Are Bitcoin Traceable? Learn If Bitcoin Can Be Traced

Posted on July 22, 2020 in Articles, Digital Assets 101
Are Bitcoin Traceable? Learn If Bitcoin Can Be Traced
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Is Bitcoin traceable? It’s a question many people wonder when first using Bitcoin. To answer this query, you have to understand the traceability and operation of Bitcoin. The way the system works is through transactions which occur on a decentralized ledger. It’s these transactions which are shown publicly through Bitcoin addresses. Therefore, through Bitcoin addresses transactions are traceable, but in order to understand the full extent of traceability one must first understand the history.

Bitcoin Anonymity

Bitcoin is a decentralized cryptocurrency that was launched in January 2009 by a mysterious identity known by the name of Satoshi Nakamoto. No government organization has control over Bitcoin and its functioning. Due to this, many governments are still against the use of cryptocurrency.

There have been instances of criminal activity linked with Bitcoin. This was possible due to the pseudo-anonymity that comes with using Bitcoin. These criminals were prosecuted with the help of researchers and Bitcoin experts.

There have been demonstrations of software and commands that can infiltrate the Bitcoin network and impact the blockchain. Some of the potential vulnerabilities have been discovered already.

Any transaction contains Bitcoin addresses that are revealed to receive goods or services. Using these addresses, it is possible to see anyone’s balance and transaction history.

Are Bitcoin Purchases Traceable?

Although Bitcoin is decentralized, all the transaction details are stored on a public ledger which is updated constantly. Regardless if you are going through an exchange or your own wallet, all transactions are stored on the blockchain. Because of this, Bitcoin users are guaranteed pseudo-anonymity, meaning, although it promotes economic liberty and high security, the transaction history is stored on the blockchain for everyone to see.

Bitcoin transactions are, in fact, fully traceable. However, with mixing or building common transactions, it can be quite difficult to trace the origin of the coins. 

There have been instances where governments have tried to trace Bitcoin transactions as they are a source for criminal and illegal activities. Due to this, cryptocurrencies are strengthening their privacy and security.

How Is Bitcoin Tracked?

All the Bitcoin transactions are public, traceable, and stored permanently on the Bitcoin network. The Bitcoin address is one of the ‘footprints’ and the main information required to figure out where the coins are allocated and sent. There are a few other factors such as wallets, IP addresses and networks which make Bitcoin traceable, but we will explain how you can protect your privacy to help keep your anonymity later in the article.

For now, what you need to know is a Bitcoin address is created by a user’s wallet, which is linked to all the transactions. With the help of this address, anyone can see the balance and all transaction details. Bitcoin addresses cannot remain anonymous as you need to provide it to receive services or goods.

What Are Some Ways To Protect Your Privacy?

Privacy is a major concern when dealing with finance online. In order to protect yourself consider some of the following methods.

  • Do not publish your address publicly
  • Mask your IP address
  • Use a tumbler or a mixer
  • Use a new addresses after each payment

Do not Publish your Address Publicly

Publishing your Bitcoin address on websites and social media is not a good idea when it comes to protecting your privacy unless you intend to receive public donations or payments with complete transparency.

Even if you do publish your public address, ensure that you move your funds with this address to another.

Masking Your IP Address

Bitcoin is a peer-to-peer network which means it is possible to listen to transactions and log the IP addresses. To make it untraceable, you can mask your IP address using VPNs or the Tor browser.

In some cases, even if the IP address is logged, it is nearly impossible to be traced back to you as you have masked your IP address.

You can use the Tor browser to connect to the Bitcoin network as it provides anonymity and surveillance-free browsing. The Tor nodes encrypt and route your internet traffic to various other nodes, making it difficult to pinpoint the IP address.

Using A Tumbler Or A Mixer

There are some online services that offer to mix traceability between users by sending and receiving the same amount using independent Bitcoin addresses. Mixing can avoid traceability for small amounts, but it becomes relatively tough for larger transactions.

As a user, you have to make sure 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.

New Addresses After Each Payment

Since a Bitcoin address can link to all your past transactions and your crypto balance, you need to make use of different addresses to receive payments. You can own multiple wallets to store your Bitcoins separately.

Once you start making use of different addresses, no one will be able to trace all these transactions back to you. People who send you Bitcoin cannot see how many coins you own or your past transactions.

Conclusion/Call to Action

Although cryptocurrencies aim to provide economic liberty and anonymity, you need to take steps to protect your privacy. 

Making your IP address can be crucial to protecting your Bitcoin privacy. Ensure that you set up multiple digital wallets that can hold your distributed Bitcoin balance. With multiple wallets, make use of different Bitcoin addresses for every transaction so that one transaction does not reveal your total balance or transaction history.

You may or may not want to use a mixer or a tumbler as such services. This is because these are not 100% trustworthy even though many people use them. You also need to avoid publishing your Bitcoin address on any public website or social media platform.

With Bitcoin’s traceability, there will be third-party software and other platforms that will claim to provide increased security and privacy to Bitcoin transactions. If Bitcoin increases its privacy, it can affect the market altcoins as its usage will come down.

With Bitcoin’s increasing popularity, developers may increase its privacy. However, governments may ban anonymous cryptocurrencies as they cannot keep track of the transactions and criminal or illegal activities.

To learn more about Bitcoin or to trade, navigate to the FAQ page on Zipmex.