It is commonly understood that criminals use cryptocurrencies to launder and spend illicit funds. Mainstream media has been hammering this point for the better part of a decade.

However, what if i told you this is largely a myth. After all, blockchain is a transparent and honest system. 

Now you may be wondering, can blockchain be traced? 

Don’t worry. In this article, I will be answering that question and much more. So without further ado, let’s dive right in.

TL;DR 

In general, all blockchain transactions can be traced. Simply put, the technology utilizes an open distributed ledger. This is transparent and verifiable meaning that anyone can see a complete history of transactions. Not to mention, information on the amount of cryptocurrency held in the wallet as well as timestamps are also recorded.

Can blockchains be traced?

One of the key tenants of blockchain technology is its transparency. As a result, various data points can be traced. All in all, users can use blockchain explorers to view a complete history of transactions as well as additional on-chain data.

For instance, the Ethereum-based block explorer EtherScan allows users to browse transactions, wallets, and blocks. Moreover, it shows a detailed breakdown of timestamps and transaction costs. Similar programs also exist for Bitcoin.

Consequently, this allows money flows to easily be traced. Thanks to blockchain technology a complete audit trail is recorded. This trail is immutable meaning it cannot be edited or deleted.

Does blockchain reveal identity?

Although blockchain technology reveals information on transactions it does not reveal a user’s identity. Personal information such as name, email, and address are not recorded.

That being said, transaction histories can facilitate the disclosure of identity. Anonymous wallets can be linked to wallets that are held by known individuals.

For instance, if there is a trail on the blockchain that leads back to a centralized exchange then this could potentially reveal someone’s identity as most exchanges require users to disclose personal information. Ultimately, KYC is now an industry standard.

Moreover, if users want to convert their crypto into FIAT currencies such as the US dollar then this can also reveal their identity as most banks require personal information.

Private blockchains

As outlined previously, the vast majority of blockchains are traceable. However, there is a couple of exception to this rule. For instance, Zcash and Monero do not allow transactions to be traced.

Instead, they utilize zero-knowledge proof technology. In essence, it works by allowing transactions to be verified without disclosing trade information or transaction history.

Validators verify information without knowing what they are verifying hence the name zero-knowledge proof.

FAQ

3:20

IP addresses are not recorded on the blockchain. That being said, cryptocurrency applications such as Metamask and Etherscan have access to this information. However, if you use a VPN then this masks your IP address.

Can a bitcoin wallet address be traced?

All bitcoin wallet addresses can be traced. Simply, anyone can look up the address in a blockchain explorer and it will show the corresponding on-chain data.

Can the FBI track Bitcoin transactions?

The FBI has tracked down bitcoin transactions associated with criminal activity on multiple occasions. Oftentimes, they partner with blockchain monitoring companies such as Chainalysis. In 2021 they recovered over $2 million in the Colonial Pipeline ransomware attack.

If Bitcoin is traceable why do criminals use it?

Although bitcoin is traceable there are several tactics criminals use to mask their identity. For instance, they can use mixers and multiple addresses to make the audit trail difficult to trace.

Moreover, when cashing out into FIAT currencies they can use anonymous mediums of exchange such as bitcoin ATMs or simply trading peer-to-peer.

If you want to view this article in a more visual format then please check out my video below:

Final thoughts

As you can see, blockchain technology facilitates traceability. A complete breakdown of transactions is shown on a distributed ledger. This information is immutable and can be verified by anyone.

Consequently, it has created a transparent system. Malicious activity is highlighted and illegitimate money flows can be tracked thanks to a recorded audit trail.

I hope you found this article useful and thanks for reading it.

Want to learn about open-source cryptocurrencies? Click here to read my previous article.