Even though cryptography fosters anonymous transactions, Bitcoin payments can be processed in a banking-complaint way easily

Cryptography protects basic privacy rights of Bitcoin owners. Digital money has a potential for criminal misuse – just like paper money. Therefore, regulators and bank’s compliance officers are concerned about the anonymity that comes with plain cryptographic transactions.

From an Anti-Money-Laundering perspective, customers can be easily known by identifying the beneficial owners of the public keys and private keys. With other words, Bitcoin transactions are not anonymous when the account holders of the Bitcoin addresses and the corresponding credentials are identified.

How to make cryptographic transactions compliant with Anti-Money-Laundering laws

This mechanism is comparable to modern numbered bank accounts that are not anonymous. A numbered bank account is a type of bank account where the name of the account holder is kept secret in the public but it is known to the bank, thus providing accountholders with a greater degree of bank privacy in their financial transactions. Such accounts are available in a number of jurisdictions like Austria and Switzerland.

Cryptography can be explained easily

The trick is to agree on a secret numerical key. Let’s explore in the video below how this trick is done using colors:

Diffie–Hellman and Ralph Merke - the inventor of cryptographic hashing

Public-key cryptography is an example of the Diffie–Hellman (D–H) key exchange method as originally conceptualized by Ralph Merkle. He is an American computer scientist. Merkle is one of the inventors of public key cryptography, and the inventor of cryptographic hashing. Cryptography is based on a number of concepts:

  •          DH establishes a shared secret that can be used for secret communications while exchanging data over a public network.
  •          The Diffie–Hellman problem (DHP) is a mathematical problem first proposed by Whitfield Diffie and Martin Hellman.
  •          The motivation for this problem is that many security systems use mathematical operations that are fast to compute, but hard to reverse.
  •          Elliptic curve Diffie–Hellman (ECDH) is an anonymous key agreement protocol that allows two parties to establish a shared secret over an insecure channel.
  •          Elliptic curve cryptography (ECC) is an approach to public-key cryptography based on the algebraic structure of elliptic curves over finite fields.

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