How Easy Can a Crypto Transaction Be Traced
Feb 17, 2022
In the early days of Bitcoin, many people believed that it was anonymous and transactions couldn’t be traced. Bitcoin was often perceived as a ‘safe haven’ used by criminals as it was ostensibly impossible to trace transactions. Today, however, blockchain analysis firms use specialised software to trace crypto transactions, successfully identifying criminal activity on the blockchain.
The decentralised nature of cryptocurrency
Decentralisation refers to the distribution of control and authority in a network or organisation. Bitcoin is classified as a decentralised cryptocurrency because it has no central authority, such as a central bank or government.
Because of the decentralised nature of Bitcoin and other cryptocurrency all transactions are recorded on the blockchain and can be transparently viewed by anyone. Whilst Bitcoin and other decentralised cryptocurrencies can be moved without the permission of any centralised organisation, each transaction is permanently recorded on the blockchain. This essentially means that if you wanted to, you could track Bitcoin wherever it goes. This is why Bitcoin is not considered to be anonymous, but rather pseudonymous. This is because Bitcoin does not store any real-world identities. It is, however, possible to link real-world identities to a Bitcoin or other cryptocurrency addresses.
What makes crypto traceable?
There are millions of crypto transactions that occur each day. These transactions are publicly visible on the blockchain (except for some privacy coins). The blockchain does not store any real-world identities. There is, however, a way to link real-world identities to crypto transactions. This is done through Virtual Asset Service Providers (VASPs) like exchanges and wallets. Most exchanges now implement Know-Your-Customer (KYC) services which essentially like real-world identity to crypto addresses and transactions.
There are also other ways to link real-world identities to crypto addresses, for example, if a person had to share their wallet address on social media. Even if it’s not shared with any identifiable details, you may have used the same username somewhere else. You would have had to use an email address to sign up to the social media platform, which will also be made public. Virtually any time you share your crypto wallet, you potentially make it possible for someone to link it to you.
You should always be careful when sharing your public keys, it is always best to never share your public keys on any social media sites.
Remember, proper diligence and sound judgement should be used in evaluating the risks associated with these activities. Trading cryptocurrency carries significant risk and losses can exceed deposits. Refer to our Terms and Conditions and disclosure material