Yes, your Bitcoin transactions can be tracked – Here’s how

Despite Bitcoin often being touted as anonymous, people have realised this is not the case. This raises the question: can you track Bitcoin transactions?

Do you want to make transactions using Bitcoin but aren’t sure about how this will affect your privacy? Financial data is sensitive, so you need to take precautions.

Giving access to your crypto history is almost like publishing your bank details on social media. So, the question that worries more and more Bitcoin owners is this: can you track Bitcoin transactions? The quick answer is yes.

However, it’s not as simple as you think.

Bitcoin is not as anonymous as you might think

Some early adopters thought of Bitcoin as an anonymous way of moving money and making ghost transactions that weren’t verifiable. Nothing could have been further from the truth. Protocols are set to guarantee transaction security and transparency, but the blockchain keeps track of all transfers from one address to another.

In plain English, there’s no such thing as total blockchain privacy. However, you achieve something called ‘pseudo-anonymity’. This means that you can keep your affairs private as long as you store your passwords correctly (and don’t get involved in illegal activities).

What are pseudo-anonymous transactions?

As a wallet user, you get an address made up of a combination of letters and numbers. This allows you to receive Bitcoin. Every one of these combinations is unique and related to a single wallet. This means that you can preserve your anonymity as long as no one connects your Bitcoin address to your personal details.

From the moment you hand out your Bitcoin address (or someone links you to a wallet), you automatically provide access to your transaction history – the one connected to that wallet. This is called pseudo-anonymity.

Bitcoin.org explains why transactions can’t remain anonymous. Wallet owners need to reveal their identities to receive purchased goods. Once you use an address, it becomes tainted by the history of all transactions that are connected to the address in any way. This way, all users on the blockchain have access to the balance and all the transactions of the address.

Steven Goldfeder at Princeton University has been studying how web trackers and cookies can follow Bitcoin transactions and what implications this ability may have on the privacy of cryptocurrency owners.

In 2017, his research revealed that at least 53 of 130 dealers that allowed Bitcoin transactions registered payment information leaks. Third parties contributed to this loss of data as well, mostly through shopping cart pages. In most cases, the leakage wasn’t just an accident, but rather a matter of analytics and advertising.

How can you track Bitcoin transactions?

When it comes to Bitcoin and blockchain technology, one of its most coveted features remains anonymity and confidentiality. However, too much freedom on the blockchain can have negative effects on people’s security online and offline.

Regulators have raised plenty of concerns about a network where anyone can use Bitcoin to buy or sell anything without being tracked. The Silk Road is just one example of how anonymous transactions can tarnish the crypto space and make Bitcoin a powerful way of financing illegal activities.

As such, more start-ups and tech firms have built software that can trace how coins have moved, thanks to the blockchain’s ability to keep track of any transaction. Such software gives authorities all the information they need to pursue illegal earnings and crypto-related crimes.

The FBI has used blockchain analysis software and several other public clues they found online to link transactions to real identities. Can you track Bitcoin transactions using the same system? Most probably yes, but it’s not that easy, and it may not even be such a good idea – the Feds had to infect their own network with ransomware to track the coins.

Tracking transactions to prevent money laundering

Besides identifying and catching criminals, tracking cryptocurrency transactions is also useful for fighting money laundering. With more investors placing their money in Bitcoin and other cryptocurrencies, more governments and analysts require blockchain companies to comply with anti-money laundering laws.

Among the blockchain start-ups that focus their efforts on developing analysis and tracking software, some of the best-known are Skry, Numisight, Chainalysis, and Elliptic. All these companies are looking to create products to protect the integrity of digital assets, as well as verify the integrity of every transaction on the blockchain.

Among the benefits of using tracking software, Bitcoin users should consider the ability to identify suspicious transactions in real time. In a space where people can use the blockchain to commit financial crime, host pirated content, and store illegal downloads, such tools could help to maintain the integrity of the network.

By developing tracking software, these start-ups could also help authorities identify illicit activity on the blockchain, becoming valuable partners for governments, banks, and financial institutions.

 

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