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Is bitcoin traceable?

Bitcoin has enhanced network privacy and security to protect users’ data and funds. However, transactions are traceable. 

physical bitcoin on table
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Bitcoin is a decentralized digital currency that also serves as a store of value. Unlike fiat money transactions that usually involve intermediaries, Bitcoin transactions occur on the blockchain without any third party.

Besides, Bitcoin users mainly identify themselves through public addresses, which do not reveal much personal information as they may even contain aliases. 

Bitcoin is a tech-based currency that runs on a peer-to-peer network, making it extremely difficult for third parties and users to spy on other people’s transactions.

Besides, Bitcoin transactions are irreversible. Those attributes impact Bitcoin’s enhanced network security and privacy, making most people believe it is untraceable. 

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Cybercriminals have taken advantage of those provisions and the general public’s improper knowledge of crypto to use Bitcoin for various illegal activities, including fraud and money laundering.

However, multiple ways exist today for tracing Bitcoin transactions. That is why law enforcement authorities have successfully traced and apprehended several Bitcoin-related illegal activities. 

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Tracing Bitcoin Transactions 

According to this crypto exchange’s official site, Bitcoin confirmed an average of 10 million transactions monthly as of 2020. That number has significantly increased today as many institutional investors, merchants, and individuals race to acquire a piece of Bitcoin.

While the transactions are visible on the blockchain ledger, the data does not disclose the users’ real-world identities. The following are some of the ways to trace Bitcoin transactions. 

Service Providers

Bitcoin has inspired several crypto-based businesses, known as Virtual Asset Service Providers (VASPs).

Those businesses mainly serve as marketplaces where people buy and sell crypto, but they also process Bitcoin transactions on behalf of other companies and individuals. Some also provide crypto wallets and virtual asset management services. 

Although some VASPs are decentralized, many are centralized and implement Know Your Customer (KYC) rules.

That makes it imperative for businesses and individuals to provide their real-world identities before using those VASPs to send, receive, spend and store Bitcoin.

The service providers can then use that information to link Bitcoin users’ public addresses and transactions to their real-world identities. 

Blockchain Explorer 

Blockchain explorers can also enable you to track Bitcoin transactions. They are effective because Bitcoin also uses blockchain technology to verify and validate transactions on a digital public ledger.

Various platforms exist to copy and paste the particular Bitcoin address to trace transactional details. 

Blockchain explorers mainly use sophisticated algorithms to track money flow on the blockchain. Bitcoin maintains an accurate and comprehensive record of all transactions conducted through the network since its inception, making it possible to trace money trails. 

Many blockchain explorers will start by finding all the Bitcoin transactions related to the public address in question.

Using APIs, the explorer will list all the source and destination addresses that have sent or received Bitcoin from that address. Some hackers usually use multiple intermediate wallets, creating a complex web that would take several hours to track.  

Blockchain explorers such as the Bitquery explorer provide visual tools to help users quickly understand the money.

They also offer alternatives for identifying patterns on the blockchain, creating clusters that can be analyzed to determine payment services, custodians, and other VASPs. 

Challenges to Tracing Bitcoin 

While Bitcoin is traceable, it is not as simple as some think. For instance, Bitcoin allows users to create and process funds through intermediate wallets, hiding their real-world identities.

Besides, services like mixers also enhance privacy, enabling bad actors to mix tainted funds with legitimate money, making it extremely difficult to track. There are also unregulated VASPs that criminals can use to process illicit funds without detection. 

Bitcoin has enhanced network privacy and security to protect users’ data and funds. However, transactions are traceable. 

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