One of the most prevalent misconceptions about Bitcoin and other cryptocurrencies is that criminals primarily use them to finance illegal activities. Appointed authorities have stated this year that cryptocurrencies are troubling in terms of terrorism funding and money laundering activity, including US Treasury Secretary Janet Yellen and President of the European Central Bank Christine Lagarde.
These worries, meanwhile, are greatly overstated. Less than 1% of all bitcoin transactions are related to illegal conduct, according to a 2020 research by the crypto compliance company Elliptic.
Due of its obscurity, real currency is actually much more frequently utilized in illegal operations and money laundering. Cash is transferred from one person to another without leaving a paper trace.
Bitcoin, in comparison, is quite simple to track, particularly when compared to currency.
Can you track bitcoin?
Yes. Bitcoin can be tracked. Despite the fact that bitcoin may be created, transferred, and kept outside the control of a centralized organization like the government, every bitcoin transaction is recorded on the blockchain, a permanent ledger that is accessible to everyone.
Realistically, it is possible to track every bitcoin from its original wallet to the one it is now in. But the blockchain doesn’t maintain actual identities; it just stores the public addresses of cryptocurrency wallets. Bitcoin is now pseudonymous rather than anonymous as a result. In essence, the address associated with your bitcoin wallet serves as an alias for transactions on the bitcoin network.
Why is bitcoin perceived as being anonymous?
Bitcoin was created with privacy in mind while being one of the most open payment networks in the world. It is anonymous in that you may use a wallet address without using it to expose your actual identify.
Wallet addresses might be used to connect transactions to a common owner, according to Satoshi Nakamoto, who suggested that users use a different address for each transaction to maintain a reasonable amount of anonymity in the original Bitcoin whitepaper.
Why can bitcoin be tracked?
Regulators have no control over the bitcoin network, but they do have control over crypto service providers like exchanges. Due to the need to link a real-world identity to bitcoin addresses and transactions, the majority of these businesses must incorporate some level of know-your-customer (KYC) solutions.
Consequently, your bitcoin wallet is still completely anonymous if it has never been used. However, if you’ve ever bought or sold cryptocurrency and provided any KYC documentation, your identity is in reality somehow connected to those coins.
How do transactions in bitcoin get tracked?
Anyone can use common blockchain explorers to perform basic bitcoin tracing. These technologies can’t be used to track down questionable transactions, though. Criminals frequently use numerous wallet addresses in an effort to obscure their tracks.
Law enforcement organizations frequently use with blockchain data systems like Chainalysis to conduct investigations and track down questionable bitcoin activities. These investigations typically begin with digital traces left behind in online fraud or breaches, which are then cross-referenced with KYC data from cryptocurrency exchanges to identify the owner of a wallet.
Scams did decrease in frequency when cryptocurrency entered a bear market, which may be seen as a modest bright spot amid otherwise challenging market circumstances. Chainalysis released a study in August 2022 that highlighted the decline in cryptocurrency fraud activity for the first half of the year. However, a surge in monies taken by hackers offset this decline in scams aimed at crypto investors. In the first half of 2022, hackers stole $1.9 billion in cryptocurrency from cryptocurrency exchanges, DeFi protocols, and internet-connected “hot wallets,” a 58% rise from the amount of stolen money in the first half of 2021.
There are several instances of law enforcement organizations finding millions of dollars’ worth of stolen bitcoin.
The Department of Justice reported seizing 63.7 bitcoins from the colonial pipeline ransomware assault in June.
Internationally, the Department of Justice said in 2020 that it had utilized Chainalysis to track down $28.7 million in cryptocurrencies that had been stolen by a North Korean hacking gang and had been able to stop them from using exchanges to launder the stolen money.
These are only a handful of the numerous instances when law enforcement has used the openness of bitcoin to locate substantial amounts of criminal money.
It is just untrue to say that the main usage of Bitcoin and other cryptocurrencies is for illegal conduct. Unfortunately, because so many people are still unfamiliar with cryptocurrencies, false information about who uses it and how it operates is easily circulated.
You will realize how useful the technology is and how it has the potential to fundamentally alter the financial industry once you can see past the alarming headlines and have a grasp of the underlying concepts that underlie Bitcoin and other cryptocurrencies.
