Are Bitcoin transactions anonymous or traceable and can they be held back?
Of CNBCTV18.com IST (published)
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Bitcoin and many other cryptocurrencies are built on blockchain technology, which provides complete decentralization. These digital assets can operate without oversight or control from a central governing body. As such, cryptocurrencies are 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 rise, with more and more people adopting it as a means of payment and investment.
Bitcoin and many other cryptocurrencies are built on blockchain technology, which provides complete decentralization. These digital assets can operate without oversight or control from a central governing body. As such, cryptocurrencies are 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 ledgers are open to the public and anyone can access them. This makes Bitcoin transactions traceable.
Using tools known as Bitcoin explorers, users can track any activity on the blockchain. One can also track the amount sent and the addresses involved in a transaction. However, you can only trace these transactions to the user’s public key; they do not provide real-world identification or personal information.
Therefore, while blockchain explorers can help trace transactions and obtain wallet addresses, it is not easy to find the identity associated with the address – this gives the user pseudo-anonymity.
Are Bitcoin transactions anonymous?
The transactions on the blockchain can only be identified by an alphanumeric string known as a public key. This key makes bitcoin transactions pseudo-anonymous. This means that while others can view your transactions and holdings, they cannot determine the real identity behind the public key.
However, this changes when you need to exchange your cryptocurrency for cash or other tokens or to get a crypto debit card. You must register with a centralized cryptocurrency exchange, decentralized application or cryptobank for such services. These platforms will most likely require you to complete a KYC process to take you on as a customer. By doing so, you create a link between real data and the public key of a wallet, which can be used to uncover details about the identity behind a wallet’s public key.
Can Bitcoin be held back?
One of the main benefits of blockchain technology is that transaction records and personal crypto holdings 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 one entity has control over anyone’s funds or data.
Therefore, chain tokens cannot be frozen, held back or changed in any way. Perhaps the only way to block a user from accessing their on-chain funds is to shut down nearby internet services.
But all this protection goes out the window when you transfer your money to a crypto exchange, lending platform or DApp. A central authority is then involved and can freeze funds if necessary. 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 criminal activity. Public authorities can contact the developers to freeze a specific 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 abused by fraudsters. Usually, on decentralized exchanges, fraudsters can use this feature so that the tokens purchased cannot be sold. This will inflate the price of said token and lure investors towards the project. When the prices are high enough, the fraudsters dump their tokens on the open market and make off with a fortune.
Conclusion
In conclusion, Bitcoin can provide a degree of anonymity. However, with new KYC guidelines, it becomes more difficult to maintain this anonymity and make transactions that cannot be traced. Cases of frozen wallets have also become common these days. However, the chance of someone tracking your account, uncovering your real-world identity, or freezing your account is extremely rare. It requires specialized tools and knowledge to perform these tasks and usually involves law enforcement agencies tracking down some criminals.
