Bitcoin is often described as anonymous because it’s possible to send and receive bitcoins without giving any personally identifying information.
Achieving reasonable anonymity with Bitcoin can be quite complicated and perfect anonymity may be impossible.
Sending and receiving bitcoins is like writing under a pseudonym.
If an author’s pseudonym is ever linked to their identity, everything they ever wrote under that pseudonym will now be linked to them.
In Bitcoin, your pseudonym is the address to which you receive Bitcoin. Every transaction involving that address is stored forever in the blockchain. If your address is ever linked to your identity, every transaction will be linked to you.
In the original whitepaper, it was recommended that Bitcoin users use a new address for each transaction to avoid the transactions being linked to a common owner. This would be the equivalent of writing many books under different pseudonyms.
Although this remains a best practice, it is not enough to guarantee full anonymity due to multi-input transactions.
A multi-input transaction occurs when you receive payments to your wallet to different addresses, but then you send a payment out of your wallet which pulls bitcoins from multiple addresses.
The outgoing transaction will include multiple addresses as inputs, proving that they are in the same wallet and belong to the same entity. If your identity is ever linked to any of these addresses, none of the addresses will maintain their anonymity.
In the transaction displayed below, some of the bitcoins came from address 12TBGSTqd1how9cpYKWTm4VUYw3QDDWMoB and some came from the address 19t1HyYqe254NxiTAGLrAR4gPJAZCkSXJY.
This means that those two addresses are in the same wallet and belong to the same user.
One way to increase your anonymity is to use multiple wallets. This is like maintaining multiple separate identities.
You can find different wallets to use in our wallet guide.