Bitcoin and many other cryptocurrencies are based on blockchain technology, which provides complete decentralization. These digital assets can function without any supervision or control by a central governing body. As such, cryptocurrencies are widely believed to be anonymous, untraceable, and tamper-proof digital assets. But to what extent is this true? Let’s find out:
Bitcoin is a cryptocurrency that has gained a lot of popularity in recent years. It has seen an astronomical increase, with more and more people adopting it as a means of payment and investment.
Bitcoin and many other cryptocurrencies are based on blockchain technology, which provides complete decentralization. These digital assets can function without any supervision or control by a central governing body. As such, cryptocurrencies are widely believed to be anonymous, untraceable, and tamper-proof digital assets. But to what extent is this true? Let’s find out.
Are Bitcoin transactions traceable?
Since Bitcoin uses blockchain technology, there is complete transparency and all transactions are recorded on a distributed ledger. These registers are open to the public and anyone can access them. This makes Bitcoin transactions traceable.
With the help of tools known as Bitcoin explorers, users can track any activity on the blockchain. It can also be traced back to the amount sent and the addresses involved in a transaction. However, you can only track these transactions on the user’s public key; they do not provide real world identification or personal information.
Therefore, while blockchain explorers can help track transactions and obtain wallet addresses, finding the identity linked to the address is not easy – this grants the user pseudo-anonymity.
Are Bitcoin transactions anonymous?
Transactions on the blockchain can only be identified by a string of alphanumeric characters known as a public key. This key makes bitcoin transactions pseudo-anonymous. This means that while others can look at your transactions and holdings, they cannot ascertain the real-world identity behind the public key.
However, this changes when you need to exchange your cryptocurrency for cash or other tokens or to get an encrypted debit card. You need to sign up with a centralized cryptocurrency exchange, decentralized application, or crypto bank for such services. These platforms will most likely need you to complete a KYC process to hire yourself as a customer. In this way, you create a link between real-world data and a wallet’s public key, which can be used to discover the identity details behind a wallet’s public key.
Can Bitcoin be held?
One of the most significant benefits of blockchain technology is that transaction records and personal cryptocurrencies cannot be tampered with or changed. This is a feature known as censorship resistance or immutability.
Since blockchain technology is based on a decentralized system, no entity has control over anyone’s funds or data.
Therefore, on-chain tokens cannot be frozen, held or changed in any way. Perhaps the only way to prevent a user from accessing their funds on the chain would be to shut down nearby internet services.
However, all of this protection disappears when you transfer your funds to a cryptocurrency exchange, lending platform, or DApp. A central authority is then involved which, if necessary, can freeze the funds. It is a common occurrence where a centralized trading platform will freeze a user’s wallet.
This often happens if the user is involved in some criminal activity. Government authorities can contact developers to block a particular address. The developers blacklist the address, preventing the user from sending or receiving cryptocurrency.
In some cases, the function to blacklist an address can be misused by scammers. Usually, on decentralized exchanges, scammers can use this feature so that purchased tokens cannot be sold. This will raise the price of the aforementioned token and attract investors to the project. Once the prices are high enough, the scammers dump their tokens in the open market and disappear with a fortune.
Bottom line, Bitcoin can provide some degree of anonymity. However, with the new KYC guidelines, maintaining this anonymity and making transactions untraceable is becoming more difficult. Cases of frozen wallets have also become common these days. However, the chances of someone tracing your account, discovering your identity in the real world, or blocking your account are extremely rare. It takes specialized tools and knowledge to accomplish these tasks and usually involves law enforcement tracking down some criminals.