Are you familiar with Bitcoin? Ethereum? How about Ripple? Anyone that has access to the Internet or television news channels would find it hard to avoid discussions of digital assets. Hailed as an anonymous way to conduct financial transactions, cryptocurrencies have taken the world by storm. Those who buy them or trade them on exchanges like Kraken will find that using a VPN has some advantages when it comes to digital coins.
Is Bitcoin Really Anonymous?
The anonymity of Bitcoin is somewhat overblown. People have the impression that you can purchase and spend Bitcoin without revealing any personal information. After all, Bitcoin was the preferred currency of the infamous Silk Road where web surfers purchased drugs and solicited hitmen.
Yes, that is true. But where are those people and their vast fortune of Bitcoin now? In the hands of the authorities. Understanding the truth about Bitcoin’s anonymity will help you see where a VPN could come in handy.
Bitcoin relies on something known as a blockchain to manage transactions between individuals. Other coins like Ripple and Litecoin also use blockchain technology. A blockchain is simply a listing of transactions on a cryptocurrency’s network. These transactions are encrypted, hence the name given to digital coins.
To purchase Bitcoin, you need to have a Bitcoin wallet. A wallet is essentially nothing more than a secure web address. You can obtain one without providing any personal data, so there is nothing to link you to the wallet, and you are the only one who has access to it. Until you use it, that is.
As researchers at MIT pointed out, the moment you use Bitcoin to make a purchase it is possible that your anonymity has been compromised. Merchants keep records. Those records may include your name and address, both of which are connected to your Bitcoin wallet. Now, you have left a paper trail. It will be easy enough to follow. Just ask Ross Ulbricht. At the time the authorities caught up with Ulbricht, he had amassed a fortune of $28.5 million. Most of that money was made anonymously.
What About Cryptocurrency Exchanges?
For starters, you can forget about an anonymous cryptocurrency exchange account. That is not going to happen. You will be required to verify your identity before the account can be opened. An exchange is a financial market where individuals buy and sell digital assets.
Some countries restrict access to Bitcoin exchanges. Both China and South Korea have made attempts to ban trading Bitcoin and other cryptocurrencies. If you happen to be a resident of those nations, your options are very limited when it comes to trading coins.
How Can VPN Help with Cryptocurrency?
A VPN is one of the best measures you can take to safeguard your Internet privacy. A VPN creates a tunnel or gatekeeper between you and your ISP. When you access the Internet with a VPN, your IP address is hidden in a fashion. Anyone looking would only see the IP address of the VPN server. That server could be located in another country. Therefore, your identity and location can be hidden.
Let’s say that you wanted to create a cryptocurrency exchange account in China or South Korea. Impossible. The exchanges will note your location based on your IP address and they will prevent you from signing up. But, if you were to use a VPN to indicate that you were in the United States, sign up would be possible. Just use the US server on your VPN to connect to the exchange. It will appear that you are in the United States.
Granted, you still have to verify the account you create. We’re going to leave all that up to your imagination. We’ve already gone farther than we wanted to go, and we’re not encouraging anyone to break the law. We are only illustrating that doing this would be possible with a VPN.
Now, what about those people who have a legitimate cryptocurrency exchange account? Let’s say that John Doe lives in the United States and likes to trade Bitcoin. He opens and exchange account and begins to trade. A few months later, Mr. Doe is sent to China by his company as an expat who will be working in the Asian region for an undetermined amount of time. When he arrives, he finds out that he cannot trade on his exchange because the exchange is blocked by ISPs in China.
Can you imagine how stressed our Bitcoin investor would be if he had to watch prices rise or fall without a way to trade? He could lose his whole investment. But he wouldn’t have to endure this stress if he remembered to order VPN service before leaving the United States. Once in China, all he would need to do is open up his VPN, connect to the US server, and connect to his favorite Bitcoin exchange. The exchange would never know he wasn’t at home.
Improving the Privacy of the Blockchain
VPNs can even be used when you create a Bitcoin wallet and make purchases with cryptocurrencies. Doing this would actually increase the privacy of the blockchain. There are many applications where VPNs and digital assets make a good match.
Cryptocurrencies might not yet be perfect in their protection of private data, but the blockchain is still one of the strongest methods of security for financial transactions. When combined with a VPN, blockchains can become almost impenetrable.