Anonymity vs. Pseudonymity In Crypto

Someone who is anonymous is able to operate or speak in a way that makes them unidentifiable. Someone who is pseudonymous operates or speaks in a way in which they can be identified, but their identification shields who they actually are.

Take, for example, the comments section of a website where a login is not required and users can comment without identifying themselves. This is anonymity. An example of pseudonymity is The Rock, whose real name is Dwyane Johnson, or any other professional who performs under a stage name.

What Does Anonymous Mean in Crypto?

Although transactions with many cryptocurrencies, like bitcoin (BTC), are more traceable than cash transactions, some cryptocurrencies were designed with anonymity and privacy in mind, including Zcash (ZEC), Monero (XMR), and Grin (GRIN) and Beam (BEAM).

Although some transactions are anonymous to further criminal behavior, privacy is a basic human right, afforded to citizens by governments, and is an essential component of greater freedom. For example, anonymous transactions would allow a person in a non-LGBTQ+-friendly country to donate to an LGBTQ+ rights organization without revealing their real-world identity and risk facing persecution.

What Does a Pseudonym Mean in Crypto?

Many in the crypto community use pseudonyms for privacy, either to shield their identity as part of a move toward self-sovereignty, or because of concerns about their personal privacy or security. Many find Bitcoin appealing because pseudonymity is built into the protocol.

When you open a bank account, you are required to show identification that links your financial transactions to your identity, which is neither anonymous data nor pseudonymous data. When you create a Bitcoin wallet, you generate an alphanumeric address that allows you to send or receive bitcoin and is visible to the whole world on the blockchain. However, this address provides you with pseudonymity, rather than anonymity, because financial forensics on your public address can be traced back to your real-world identity.

The debate between privacy advocates and lawmakers about the pros and cons of pseudonymous and anonymous cryptocurrencies is ongoing, but hopefully the speed of technological innovation and mainstream adoption of crypto will lead to a compromise soon.