Contrary to popular belief, most cryptocurrencies are called “pseudonyms”. On the other hand, there are many “anonymous”. BFM Crypto invites you to take stock of these two concepts.
While Edward Snowden contributed to the launch of ZCash, the anonymous cryptocurrency, BFM crypto invites you to take stock of the difference between anonymous and pseudonymous cryptocurrencies.
• Why do we talk about pseudonymous and anonymous cryptocurrencies?
It is often mistaken to think that cryptocurrencies are anonymous. This is not the case. In fact, they are “pseudonyms”.
“Cryptocurrencies operate on large, public, immutable ledgers called blockchains. Anyone can see the full transaction history of cryptocurrencies that use public blockchains, such as bitcoin,” said Kim Grauer, research director at Chainalysis.
“This means that cryptocurrencies are more transparent than most traditional forms of value transfer,” he adds.
When a user has cryptocurrencies like bitcoin or ether, he has a public address (a bit like a RIB in French). This public address is a sequence of numbers and letters that allows him to execute transactions on the blockchain, that is, to send and receive cryptocurrencies at the same address.
Cryptocurrency is called a pseudonym because it is possible on a blockchain to track the public address of a user – considered a pseudonym – which shows all the transactions that the latter performs.
On the other hand, an anonymous cryptocurrency, as the name suggests, allows to perform transactions in a private way thanks to encryption technology. Consequently, the users’ addresses or the volumes of their transactions are encrypted and therefore not visible.
In the world of cryptocurrencies, anonymous cryptocurrencies remain in the minority (Monero, Zcash, etc.) and are unlike so-called pseudonymous cryptocurrencies, such as bitcoin and ethereum, whose transactions can be consulted on their respective blockchains. As a reminder, a blockchain gathers all blocks (transactions) in a network, from the oldest to the most recent. Similarly, there are block explorers, such as ETH scanning, which allow you to view all transactions on the blockchain, with all addresses.
• What problems does the anonymous or pseudonymous nature of cryptocurrencies raise?
It will have been understood: Although blockchains store the transactions in memory, it is still difficult to know which services are hiding behind the transactions on the blockchain because they are pseudonymous. But the difficulty increases one step when they are anonymous.
“Thus, investigators need reliable data that assigns these addresses to services and organizations to derive actionable insights from blockchain transaction records. Incorrect or missing address assignments [liées au caractère anonyme, ndlr] and misunderstandings about how cryptocurrency firms handle funds can lead investigators to the wrong conclusions, ”Kim Grauer points out.
Clearly, anonymous cryptocurrencies present several difficulties in tracing the source of transactions.
By their nature, blockchains are transparent and traceable. Even considering technologies designed to cover their tracks, such as anonymous cryptocurrencies and so-called “mixing devices”, it is very difficult to develop complete confidentiality.
“Blockchains act as an immutable ledger. This means that evidence of criminal transactions will always exist. If anyone finds a way to view private cryptocurrency transactions or ‘unravel’ the jamming devices, any irregular game may be subject to retroactive investigation. and possibly prosecution, ”said De Kim Grauer.
• Why do institutions talk primarily about anonymity rather than pseudonymity?
On the website of the Bercy website, when asked what risks are associated with cryptocurrencies, the organization replies that “cryptocurrencies, due to their anonymous nature, promote circumvention of anti-money laundering rules or may participate in the financing of terrorism or criminals. activities. “
Tracfin, Bercy’s anti – money laundering and terrorist financing service, for its part, in a letter published in March 2022, specifies that it speaks of “the anonymity of most digital asset projects”.
Similarly, MEPs from the European Parliament’s Committee on Economic and Monetary Affairs and Civil Liberties adopted a proposal on the TFR regulations in early April.
“Illegal flows of cryptocurrencies go largely unnoticed across the EU and the world, making them ideal instruments for securing anonymity. Like previous money laundering scandals, ranging from the Panama Papers to the Pandora Papers, criminals multiply where anonymity is guaranteed due to confidentiality rules. With this proposed legislation, the EU will fill this gap, “said Ernest Urtasun (Greens / EFA, ES), co-rapporteur for the Committee on Economic and Monetary Affairs.
More specifically, the rule text twice refers to the term anonymity, and no mention of pseudonymity. “The global reach, the speed with which transactions can be made, and the potential anonymity that their transfer provides make cryptocurrencies particularly attractive to criminals seeking to illegally transfer between jurisdictions and operate across national borders,” the text emphasizes. negotiation. .
According to our information, the reference to the concept of anonymity rather than pseudonymity will be for the sake of clarity and readability of the discourse of the various authorities.
The pseudonym would not be “sufficient” to understand who the users holding cryptocurrencies are, and therefore in some cases do not help to combat money laundering or terrorist financing.