To begin, it is helpful to draw a distinction between privacy and anonymity in regards to financial transactions. A transaction is \"anonymous\" if no one knows who is involved. A transaction is private if what was purchased and at what price is unknown.

Bitcoin is anonymous but it is not private. No identifying information is recorded as part of the Bitcoin protocol, but every transaction can be viewed on the blockchain. This anonymity is both bitcoin\'s attraction and its challenge. As bitcoin hits the mainstream, many financial institutions are aware that it is impossible to satisfy anti-money laundering and know-your-customer regulations when using bitcoin.

However, most governments now demand that coin exchange services or digital wallets link a verified personal ID to each account or transaction. In this instance, bitcoin is no more anonymous than your personal bank account.

Those who wish to preserve their anonymity must seek a different entry point into the market, such as being awarded bitcoin for services rendered or as a reward for mining. In this case, any subsequent transactions will be anonymous, as no real-world ID will be linked to the record on the blockchain.

Even then, those seeking true anonymity will need to use VPN servers and other ways of disguising their I.P address.