Bitcoin Transaction Tracking

Let's take another look at Bitcoin and its traceability.…

Tracking Bitcoin transactions is extremely easy. But that's by design. Thanks to blockchain technology, which is simply a transparent, immutable ledger accessible to everyone, all transactions that have ever taken place on Bitcoin's main chain are easily traceable.

However, this does not mean that either the sender or the receiver of the transaction is publicly known. On the contrary, while much of the information about the transaction can be found out quickly thanks to the blockchain, it can be very difficult to find out who is on one side of the trade or the other if the sender and receiver are trying to hide their identities and get it right. But again, this is thanks to the design of the Bitcoin blockchain.

Bitcoin transaction tracking

As we mentioned earlier, Bitcoin is not anonymous. However, it is pseudonymous, which means that while the transaction, the transaction fees, or the addresses of the sender and the receiver are public, the identities of the two are not. This simply means the following.

If the sender or recipient ever connects their bitcoin wallet to their real identity, usually through a KYC exchange or platform, the transaction history associated with that particular wallet will be known forever. Since the blockchain is immutable, all transactions associated with the respective wallet, both incoming and outgoing, can be traced back to the individual. This applies to both the sender and the recipient of a transaction.

If, on the other hand, one of the two parties or are both anonymous, the transaction between them remains anonymous or rather pseudonymous. It can be easily tracked thanks to Bitcoin transaction trackers and platforms such as btcscan or blockchain.com explorer, but the identity of both parties remains unknown. This simply means that both parties can maintain their privacy while using Bitcoin for their transactions.

Tracking criminal activity

Obviously, governments or legal entities know about this feature of Bitcoin, which is why they have decided to investigate it more closely. While privacy can be maintained on the Bitcoin network, it is not the easiest process, as most platforms or exchanges (except for a few anonymous Bitcoin exchanges) now require KYC authentication before opening an official account.

This is mainly due to regulators trying to link real identities to bitcoin wallets or accounts. Once they are able to do this, the entire bitcoin tracking process is much easier for them. And in the event that the person in question is involved in any criminal activity, this allows law enforcement to act quickly.

Although it may seem that this kind of thing doesn't happen often, the opposite is true. In recent years, law enforcement agencies have been able to catch many criminals or hackers, mainly thanks to the traceability of cryptocurrencies as such. They often work with companies like Chainalysis or CipherTrace, whose main task is to find all the "digital breadcrumbs" left by the criminals at the crime scene.

Companies like these then try to help governments investigate and catch the suspects. While it may appear that these companies are working for a good cause, they are also destroying any form of privacy that cryptocurrencies like Bitcoin provide.

Privacy as a human right

To date, many believe that Bitcoin is anonymous, meaning that they do not challenge any KYC process that their exchange or platform requires. However, this means that from the first purchase of BTC or other cryptocurrencies, their accounts and wallets (read about anonymous Bitcoin wallets here) can be traced back to them.

Some might argue that it shouldn't bother them that the wallet and their identity are linked, as long as they are not involved in criminal or illegal activities. However, according to the 12th article of the Universal Declaration of Human Rights, privacy is a human right, which means that even in the financial world, everyone has the right to decide what information they do and do not want to disclose about themselves.

However, companies like Chainalysis or CipherTrace in combination with governments and law enforcement agencies as well as cryptocurrency exchanges are slowly taking this right away from people. Whether they know it or not, it is becoming increasingly difficult to remain anonymous in the digital world, even though tools like Bitcoin have emerged to establish these rights.

Bitcoin vs. cash

Even more concerning is the fact that many regulators often argue that cryptocurrencies like Bitcoin are frequently used for illegal activities. In their opinion, this is one of the reasons why all exchanges and platforms that offer buying and selling services for cryptocurrencies should align with KYC practices.

However, as many researches and projects clearly show, less than 1% of all transactions with Bitcoin or other cryptocurrencies can be attributed to some form of illegal activity. This is definitely much less than the illegal activities associated with cash. This means that according to the logic of regulators or lawmakers, cash should also be associated with KYC practices, which we all know is impossible to do.

Tool to mitigate the impact of KYC

If you want to make it harder for someone to track Bitcoin these days, there are tools or anonymous cryptocurrencies that can help. There are various Bitcoin mixers or CoinJoins that can make tracking Bitcoin transactions much more complex and problematic for blockchain analysis companies or governments.

This is also one of the reasons why Whir was created. Whir's mission is to help anyone who wants to maintain privacy when sending or receiving coins. This is done thanks to the CoinJoin feature, which protects the privacy of bitcoin users thanks to transaction obfuscation, making bitcoin tracking and linking to real identities much more comprehensive and difficult.

Conclusion

Tracking Bitcoin transactions is a big topic that can be looked at from many different angles. However, from ethical to technical to political viewpoints, the fact remains that while Bitcoin clearly allows transactions to be tracked due to blockchain technology, it does so in a pseudonymous manner.

It should be up to users alone to decide whether to link their identity to their wallet, and no regulator, exchange, tracking service, or blockchain analytics firm should do anything about it. However, if they choose to do so, services like Whir can be of help.

Disclaimer: This article does not serve as a piece of financial advice or encouragement and inducement for the usage of Bitcoin and other cryptocurrencies. Its primary role is informative, explanatory, and educational. The readers have to decide themselves whether to use or not to use these types of services.