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Bitcoin Transactions – Are They Traceable?

One of the huge controversies surrounding the usage of Bitcoin and many other cryptocurrencies is they are said to be utilized in criminal activities and are often involved to stimulate illegal activities. Many officials that include the Secretary of US Treasury, Janet Yellen and the President of the European Central Bank, Christine Lagarde have stated that they are worried about cryptocurrencies being used by criminal and terrorist organizations.

Regardless of what is floating around, this idea has become quite an exaggeration with the advancement of the crypto space going in full motion. According to a report posted nearly two years ago by a cryptocurrency company named Elliptic, illegal and criminal activities involving cryptocurrencies have recorded to be less than 1% of the total utilization of cryptocurrencies.

The truth is that physical cash has always been a major source to fund illegal activities and organizations, especially when it comes to laundering money, as it can become challenging to track out. Since cash is passed on physically, there is practically nothing left behind for anyone to track and trace out the source or the destination of the cash being transferred.

When compared to Bitcoin, every Bitcoin transaction has quite a trivial process of being traced out, clearly highlighting information on both the source and the destination that those transactions carried.

With that out of the way, this article will now take a deeper dive into the level of traceability that surrounds Bitcoin and other cryptocurrencies operating around the world.

Tracing out Bitcoin Transactions

As said before, Bitcoin transactions can be easily tracked down. Even if Bitcoin can be minted, passed around or even stored without the consent or watchful eyes of a centralized body like a government, information regarding every single Bitcoin transaction is kept and stored inside of what is called a ledger, also popularly known as a blockchain, which is public.

Realistically speaking, every single Bitcoin can be tracked with respect to information regarding both the source it was transferred from and its current holder. But the thing to note is that the blockchain is only responsible for storing what is a called a public address of digital cryptocurrency wallets, which do not always reflect the real holder.

What this essentially does is that it makes Bitcoin more of pseudonymous than being completely anonymous. A Bitcoin wallet address is basically a type of coded address that is utilize for the transfer of Bitcoin on the respective Bitcoin network. Its just like an email or account number.

Adding to the part where blockchain was mentioned, as of now performing Bitcoin transactions with a completely anonymous identity is almost said to be impossible, especially with the existence of Bitcoin explorers.

What Bitcoin explorers do is that they help and guide you towards highlighting the activities conducted on the Bitcoin blockchain, meaning that anyone can easily see information regarding a Bitcoin transaction, from the source wallet address to the destination wallet address. Because of this level of transparency, tracking Bitcoin transactions becomes quite trivial. The blockchain is considered as a database that is open for all to see around.

Looking at some other examples of cryptocurrencies like Ethereum and Solana, both possess their explorers that make their blockchains transparent. The Ethereum explorer is called as Etherscan, while the Solana explorer is called SolScan.

Through these explorers, transactions on the blockchain can be easily tracked down, letting those concerned, gain information about the addresses and the amount of cryptocurrency that was moved around. But even with all this being true, there are still many individuals who believe that completely anonymous transactions can be conducted using the likes of Bitcoin.

The issue to be looked in is that Bitcoin was initially designed in a such a way to respect the privacy of individuals that use it. The idea of a sort of anonymity associated with Bitcoin comes from the sense that a digital wallet address can be easily crated without having to reveal your true self regarding that address.

In reference to the original Bitcoin whitepaper, the man behind Bitcoin, Satoshi Nakamoto highlighted that wallet addresses could be utilized to track down individual profiles that lead to a common identity and he himself recommended that the users of Bitcoin should use a fresh address to perform each transaction, aiding them in maintain a good level of privacy, however it is still important to remember that the transaction itself cannot be hidden in the blockchain.

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Factors that make Bitcoin Transactions Traceable

As clearly stated before, Bitcoin transactions can be easily tracked, as the Blockchain that powers the cryptocurrency has a completely transparent record for all eyes to see, with information surrounding all transactions performed are stored in it.

Nearly a decade of studies surrounding this matter have existed. Despite there being a chance to develop some sort of anonymity for cryptocurrency transactions, however the ability to perform a transaction with full anonymity does not exist, especially when it comes to the core concepts of a blockchain ledger, as blockchains will continue to maintain their status of being completely open and accessible for anyone interested to look.

Due to this impressive level of transparency, anyone can track down when and where Bitcoin was transferred, and with real identities behind addresses being a mandatory task, the transaction can be inspected in much more detail, allowing anyone to see the pathway of the Bitcoin transaction, when it was conducted, and which wallets were involved.

Additionally, the good thing is that, as more countries have started to focus on regulating cryptocurrencies, most of them have considered the ruling of the Know Your Customer (KYC). These rulings state that any individual accessing centralized trading solutions must clearly show who they are.

When governments know the identifies of individuals on these platforms, they can easily track down the transaction history of that individual and even have information on the assets stored on the wallet.

To make trades possible through centralized exchanges, it is mandatory to provide information regarding identity to the respective exchange, so with this the Bitcoin wallet addresses can be associated with the respective identity it relates to. The impressive thing to keep in mind is that the record surround Bitcoin transactions cannot be deleted, so authorities always have the power to view any transaction history if required.  

So even if there was any criminal activity that involved Bitcoin transactions, investigative authorities can easily view the blockchain and track down the individuals involved in the process, making it a way better and easy thing to work with, especially when compared to hard cash. Many famous criminals have stated that hard cash has always been the best way of doing illegal business, there is no doubt about that.

The Bitcoin network is said to function without having a singular authority looking after it, but cryptocurrency exchanges are not on the same page, as they are looked after by certain regulatory authorities, meaning that they are required to use the KYC rulings for their customers, linking the wallet addresses to real-world identities. So, if any individual has agreed to the terms and services of a cryptocurrency exchange, then most likely they have also agreed to the KYC rulings.

How to Trace Bitcoin Transactions?

With the rise of legislations and eyes surrounding cryptocurrencies, governments can track down any suspicious Bitcoin transaction very easily in order to extract the main identity behind the walls. Over the years, millions of dollars’ worth of cryptocurrencies have been seized by different governments around the world.

Seeing the anonymity level behind cryptocurrencies, criminals have tried their best to perform certain illegal transactions, however even with the smartest of strategies, they failed to stay completely anonymous. Because of this, legislation have become stricter, as the motivation behind identifying any fraudulent criminal activities have increased drastically to catch those doing wrong. 

Even if the real identity behind the Bitcoin wallet is unknown, tracking transactions is a trivial task that can be done with speed, however identifying the real individual behind that specific address can be quite challenging. If an individual is looking to trade out cryptocurrencies for traditional currencies, this makes it even more easy for identifying the individual behind the wallet and track out the transaction pathway. 

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Criminals can go great lengths to keep their identity hidden, utilizing multiple wallets addresses to move around Bitcoin, so the use of Bitcoin explorers can become sort of pointless at some point, but not completely. This is where authorities use blockchain data platforms such as Chainalysis in order to keep up in a much more efficient way.

Although the initial phase of this leads of grains of sand such as small scams, however as more and more activities are tracked, such as transactional history and KYC information, the bigger hourglass slowly starts to reveal itself.

Chainalysis reported that the number of scams has reduced as of August of this year, however that has been countered by the increase in illegal hacking events.

Chainalysis reported that with the initial half of 2022 passing, cryptocurrency exchanges, decentralized finance (DeFi) protocols and other type of internet wallet services have experienced around $1.9 billion worth of cryptocurrency assets stolen by several hacker groups, highlighting a more than 50% increase in the amount of assets stolen compared to last year.

The Department of Justice has had quite an impressive history of tracking down millions of dollars’ worth of digital assets. Back in June, the Department of Justice stated that they had managed to recover about 63 Bitcoin that were stolen via a ransomware scheme.

Two years ago, the Department of Justice also reported that they utilized Chainalysis to track out around $28 million worth of cryptocurrencies that were stolen by a North Korean hacker team, which lead to them not being able to launder that money using exchanges.  

These are only a few of the massive number of scenarios that that law enforcement authorities have been involved in while using the power of blockchain transparency to track out stolen funds.

Looking for Bitcoin wallet addresses

It is possible to obtain Bitcoin wallet addresses via the use of a Bitcoin explorer but obtaining the wallet address does not always eject the original identity behind the wallet. It becomes very difficult to track down the original individual behind a wallet, especially if the information is vague. Although the blockchain explorer can effectively track down the transactions and addresses associated, it can take quite a while to extract the original identity behind the wallet.

As mentioned before, a Bitcoin wallet address is pseudonymous, meaning that it mentions a coded name instead of a real name, however it is still definitely possible to track down an identity, given that the data is complete and connected.

Criminals have gone to great lengths to establish complete anonymity and have gotten quite close to it. In addition to the use of multiple wallets, criminals use what are called Bitcoin mixers. What Bitcoin mixers essentially do is that they mix Bitcoin transactions coming from various entities inside of a pool, and then distribute the transactions to their addresses, increasing the difficulty to track them on a whole different level.

The utilization of multiple wallets is also very difficult to handle to keep track of. If an individual seeks to keep their activities hidden on the Bitcoin network and not be traceable, then can utilize multiple wallets to create a sort of maze for authorities to get confused on. Tracking and mapping out all the transactions and wallet addresses can become quite an extremely tedious problem for law enforcement authorities to manage and get any results out of.

Both ways have their own level of difficulty, however the combination of both can become a hassle authorities and trackers to manage, this providing that tracking transactions and wallets takes a lot of time and resources to perform.

Possibility of an Anonymous Bitcoin Wallet

Anonymous Bitcoin wallets do exist, but the way of handling them is what determines their anonymity. If there is a slightest mistake, your identity can be easily tracked down, eliminating the initial behind using it. A sort of anonymous Bitcoin wallet is possible, but the thing that is that the wallet is not the only thing that can lead to anonymity.

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If an individual performs many transactions, a common identity can be connected to wallet that the transactions have been used to perform with. And with the addition of KYC rulings that come with exchanges, it is almost impossible to perform transactions with full anonymity.

Full anonymity is possible through hardware wallets. For instance, the Electrum wallet can be paired with a hardware wallet to store assets. But again, the question that defeats the idea is how Bitcoin will be transferred onto it. If Bitcoin is transferred using an exchange that follows the KYC rulings, the level of anonymity is gone, thus losing the point of trying to achieve anonymity.

Sharing your Bitcoin Address

Although sharing a public key is not something to be afraid of, however it is extremely important for you to make sure not to share the private key in any circumstances. Transactions can be done using the public key easily, so there is no need of sharing the private key.

Since the public key is already public, there is not point of stealing it. The public key basically acts as an email address or an account number that is associated with the wallet. Anyone can transfer assets using the public key; however, it is only the owner that can access them. There are no cryptocurrency assets that can be compromised using the public key, so sharing it around is very safe, but keeping anonymity becomes impossible, as transactions can be easily linked to an original identity.

If the private key is stolen, then it means that all your assets inside of your wallets are compromised and might never be recovered back. Crypto assets can be recovered from wallet to wallet, however they cannot be recovered if the public key is compromised, since the slot in the blockchain will become accessible for anyone to take the assets out of. The private key is the main password of the wallet. It is always recommended to make multiple physical offline backups of this key to stay secure. 

Conclusion

The idea that Bitcoin and various types of cryptocurrencies are always utilized for criminal and terrorist activities does not have any weight to it. Because of many individuals not having the completely set of knowledge and skills behind the likes of cryptocurrencies, they can often see things with blind eyes and spread false information about them, leading to the degradation of the image of the cryptocurrency space.

The moment people can keep aside the horrible misinformation that is spread through local media and clearly understand the true meaning behind the of use of Bitcoin and other forms of cryptocurrencies, they can have a much clearer vision to look upon how advantageous this type of technology can be and how entities are utilizing it to revolutionize the financial space.


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Mubashar Nawaz (United Arab Emirates)

Mubashar Nawaz is an experienced crypto writer working for Tokenhell. Having passion for writing, he covers news articles from blockchain to cryptocurrency.

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