Since the invention of the first cryptocurrency, Bitcoin, it’s been a very common assumption among crypto users that Bitcoin transactions are anonymous and untraceable. This assumption stemmed from the anonymous nature of the blockchain transactions which allowed individuals to process transactions anonymously, though the transaction details are recorded on the public ledger of the blockchain and very visible to all.
Therefore, even though it seems Bitcoin transactions are anonymous, the transparent nature of the blockchain network in which these transaction data are stored, makes the ‘anonymity’ of the Bitcoin transactions a paradox.
If Bitcoin transactions are proven not to be anonymous after all, then the transactions can be traceable as well.
This article seeks to give a clear insight into the anonymity and traceability of Bitcoin transactions.
Are Bitcoin Transactions Traceable?
Most cryptocurrencies like Ether(ETH) and Solana(SOL) have their blockchain explorers, Ethscan and Solscan respectively. Bitcoin blockchain explorers can be used to trace Bitcoin transactions on the Bitcoin blockchain. Given that the blockchain is a public database harbouring Bitcoin transactions, one can find all information about the transaction on a blockchain, from the amount of crypto sent and received to the address and date of the transaction.
Additionally, with the recent trend of the Know-Your-Customer(KYC) policy being implemented by many countries, users are required to reveal their identity on crypto trading platforms.
Before trading on centralised exchange platforms, you must reveal your identity to the platform by giving out personal data which are linked to the Bitcoin transactions, making it easy for the authorities to trace your transactions when need be.
Why Are Bitcoins Traceable?
Many studies, since 2013, have focused on tracking Bitcoin transactions and other identities related to them.
It is quite impossible to carry out anonymous transactions on the blockchain because the blockchain is an open network to all, though one can create some sort of anonymity by transacting with cryptocurrency. This is quite confusing but it is a different thing to transact anonymously without revealing your identity at all and also a different thing to transact anonymously without your transaction details being recorded. The blockchain records the transactions of anonymous traders such that everyone can view them, defying the anonymity of the entire system.
The transparency and publicity nature of the blockchain has made it easy to track transaction flows. Now that the identity of traders is being verified via KYC, it is possible to trace transactions from the source and also get additional details like the amount, date and wallet.
How Are Bitcoin Transactions Traced?
Due to the perceived anonymous nature of blockchain technology, many criminals, especially money launderers saw crypto as an avenue to launder money via Bitcoins as anonymously as possible. However, this didn’t work out for most of them as various governments around the world have seized millions in cryptocurrencies linked to criminality.
These criminal events and their discovery have motivated a more tightened surveillance and regulation of the crypto ecosystem and also intensified further investigation to uncover more fraudulent transactions.
Every transaction on the Bitcoin blockchain is traceable, though transactions from unidentified Bitcoin wallets may take some time to be traced.
Exchanging cryptocurrencies for US dollars makes it even faster and easier to trace the identity of the wallet owner and back to the transaction.
Can I Search For A Bitcoin Wallet Address?
Finding a Bitcoin wallet address without much prior information is like finding a needle in a haystack. Of course, you can search for a Bitcoin wallet using Bitcoin explorer, but what use is the Bitcoin address when you don’t have some identifying information to reveal the identity behind the wallet?
The Bitcoin explorer can only reveal their transactions, addresses, date and time stamps, transaction amount, hashes and transaction fees, but a lot of time is expended on searching for the identity of the wallet owner.
Because someone’s address may not necessarily be anonymous but still very hard to find, the Bitcoin wallet is referred to as a ‘pseudonym’ or an ‘alias’. A pseudonym is a fictional name or alpha-numeric character but not a person’s actual name.
Some Difficulties In Tracking A Bitcoin Address
Even though we are convinced that Bitcoin transactions are not anonymous and also traceable, some users have devised several ways to get close to being anonymous.
One of the most common ways to make tracing Bitcoin transactions difficult is the use of a Bitcoin mixer.
The use of a Bitcoin mixer makes Bitcoin transactions very difficult to trace. This is done by mixing Bitcoin transactions from different wallets in a pool, and then sending them to one address.
Another way to frustrate the efforts of tracing a Bitcoin transaction is by creating a smokescreen. This is done by creating multiple crypto wallets and carrying out various transactions between them. This will create a kind of loop and make tracing the wallet and transaction very difficult.
Despite these challenges, it is not impossible to track Bitcoin transactions but it takes a great amount of time and energy to achieve such a goal.
Can I Have An Anonymous Bitcoin Wallet?
The idea of having an anonymous Bitcoin wallet is great and also possible but you should understand that a Bitcoin wallet alone can never secure you a complete anonymity status.
When numerous transactions are carried out, an identity can be traced to a wallet that has the information.
Additionally, the contemporary KYC policy being implemented by most crypto exchanges has already proven the idea of carrying out anonymous transactions to be impractical.
However, some crypto wallets can allow you to transact anonymously.
A good example is the Electrum wallet which can be combined into a hardware wallet. It is important to consider how you would want Bitcoin to be sent to you before using an anonymous wallet because any Bitcoin sent from a KYC-imbued exchange will make the anonymity useless.
In conclusion, Bitcoin transactions are not entirely anonymous since the information is stored on the public blockchain where it can be seen and read by anyone.
Even though some users get to manipulate their Bitcoin transactions to avoid being traced, with the right technology and dedicated time, every Bitcoin transaction can be traced.