Cryptocurrency is a digitally encrypted, decentralized currency that is not linked to or regulated by any government or central bank. It is run on a blockchain which makes it from the traditional financial system.
There has been a massive adoption of cryptocurrency today for many reasons which include that its transaction cannot be tracked. But is that completely true? Huh!
Bitcoin, the largest and most popular cryptocurrency has many real use cases in our world today. Many want to hold bitcoin and have their fiat currency in crypto (a system that is not regulated by the government).
Can we now say bitcoin’s transactions cannot be tracked by governments as crypto is not under their regulation? Well, in this post, we’ll see if that is true or not. Before then, let’s know more about bitcoin.
What is Bitcoin?
Bitcoin is a decentralized digital currency, without a central bank or single administrator. It can be sent from user to user on the p2p bitcoin network without the need for intermediaries.
The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. Bitcoin began to use in 2009 when its implementation was released as open-source software.
As of today, Bitcoin is the largest and most popular cryptocurrency. Several other coins have been created using its model and are known as altcoins i.e. alternative currency.
Satoshi Nakamoto capped the number of bitcoins that could be created at 21 million. As of today, there are 19,145,643.00 BTC in circulation. It’s expected that all remaining bitcoins will be released by 2140.
Can Bitcoin Transactions Be Tracked?
Bitcoin transactions are publicly accessible because of the transparent nature of blockchain technology. This means that bitcoin transactions can be seen. With more investigations, the owners of these bitcoins can be known.
The government of a nation can have bitcoin & other altcoins under watch through law enforcement agencies. The traceability of BTC transactions however depends on whether someone’s transaction activity on the Bitcoin blockchain can be linked to their identity. Anyone with access to the bitcoin wallet can have their crypto transaction tracked.
The identity of bitcoin users is being revealed at some points on centralized exchanges, especially those that require KYC before registration. Interactions with known wallets can also reveal the identity of their owners. Thus, BTC transactions do not always remain 100% anonymous and can be tracked.
How is Bitcoin Tracked?
Bitcoin’s transaction is indeed traceable even though its blockchain technology is anonymous. As stated earlier, bitcoin transactions can be seen as it is public.
Law enforcers may not directly identify the parties involved in a Bitcoin transaction. Government agencies are hiring cryptocurrency experts to help them with BTC tracking and identity verification in this regard.
Although most bitcoin transactions are not for illicit purposes law enforcers track crypto to ensure they are not used for money laundering and other activities like it. Companies such as Chainalysis provide services for blockchain monitoring and analytics. These companies analyze if certain BTC moving between wallets are, in some way, associated with criminal activity.
How Do Governments Get Close to Crypto Transactions?
Many nations have put in place rules and regulations for the use of cryptocurrency. SEC and several regulators all over the world have issued orders regarding crypto activities. Bitcoin is also a legal tender in some nations of the world today.
One way authorities do this is by requesting information from centralized exchanges. To become a licensed operator in a certain country or territory, centralized exchanges need to comply with regulations.
Many of these crypto exchanges and platforms like Prestmit incorporate Know Your Customer (KYC checks for its users). With KYC, individuals have to submit their details & data before they are allowed to trade, invest and transact.
Once the KYC check has been conducted, law enforcement agencies and authorities have access to these documents and data submitted. With this, they can track transactions on Bitcoin wallet addresses.
However, this tracking by authorities is limited to centralized exchanges and not decentralized exchanges. It is difficult for DEX to comply with regulations because they lack a headquarter and are not run by a centralized company or a small group of individuals.
The Bottom Line
Bitcoin is designed to be anonymous and without a central authority or regulation, however, it is traceable. As it is built on blockchain, a fundamental characteristic of blockchain technology is transparency, meaning that anyone, including the government, can observe all cryptocurrency transactions conducted via that blockchain.