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Yes, Your Bitcoin Transactions Can Be Tracked – and Here Are the Companies That Are Doing It

Matthew Hrones | Jun 28, 2018 | 14:00

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Since it’s inception, Bitcoin has been thought of as an anonymous way to move money. Recently, however, a few firms have built software that can track the movement of coins and help law enforcement track illicit earnings.

Pseudo-anonymous Transactions

When creating a wallet, users are given an address that allows them to receive coins. This address is just a long string of numbers and letters, but each one is unique to the wallet. This poses privacy concerns on the network, as anyone can go in and view any transactions you’ve sent from that wallet.

This property of Bitcoin allows people to link wallets with real-world identities. For example, you send coins from your personal wallet to your exchange wallet. The wallet on the exchange could be linked to your identity. If someone knows that, then they can assume that Wallet 1 also belongs to you.

Companies like Chainalysis have been identifying wallets that are linked to criminal activity, such as Darknet transactions. With their blockchain analysis software and other online, public clues, they were able to link transactions to real identities. Chainalysis’s most famous work was helping the FBI identify two rogue agents that had been stealing Bitcoins from the wallet of an online drug market operator.

Another company working on blockchain analysis software is California startup CipherTrace. They’ve even gone as far as infecting their own systems with ransomware to track the coins that are used to decrypt the machines. This can lead to possibly finding out who is behind many of these viruses, along with aiding law enforcement in recovering the money.

Privacy Coins

Privacy coins such as Zcash and Monero may serve up problems for blockchain analysts, however. Zcash uses a technology called “zn-SNARKS” to hide transaction data, including the sender, recipient, and amount transacted. Chainalysis CEO Miceal Gronager does not see Zcash as a problem, however. Very few people use the privacy options on Zcash, and it is still possible to gather data about those who. Matching private transaction timestamps to real-world events – such as buying something online or selling coins for fiat – can deanonymize users.

Monero uses RingCT and stealth addresses to obscure data, features that make Monero private by default. When you send a transaction on Monero, six other random signatures are pulled from the blockchain and included in your transactions. Anyone viewing the transaction on the blockchain would be unable to figure out which signature belongs to the sender.

Tracking technology has more use cases than just catching criminals. With the increasing number of investors entering the scene, blockchain analysis can help banks and other financial institutions comply with KYC/AML – Know Your Customer and Anti-Money Laundering – laws.

Such software could also be used to observe market trends. Increased Bitcoin trading in foreign countries, such as China or Venezuela, could mean pressure on national fiat currencies. It could give insight to investors long before official statements are released.

What do you think about tracking Bitcoin and other cryptocurrency transactions? Do you think privacy coins will see increased use? Let us know in the comments below!

Images courtesy of Bitcoinist Archives, ZCash, DepositPhotos