I agree with you that you shouldn't "get so paranoid that you withdraw to hide under a rock" when using the Internet. Take precautions, certainly, but strike a balance.
To illustrate why total privacy is practically impossible while making use of the Internet, here's a discussion about recent work done with "de-anonymize" algorithms. In short, the researchers were able to identify 99% of anonymous users by comparing different datasets, one anonymous, and one not.
Further, there have been studies with publicly available census data that show a person can be reasonably identified by all sorts of seemingly innocuous data. For example:
"Using public anonymous data from the 1990 census, Latanya Sweeney found that 87 percent of the population in the United States, 216 million of 248 million, could likely be uniquely identified by their five-digit ZIP code, combined with their gender and date of birth. About half of the U.S. population is likely identifiable by gender, date of birth and the city, town or municipality in which the person resides. Expanding the geographic scope to an entire county reduces that to a still-significant 18 percent. "In general," the researchers wrote, "few characteristics are needed to uniquely identify a person."
"Stanford University researchers reported similar results using 2000 census data. It turns out that date of birth, which (unlike birthday month and day alone) sorts people into thousands of different buckets, is incredibly valuable in disambiguating people. "
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