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14 days ago · 5 min read

Bitcoin transaction tracking

Let's take a look at Bitcoin and its traceability once again...

Bitcoin transaction tracking

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

That, however, does not mean that either the sender or the receiver of the transaction is publicly known. On the contrary, while a lot of information about the transaction can be found out quickly thanks to blockchain, if the sender and receiver try to hide their identities and do it properly, it can be very difficult to know who is on either side of the trade. But yet again, this is thanks to the design of the Bitcoin blockchain.

Bitcoin transaction tracking

As we have already mentioned, Bitcoin is not anonymous. It, however, is pseudonymous, which means that while the transaction, transaction fees or addresses of both the sender and receiver are public, the identities of either are not. This simply means the following.

If the sender or the receiver ever connect their Bitcoin wallet with their real-world identity, usually through KYC exchange or platform, the transaction history connected to the given wallet will forever be known. Since blockchain is immutable, all the transactions connected to the given wallet, both incoming as well as outgoing, will be traceable back to the given individual. This applies for both, sender or receiver of any transaction.

On the other hand, if either party, or both, are anonymous, the transaction between them stays anonymous, or better say, pseudonymous. While it can be easily traced thanks to bitcoin transaction tracker and platforms such as btcscan or blockchain.com explorer, the identities of both parties remain unknown. This simply means that both the parties can keep their privacy while using Bitcoin to transact.

Criminal activity tracking

Obviously, governments or legal entities know about this feature of Bitcoin, which is why they have decided to study it more closely. While the privacy on the Bitcoin network can be obtained, it is not the simplest process since most of the platforms or exchanges (with a very few anonymous bitcoin exchange options left) now require KYC authentication before opening an official account.

This is mostly due to regulators, who are trying to connect real life identities to give Bitcoin wallets or accounts. Once they are able to do that, the whole Bitcoin tracking process is much simpler for them. And in case the given person was involved in any sort of criminal activity, it gives the ability to law enforcement units to act rather quickly.

While it seems like this is something that does not happen often, the contrary is true. In the past few years, law enforcements were able to catch many criminals or hackers mostly thanks to the traceability of the cryptocurrencies as such. They often participate in collaboration with companies such as Chainalysis or CipherTrace, whose main role is to find any “digital breadcrumbs” that the criminals have left on the crime scene.

Companies such as these are then trying to help the governments with the investigation as well as the capture of the suspects. However, while it may look like these are for good, these companies also destroy any form of privacy that cryptocurrencies such as Bitcoin have to offer.

Privacy as a human right

To this day, many still believe Bitcoin is anonymous, which means that they do not doubt any KYC process that their exchange or platform asks for. Yet, this means that from the very first purchase of BTC or other cryptocurrencies, their accounts and wallets (read about anonymous bitcoin wallets here) are traceable back to them.

Some might argue that unless they are part of any criminal or illicit activity, it should not bother them that the wallet and their identity are connected. However, according to the 12th article of Universal Declaration of Human Rights, privacy is a human right, which means that even in the financial world, everyone has the right to choose which information they will reveal about themselves and which not.

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

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Bitcoin vs Cash

What is even more worrying is the fact that many regulators often argue that cryptocurrencies such as Bitcoin are often used for illicit activities. According to them, this is one of the reasons why all the exchanges and platforms providing buying and selling services of cryptocurrencies should align with KYC practices.

Yet, as many research and projects have clearly established, less than 1 % of all the transactions of Bitcoin or other cryptocurrencies can be traced back to any form of illicit activities. That is definitely much lower than the illicit activity that is connected to cash. That means that according to the logic of the regulators or lawmakers, cash should be connected to KYC practices as well, which as we all know, is impossible to do.

Tool to mitigate the effects of KYC

If people nowadays want to make it more difficult for anyone to track Bitcoin, there are tools or anonymous cryptocurrencies that can help with that. There are different Bitcoin mixers or CoinJoins that are able to make tracking bitcoin transactions much more complex and problematic for blockchain analysis companies or governments.

That is one of the reasons why Whir also came about. Whir decided to help anyone and everyone, who wants to obtain Bicoin privacy while sending or receiving coins. It does so thanks to CoinJoin feature, which protects the privacy of Bitcoin users thanks to obscuring transactions, hence making Bitcoin tracking and connecting to real life identities much more comprehensive and challenging.

Conclusion

Tracking Bitcoin transactions is a huge topic that can be looked at from many different angles. From ethical through technical to political, however, the fact remains that while Bitcoin clearly allows for tracking of transactions due to blockchain technology, this is done in pseudonymous ways.

It should be solely upon the users to choose whether they want to have their identity connected to their wallet and no regulator, exchange, tracking service or blockchain analytics firm should do anything about it. Yet, if they decide to do so, services such as Whir can be of help.

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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.

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