In a digitally connected world today, identity theft, money laundering and government regulations are major concerns for privacy-conscious individuals
These days, it would not be that difficult to come across news on high-profile hacks that involve data leaks and governments attempt to invade the privacy of their citizens in the midst of the COVID-19 pandemic through stricter surveillance programs and monitoring tools. Furthermore, the last couple of years have seen the world economy slowly moving towards an inevitable global recession that is in the midst of forming this year.
As uncertainties abound, people are looking for newer and alternative ways to preserve their privacy rights and to protect their wealth. As it seemed, Bitcoin and blockchain technology turned out to be a viable candidate for people in uncertain times. However, the “godfather” has also suffered a fair share of controversies revolving around its origin, financial prospects and even security. Of which, the traceability of Bitcoin transactions is a question of privacy, anonymity, motives, and intentions.
It is therefore imperative for those who are “seeking refuge” to understand the advantages and disadvantages of Bitcoin, and most importantly, if it can be traced. In this article, we will be discussing the traceability of Bitcoin transactions, how it affects its users, and how to manage them.
The revolutionary digital currency
Before we find out the answer to “can Bitcoin be traced?”, it will be good for us to relook into the definition of the revolutionary digital currency that is gaining more interest from both retail and institutional investors.
In January 2009, Bitcoin’s first genesis block was mined and the event marked the official launch of the decentralised cryptocurrency, that was created by a mysterious figure known as Satoshi Nakamoto. It is not known if Satoshi is an individual or a group, but what we do know is that no government organization has control over Bitcoin since it is supported by a global network of Bitcoin miners situated around the world.
Bitcoin has long been linked to a series of criminal activities such as the Silk Road and North Korea hackers due to its “anonymous” nature. During the early years of Bitcoin, it was often found to be associated with illicit persons and entities who have utilised the decentralised digital currency as a way to launder dirty money, or an alternative means of payment for illegal purchases like drugs, weaponry and more. But one particular case involving the arrest of Silk Road’s founder has debunked the claim that the Bitcoin transaction is anonymous.
Such arrests were possible due to the pseudonymous nature of Bitcoin transactions. These criminals were prosecuted with the help of blockchain analytics firms, researchers and Bitcoin experts. In recent years, academia and cryptocurrency researchers have exhibited their ability by infiltrating the Bitcoin network and impacting the Bitcoin’s blockchain. Throughout the years that follow, it was found that other potential vulnerabilities existed in the blockchain, and traceability is an issue that is left unresolved by Satoshi.
The traceability of Bitcoin
It is worth noting that while Bitcoin wallet addresses alone do not reveal any transactional details of the user, it is possible to see the balance and transaction record if the wallet’s address is revealed to a third party. Blockchain explorers (such as btc.com) can be then used to check the transaction activities of any given Bitcoin wallet addresses, and consequently offer a foothold for further investigation by governments, criminals and other unwarranted parties.
For that reason, the Bitcoin address could resemble an email address in mainstream context; how hard it is to link to your actions largely depends on what you do with your wallet and how determined is another party who is trying to trace you. Therefore, the answer to the question of “can Bitcoin be traced” should be obvious by now.
It is with certainty that Bitcoin transactions can be traced by anyone who has the ability to track and investigate them via readily available blockchain analytics tools. Bitcoin transactions could not provide the much needed anonymity for users who are particular about protecting their identities and financial privacy.
But some people may wonder, why should an average Bitcoin user need untraceable and anonymous financial transactions if they have nothing to hide, like tax evasion or money laundering activities? The answer is fairly straightforward - similar to our bank accounts, if anyone could track our transaction records with merely our bank account numbers, then it is a matter of privacy intrusion. No one would be willing to share or disclose their financial records to any tom, dick and harry. It is our right to privacy to preserve our identity and wealth protection.
Likewise, the Bitcoin wallet is similar to our bank accounts. But since Bitcoin itself is a decentralised currency, the entire transaction records are stored on a public ledger which is constantly updated on the blockchain. And unlike bank accounts holders, Bitcoin users are granted with pseudo-anonymity, which translates to the provision of economic liberty and high security at the expense of a publicly viewable transaction history that is stored on the blockchain.
Essentially, by sharing your Bitcoin address each time you send your Bitcoins to someone, you are inevitably allowing that person to associate the Bitcoin address to yourself, and giving them the ‘privilege’ to view your transaction activity. If your Bitcoin address ends up in the wrong hands, e.g. hackers, criminals or individuals who are out to endanger your life, then you would be susceptible to all types of susceptible attacks by them.
It is also crucial to understand that since we can view all transactions that occurred over the Bitcoin blockchain, multiple addresses can be grouped together and subsequently tracking any transactions to the target address. And with Bitcoin becoming widely accepted as an alternative form of payment, the traceability issue should be greatly emphasised and acted upon.
Fortunately, there are certain precautionary measures that one could deploy in order to resolve the traceability issue in Bitcoin. With the help of privacy tools, one could perhaps minimise and even eliminate anyone from viewing your transaction activities.
Option 1: Using an anonymous browser
Can Bitcoin be traced if we were to process our Bitcoin payments through a TOR network browser? For this, we may have to look into the usage of anonymous browsers for Bitcoin-related payments online. Using a TOR browser is known to add another level of anonymity. The difference between normal browsers (e.g. Firefox, Safari and Internet Explorer) and a TOR browser is that the latter can only be accessed with .ONION addresses. It is widely believed that TOR browsers could encrypt and re-reroute the user’s original IP address to random computers throughout the TOR network.
People most often use this anonymous browser if they value a certain level of privacy in their research or searches. But that is not to say that this option is perfect. The downside is using the TOR browser is that users may experience some log-in problems on familiar IP addresses. As a result, the user may have to go through the hassle of verifying their IP address every time they login to their accounts through the TOR browser as it is seen as a new device or IP address.
Over time with experience, using the TOR browser can greatly reduce the traceability issues as the original IP address becomes harder to track. Hence, using a TOR browser is a preventive measure that can help to increase your anonymity, but it does not guarantee it.
Option 2: Bitcoin Tumblers (or Mixers) (Recommended)
Another popular option to resolve Bitcoin’s traceability issue is with the use of Bitcoin mixers (or tumblers). By now, you would have known that Bitcoin transactions are fully traceable, and the TOR browser may not be easy to set up. So Bitcoin tumblers can be a great alternative from beginners to experienced Bitcoin investors. Through the Bitcoin mixing process, it has proven to be rather difficult to trace the origin of Bitcoin transactions.
There are reputable online mixing services out there that offer to mix traceability between Bitcoin users by sending and receiving the same amount using uniquely different Bitcoin addresses. Mixing to counteract the traceability issue is well-favored for small amounts of Bitcoins, but it becomes relatively harder for larger transactions.
As a user, you have to ensure these services are reliable so that they don’t steal your funds and keep a log of your requests. The legality of such services also varies based on each jurisdiction. Bitcoin mixer such as MyCryptoMixer is recommended mixing service that are used by many Bitcoin investors in recent years.
Can Bitcoin be traced with Bitcoin tumblers?
For those who are concerned about protecting your identity while trading the most popular cryptocurrency in the market today, we do hope that through this article, you are better informed on the risks involved with trading with Bitcoin, and the traceability issue that exists today.
Can Bitcoin be traced and still be secure? With the implementation of a variety of privacy tools like TOR browser and Bitcoin tumblers properly put in place, the traceability issue can be nulled with additional steps taken to protect your anonymity. On top of that, VPNs and trading on decentralised exchanges can help you as well, but we will leave it for future articles.
Although the cryptocurrency market is still at its infancy stage, a growing number of people are looking to make use of their Bitcoin profits for everyday purchases, apart from viewing it as a new form of investment opportunity.
Therefore, if you are serious in protecting your privacy and have implemented various privacy measures, your Bitcoin transactions can still be safe. No matter what, Bitcoin and other cryptocurrencies are a step up from Fiat currencies. As the technology and market mature, we do expect to see more solutions that will cater to the need of privacy-conscious individuals.
To learn more about Bitcoin and the importance of protecting your identity, navigate to the Help Center on MyCryptoMixer.