If you dive into Bitcoin’s history, you are inevitably going to discover the darker aspects of the cryptocurrency.
Dylan Buckley who has experience working for and investing in Bitcoin as well as other Cryptocurrencies such as Litecoin and Dogecoin fills us in on some of the darker aspects of Bitcoin. Dylan Buckley is a freelance and self-help writer from Southern California.
Prior to its adoption by much of today’s society, Bitcoin was used to make illegal dark web purchases on a website known as Silk Road. Many of the customers and sellers on the dark web drug platform used Bitcoin to make “anonymous” transactions. However, quite a few of the illegal transactions were traced and the criminals were apprehended with ease.
This begs the question, how anonymous is Bitcoin? Is it safe to make these illegal transactions? Can one truly stay off the grid and avoid taxes with this cryptocurrency? Although I don’t endorse or condone this type of behavior, I will discuss whether or not it is possible to remain completely anonymous using Bitcoin.
Let’s Look At How the Bitcoin Website Addresses the Concern of Anonymity in Regards to Illegal Transactions…
In the FAQ section of the Bitcoin website, this is what the developers say about Bitcoin and anonymity:
“Bitcoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash. The use of Bitcoin leaves extensive public records. Various mechanisms exist to protect users’ privacy, and more are in development. However, there is still work to be done before these features are used correctly by most Bitcoin users.
Some concerns have been raised that private transactions could be used for illegal purposes with Bitcoin. However, it is worth noting that Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Bitcoin cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Bitcoin is also designed to prevent a large range of financial crimes.”
As you can see here, even the developers have stated that those who are using Bitcoin for illegal purposes are subject to criminal investigations. Those who are using substantial amounts of Bitcoin for illegal transactions are even more likely to be discovered. If you know about the blockchain technology that Bitcoin uses, you may be thinking, how are authorities able to trace criminals only using a wallet address?
How Authorities Track Illegal Bitcoin Transactions
On the Science Magazine blog, there is a great image that explains how authorities use blockchain technology to track down users.
Not only are all your transactions recorded on a single ledger but authorities are also able to trace wallet addresses to certain IP addresses. You could, in theory, use what’s known as a Bitcoin mixer to scramble your Bitcoins with other Bitcoins and send them to another wallet that you own. However, this type of activity is often noticeable and will come into question if you are making illegal transactions. You could also try using different wallet addresses for every transaction you make. Still, your IP address will be tied to each transaction.
No matter what attempts a criminal makes to cover their tracks, Bitcoin is traceable and all transactions are public. It’s much easier to pay your taxes and adhere to Bitcoin laws than it is to try to avoid the authorities. One way or another, your activities will be discovered and you will be prosecuted to the fullest extent of the law.
Is it Even Worth Attempting to Avoid Your Taxes?
In some countries, people may be using Bitcoin for political or economic reasons. In my opinion, it is acceptable to use Bitcoin in order to survive in some countries and you may very well need to fly under the radar using cryptocurrencies. However, in other countries, it is not necessary or even reasonable.
Let’s take into consideration the current Australian Bitcoin tax laws. When Bitcoin was finally noticed by tax authorities in Australia, it was considered an intangible property by the country. Therefore, Bitcoin users were forced to pay twice, sometimes even three times the amount of normal taxes.
For example, let’s imagine that you purchased a pair of socks on the internet using Bitcoin. Not only would you pay the normal tax for the pair but you would also be paying taxes for trading the cryptocurrency. If you were earning Bitcoin from employers or another source, you would then be paying income taxes, normal sales taxes, and property taxes.
Recently, however, the tax laws in Australia have changed. Bitcoin is no longer treated as property. The government now treats the cryptocurrency as regular money and it is taxed in the same fashion as normal currency. This change took place in July of 2017 and current users as well as new users will have no need to avoid taxes. Bitcoin is essentially the same as Australian currency.
To give you some perspective, Bitcoin laws in America are similar to older Australian tax laws. Bitcoin is still taxed twice or three times as much and it is much harder to justify using or investing in the cryptocurrency. While we are currently pushing bills that will help the Bitcoin economy thrive and make it easier for interested individuals to adopt, it is still not a legitimate currency.
Australians have the opportunity to take advantage of this revolutionary technology and can do it without having to worry about being overtaxed. Take this opportunity and run with it. Make your Bitcoin, pay your taxes, and follow your government’s Bitcoin rules. There is no need to avoid tax laws and the consequences of doing so far outweigh the supposed benefits.
Some people do need to maintain their anonymity. For whatever reason, there is a legitimate need for some to be anonymous when using Bitcoin and even when using the internet in general. If you are one of these people, here are some ways that you can keep your Bitcoin activity private:
- Use Different Wallet Addresses for Every Transaction- No matter what type of Bitcoin wallet you use, there is always an abundance of different wallet addresses associated with your wallet. Every time you need to receive money, generate a different wallet address. This way, it isn’t so easy to determine the amount of money that is going into your wallet through the blockchain.
- Hide Your IP Address- It’s not wise to let your IP address be associated with your transactions. You can prevent this from happening by using TOR, a virtual private network, or by going to public locations that have WIFI and doing Bitcoin-related activities there.
- Purchase Privately, Mine, or Earn Your Bitcoins- Purchasing Bitcoins using personal information is going to reveal your identity. Instead, purchase Bitcoins from private sources, earn Bitcoin through jobs, or mine your own Bitcoins.
If you need to remain anonymous for good reasons, it is possible. If you are trying to engage in illegal activities, anonymity is unlikely. Stay safe and use Bitcoin wisely or be prepared to deal with the consequences.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.