In the crypto-verse, people use anonymity or pseudonymity to some extent for security and privacy concerns or to move toward self-sovereignty. Both pseudonymity and anonymity offer crucial protections in their unique ways.

In this blog, let’s explore these concepts and briefly understand them.

What do Pseudonymity & Anonymity mean?

Anonymity

In general, anonymity implies that no one is aware of your true identity, while they are undoubtedly aware of your online activity. It means that you can carry on with your movements while staying anonymous. Your actions and your true identity are kept separate by anonymity.

In terms of blockchain security, anonymity means that no activity or transactions made on the blockchain or exchanges can be connected to a specific user, whether they are using a pseudonym or not.

Pseudonymity

The term “pseudonymity” refers to using a different name on social media, such as a pen-name or nick-name. It is typically utilized to conceal your true identity while maintaining your identity under another name.

While pseudonymity does allow a real person, such as an artist or poet, to keep their identity for their work through a pen-name or nick-name, some individuals abuse it to gain financial advantage through a false name. In these situations, the victim might blame the offender’s wrongdoing on his fictitious name but not on his true identity.

In terms of blockchain security, pseudonymity means that while the identity of the person making transactions is unknown, all of the transactions they make can be linked to the same pseudonymous identity.

Put simply, anonymity is a much more potent form of privacy than pseudonymity; however, with that comes some far-reaching implications that we shall see.

Why are they crucial to cryptocurrencies?

Bitcoin and Ethereum, the largest cryptocurrencies, work on pseudonymous systems. This simply means that the user’s identity remains unknown, and the activity associated with their wallet takes the form of a big cryptographic address. These addresses play a crucial role in keeping track of the fund’s flow from the perspective of blockchain security.

There are some projects that offer complete anonymity through cryptography. These projects are also known as “privacy coins” they prevent the transactions from being linked to particular addresses and eventually make it harder for the funds to get tracked.

Pseudonymity and anonymity have emerged as the central pillars of cryptocurrencies.

Have you heard the name “Satoshi Nakamoto”? If you’re into crypto, you’ve definitely heard about this infamous founder (s) of Bitcoin. Satoshi Nakamoto is a pseudonym whose identity is still anonymous.

Are they a boon or a bane to the cryptocurrencies?

Ultimately, those who favor retaining complete pseudonymity and anonymity and those who want greater KYC and AML checks do so to support and protect blockchain security to make crypto safe and secure. Both developers and authorities are attempting to discover viable methods to guarantee blockchain security without compromising the principles of pseudonymity and anonymity cherished by the community because this is a young and quickly evolving business.

We would see significantly fewer rug pulls and other crypto scams if people had complete transparency on who was behind a project. Unfortunately, one of the most prominent drawbacks of pseudonymity and anonymity is how it has empowered bad actors whose anonymity allows them to operate with impunity.

Final thoughts

The discussion about the importance of having pseudonymity and anonymity or implementing rules and regulations is very much common. While it can be a hot topic for discussion, it is an unavoidable conversation as the crypto industry will have a widespread presence. In any case, all sides will have to make compromises to assure a safe and secure cryptocurrency and ongoing blockchain security.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.