Are Bitcoin Transactions Anonymous?
One of the biggest myths around Bitcoin and other cryptocurrencies is that these are used mainly by criminals to fund illegal activities. Appointed officials made statements in 2022 that cryptocurrencies are troubling when it comes to terrorist financing as well as money laundering activity. However, these fears are largely exaggerated. A 2020 report found that illegal activity accounts for less than 1% of all crypto transactions.
In fact, physical cash is far more commonly used in criminal activities and money laundering as it is challenging to trace. Cash passes easily from hand to hand and there is no paper trail that is left behind. In contrast, Bitcoin is quite easy to trace, particularly when compared to cash.
Examining The Myth Of Anonymity
While Bitcoin wallet records are available for public view, there is no inbuilt system that identifies who the owner is. Bitcoin does not inherently need a ‘know your customer’ (KYC) identity proof in order for you to have a wallet. This is the source of the myth of Bitcoin anonymity.
However, crypto exchanges are resolving this issue by needing a KYC ID before they let you execute transactions, then communicating the data with law enforcement authorities.
Put another way, if your Bitcoin wallet is empty and idle, you are anonymous. However if you have ever sent or received anything, law enforcement can utilise the KYC documents uploaded to an exchange in order to identify both the sender and receiver.
What Makes Bitcoin Traceable?
Bitcoin transactions are traceable as Bitcoin’s blockchain is completely transparent. Every transaction is stored publicly on a distributed ledger.
From 2013, a number of different studies have been looking into tracking Bitcoin transactions and their related identities. Although it is indeed possible to create a particular form of anonymity with cryptocurrencies, it is challenging to send transactions completely anonymously via the Bitcoin blockchain. Blockchains remain fully open and accessible to everyone.
Owing to the transparency of the blockchain, it is possible to track money flows easily. If the identity behind a wallet address is known, then the transactions made can be traced back and also traced in the future. All these transactions can be viewed in detail. In this way, it is entirely possible to see which amount was sent, on which date and to which wallet.
How Are Bitcoin Transactions Traced?
With increasing legislation and surveillance, governments are able to trace fraudulent BTC transactions more easily by finding the identity behind a Bitcoin wallet address. That’s why relying on crypto coin reviews is always a good idea, so you can check which coins and exchanges are trusted and reliable.
In recent years, millions in cryptocurrencies have been seized by a number of governments worldwide. Criminals saw the opportunities that blockchain technology has to offer and attempted to purchase cryptocurrencies – such as Bitcoin – as anonymously as possible.
Eventually, this did not work out well for many fraudsters and it can be stated that Bitcoin transactions are not fully anonymous. These events have helped to tighten legislation in this area and intensify the search for fraudulent transactions.
When trading from Bitcoin wallets whose identity is not known, transactions can be traced quickly, but it can take time to find out the identity. When someone wants to exchange their cryptocurrencies for United States dollars, it already becomes a lot easier to trace the identity of the wallet owner and trace back the transactions.