then consolidating everything into one address the next day undoes the entire work. And no network configuration solves a problem that is written on the blockchain.
Finally, fairness demands recognizing the other side: the same transparency that exposes you is what allows anyone to audit issuance, check a company's reserve, and prove fraud without asking for permission. Privacy here is work — and it is work because verification is public.
It was this same openness that allowed, starting in 2023, people to begin recording images and texts within transactions, reigniting the network's oldest question: what is it for? In the next lesson, the ordinals.