Is Bitcoin Truly Untraceable?

  • March 18, 2022

Is Bitcoin Truly Untraceable?

Despite the fact that bitcoin has a reputation for secrecy, the reality is more difficult.

A Manhattan couple was detained and charged with money laundering in connection with a 2016 hack on Hong Kong cryptocurrency exchange Bitfinex, and $3.6 billion in bitcoin was seized from them a few weeks ago. It was the Justice Department’s greatest financial seizure ever.

 

Law authorities went to tremendous pains to hunt down the illegal cash, including following the stolen bitcoin through a complex network of transactions that spanned many nations. Authorities finally caught up with him after six years.

 

Bitcoin and other cryptocurrencies have been connected with anonymity and privacy since their inception. In the initial 2008 white paper presenting blockchain technology via bitcoin, the concept of invisibility was promoted.

 

The concept is that just two parties are participating in the activity because cryptocurrency enables direct peer-to-peer transactions over the internet. There are no banks, governments, or intermediaries required. However, how anonymous are crypto transactions actually, given the $3.6 billion bitcoin meltdown and other recent examples?

 

With the general acceptance of Bitcoin, the principle of private transactions has become considerably more precarious. Cryptocurrencies like bitcoin are more pseudonymous than anonymous if their financial activity can be traced.

 

Feng Hou, Marymount University’s digital transformation leader, who focuses on adopting blockchain technology, and Dr. Steven Gordon, who teaches a course on crypto and blockchain at Babson College, had the following to say:

 

Are bitcoin transactions completely private?

No, as evidenced by the recent bust in Manhattan and the Colonial Pipeline hack last year, officials were able to retrieve some of the ransom cash from the criminals.

 

“While there are several ways in which cryptocurrencies can give some anonymity, keep in mind that no one can claim complete anonymity at this time,” Hou added.

 

What are the methods for tracing cryptocurrency?

Because of the federal government’s concentration on cryptocurrency-related crime, as well as the rising sophistication of law enforcement technologies for tracing illicit cryptocurrency payments, such transactions are no longer anonymous. Aside from the increased resources devoted to combating cybercrime, there’s a simpler reason why these transactions aren’t truly anonymous for ordinary Americans.

 

Transactions in cryptocurrency are recorded on a blockchain, which is open to the public. At the same time, crypto trades aren’t always tied to a user’s identity, giving them some anonymity. While some goods and services can be purchased directly with bitcoin, in most cases it must be converted into local money before being spent. Converting bitcoin to US dollars, a strongly regulated and federally supported currency, leaves a distinct paper trail.

 

“If you want to buy stuff with bitcoin or any other cryptocurrency,” Gordon explained, “you’ll probably need to convert the cryptocurrency into dollars at some point.”

 

To trade bitcoin for dollars, you’ll need to discover a company that does it, such as a cryptocurrency exchange, a money transfer service, or certain banks. Companies like this frequently follow the “Know Your Customer” guidelines, which implies that users must verify their identity before using the service. “Regardless of how anonymous or pseudo-anonymous bitcoin is, the services that convert bitcoin to dollars are not anonymous, and hence transacting it would not be anonymous in any meaningful sense,” Gordon explained.

What are the criteria for reporting suspicious cryptocurrency transactions?

KYC is a banking sector regulation that protects against money laundering and other forms of financial crime. To establish a “customer risk profile,” which is used to identify and report suspicious activities to authorities, institutions covered by the Federal Deposit Insurance Corporation, for example, must have a clear relationship with their clients.

 

That means that in order to be insured, banks and other financial institutions must keep clients’ personal information on file. Despite the fact that bitcoin is not insured by the FDIC, cryptocurrency exchanges in the United States have implemented KYC procedures. Customers must authenticate their IDs on both Coinbase and FTX.US. It’s also worth noting that the FDIC, in collaboration with other regulatory organizations, is researching new crypto asset laws.

 

Is there such a thing as a fully anonymous cryptocurrency?

People say that some cryptocurrencies are completely anonymous. Any claim of completely anonymous transactions, on the other hand, should be taken with a grain of salt.

 

“We know we can always get to the bottom of it through forensics analysis,” Hou said. “So, just to be clear, any cryptocurrency claiming to be 100 percent anonymous should be taken with a grain of salt,” he says.

Is Bitcoin Truly Untraceable?

Movine Oduor
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