(Updated September 2022)
Bitcoin is often perceived as a completely anonymous network where transactions are untraceable. It’s been heavily criticized for being the money of criminals – that drug dealers use it to evade “the man”. However, can Bitcoin be traced?
Here’s the short answer:
Yes, Bitcoin can be traced. All transactions on the Bitcoin blockchain are public, and anyone can review them. However, you can only trace the Bitcoin wallet that the transaction stems from, not the person who owns the wallet.
It’s not the case that Bitcoin is mainly used by criminals, even though it’s highly private. The number of transactions on the Bitcoin network that are criminal is currently less than one percent.
In fact, Bitcoin is one of the most transparent payment systems in the world, but at the same time, if you know what you’re doing, Bitcoin is practically untraceable.
Is Bitcoin Traceable?
Because Bitcoin is built on blockchain tech, every computer on the Bitcoin network keeps a perfect copy of the transaction history.
The sender and receiver’s wallet address, the time/date of the transaction and the amount of Bitcoin sent/received will be permanently stored for all Bitcoin transactions ever made, and all transactions ever to come. This means that anybody can look up the details regarding every transaction ever made. That’s why it’s so transparent.
Another important thing about transacting with Bitcoin is that once an address is used, it gets “dirty”:
Wallet addresses are linked to every transaction it ever was involved in. This makes it easy to figure out what a specific address has done in the past. In this sense, Bitcoin can be traced.
You can look up a specific address and check out all the different transactions it’s been involved in, as well as when it was first used and how much BTC it contains.
Blockchain.com lets you check out all Bitcoin wallets in existence. Below you see an example:
Bitcoin offers total transparency of transactions. However, to figure out who was involved in the transaction, one needs to know who used the wallet; that’s where privacy comes in:
The Privacy of Bitcoin Transactions:
Even though the transactions of all wallets are public, it’s still highly private.
Yes, everyone can look up your transaction data, but no one knows who you are – they can only see your wallet address.
Information about who owns a wallet is not easy to access, which is why Bitcoin offers a great deal of privacy.
However, it’s not impossible to figure out:
How to Crack the Privacy of Bitcoin Transactions
When a person tries to buy goods or services, they usually need to give their personal information, like their name and address, in order to receive them.
The business that sold the given good/service can then check what wallet address paid, and connect the dots.
If “John Johnson” bought a car from BMW, and it was paid for by a wallet with the address “x”, BMW could assume that the wallet with address “x” belongs to John Johnson. They can then look up all the different transactions he has been involved in, as well as check his wallet balance, as all this information is public.
In other words, it’s possible to assume who a wallet belongs to when you sell something in exchange for Bitcoin.
Now, let’s say John Johnson was a wanted criminal. The police could then look up all the Bitcoin transactions J. J. had made in the past from this address. They could also look up all the addresses that he has received BTC from in the past, as well as monitor his future transactions.
This is a great starting point to catch the criminal activity that J. J is connected to. It’s also possible for some of the computers on the Bitcoin network to log the IP addresses of some wallets when the wallets engage in transacting, but this is rarely the case, as it involves some luck.
How The Police Can Trace Bitcoin Criminals:
There are companies that specialize in tracking transactions and addresses, and they often collaborate with the police.
An example of companies that specializes in tracing Bitcoin is Chainalysis.
There are tons of examples where they manage to catch the bad guys, in addition to the other criminals connected to them. If bad guys use cash, there’s no way to trace it. We should be thankful that some criminals use Bitcoin, instead of cash.
There are ways, however, to make Bitcoin harder to trace…
How to Make Bitcoin Practically Untraceable
One person can acquire many different addresses. If you dedicate different addresses to different purchases, it’s way harder to track. You can also have one address exclusively dedicated to receiving Bitcoin and spreading it to your other addresses.
A practical example:
Let’s say Johnson did a dirty job for a criminal organization, and he wants to receive his payment in Bitcoin. He could then set up a dedicated receiving wallet, to which the organization would send the Bitcoin when paying him.
This wallet is now the only wallet that could connect Johnson to the criminal organization.
Now, if Johnson is a stupid criminal, he goes on to spend that Bitcoin on a new house, a car, a fancy vacation, or whatever. Naturally, people are starting to wonder where all the money came from.
Before he knows it, the Police are investigating J.J. They get his wallet address from the businesses and people he paid BTC to, and see that he received a huge payment from another address (the address he received payment for the crime).
They start looking into what this other wallet address is doing and uncover all kinds of huge transactions and start looking into it. The police finally connect the dots and catch both Johnson and the criminal organization.
Had he paid with cash, the police could never have tracked it. However, with Bitcoin, or more precisely the blockchain being so transparent, the Police managed to track it down.
Here’s what J.J did wrong, and how he could have evaded the police:
The Bets Way To Stay Private using Bitcoin:
If Johnson is a smart criminal, he will not cash out and buy the house. He will never directly buy anything with the wallet he received the payment.
The wallet he received the payment to, would never be connected to any purchases whatsoever. The smart thing would be to set up multiple different addresses and dedicate them to different purchases.
That way, he could never be traced back to the receiving wallet, only to the smaller wallet he used to buy the specific goods/services.
In other words:
If you want to stay private when using Bitcoin, set up a network of addresses – making it harder to track you.
If Johnson was really smart, and also a bit paranoid, he could set up 50-100 addresses and start selling smaller amounts of it to people directly, staying totally private. The next section tells you how to be practically untraceable:
How to Stay Totally Private Using Bitcoin
The standard way of selling Bitcoin is through an exchange, but this is traceable. To stay totally private, J. J. should therefore sell it to people directly.
This is possible because Bitcoin is a “peer-to-peer” currency, like cash. You can meet up with someone, and send them Bitcoin in exchange for their cash, without involving a third party like a bank.
He can then use his cash to buy stuff, or if he’s willing to risk it, use the small wallets to buy stuff.
In doing this, he diversifies his risk:
If the Police ever catch up with him, they can only connect one of the addresses to him. The other Bitcoin wallets he has could never be traced back to him.
The Police could find the wallet with the Bitcoin he received as payment for the criminal job, and uncover that this wallet spread the Bitcoin to 50-100 other wallets, but none of these wallets could be traceable to Johnson.
Only the one they caught him with, containing a small amount of BTC, is what they can charge him based on.
I should probably end this example about how to do “dirty jobs” without getting caught. This is, after all, not a criminal’s guide to evade to police, but an answer to the question: “Can Bitcoin be traced?”.
Conclusion – Yes, Bitcoin Can be Traced
The payment network that Bitcoin works on is one is the most transparent ones ever to be created. Anyone can trace all Bitcoin transactions ever made back to the wallets involved.
Therefore, the answer to the question “Can Bitcoin be traced?” is yes – it’s highly traceable.
However, as we’ve discussed above, it still offers high privacy. Even though all transactions are public, the people behind the wallets are not.