Pseudonymity

Pseudonymity refers to the practice of concealing one's true identity from the public by using a fictitious name or a fabricated identity. It is not the name of a well-known dinosaur!

In fact, it pertains to a fundamental aspect of most public blockchains, specifically blockchain security. Within blockchain security, the pseudonymous characteristic of certain blockchains keeps a user's identity concealed from other users on the network while still associating all transactions made by that individual with a pseudonymous identity that can be traced by nearly anyone.

Pseudonymity is a beneficial feature of blockchains, as it enhances personal privacy and security during transactions on public blockchains. In contrast, anonymity ensures that transactions and network activities cannot be linked to any individual. When you are anonymous, your true identity remains entirely hidden and unknown.

Satoshi Nakamoto serves as an exemplary case of pseudonymity in the cryptocurrency realm. Satoshi Nakamoto is the creator of Bitcoin, yet we do not know his actual name or true identity.

The various levels of user privacy are considered by many in the crypto industry to be a primary reason for the widespread appeal of cryptocurrencies. Users are protected from having to disclose personal information to companies or governments, allowing them to transact money across borders with anyone, anywhere.

However, this emphasis on user and transaction privacy in the crypto space has sparked debate in an industry grappling with illicit activities, fraudsters, and individuals seeking to operate in secrecy.

The pseudonymous and anonymous characteristics of cryptocurrencies have led governments and institutions to impose regulations on popular crypto businesses, regulations that ultimately affect the users.

Financial regulations, such as KYC (Know Your Customer) and AML (Anti-Money Laundering) checks, are becoming increasingly prevalent across cryptocurrency exchanges and other crypto applications and services, diminishing the ability to maintain privacy on mainstream platforms.

Centralized crypto exchanges have emerged as the primary gateways for individuals entering the crypto markets, making it clear why regulators are concentrating their efforts on these types of organizations. Decentralized crypto exchanges aim to attract a broader audience by providing trading accounts that only require users to connect their crypto wallets to access the exchange's services, without the need for KYC information.