Can people really see how much money I have?
Well, kind of… but they don’t actually know it’s you.
On the bitcoin “list”, your real name isn’t anywhere to be found. In fact, you actually get a codename!
You probably already realize why this is useful for privacy reasons. Alice’s name on the list isn’t really Alice, it’s “Shadow”. So in order for someone to know how much money you have, they need to know your codename too.
We’ll check back in with Bob and Dave to see how this works.
This is the first time Bob is sending Dave money using bitcoin, so he doesn’t actually know what Dave’s codename is. In order to edit the list correctly, he needs to know what name belongs to Dave.
Bob knows his own codename, so he will be subtracting $7 from “Ninja”.
Great! Now Bob knows exactly how to edit the list. He will subtract $7 from “Ninja” and add $7 to “Hawk”.
And there it is! Bob paid Dave $7, but to the rest of the world.. it just looks like “Ninja” paid “Hawk” $7.
But now that Dave’s codename has been revealed, his privacy is gone... right?
Dave had to tell Bob his codename in order to be paid, so now Bob knows that Dave has $27. So what was the point of using codenames in the first place?
At this point, it’s important to remember that bitcoin is just a list that anyone can add to or edit. With that in mind, can you think of a way to gain back some privacy?
What if we just add a new codename to the list?
If Dave is concerned about privacy, he is more than welcome to create a new codename and have Bob pay him using that. In this case, Dave does decide to give himself a new codename and adds “Eagle” to the list.
Notice that “Eagle’s” balance is $0 because no one has ever sent “Eagle” money before, it’s a brand new name on the list! You are free to create as many codenames as you want, depending on your privacy concerns.
Dave rather not have Bob knowing that he is “Hawk”. Then Bob will know Dave has a whole $20 to his name.
Instead, Dave will tell Bob that he is “Eagle”.
And Bob will make the edit!
Now Bob knows that “Eagle” is Dave, but the identity of “Hawk” is still a secret. Bob knows that Dave has the $7 he just sent him, nothing more.
In reality Dave actually has two names, “Hawk” and “Eagle”, for a total of $27.
Bitcoin achieves privacy using codenames to hide your identity and balance from people who don’t know you.
Creating additional codenames allows you to achieve privacy from people who know your previous codenames too.
Ready to learn how bitcoin “codenames” really work"?