Are Bitcoin Transactions Untraceable?

Critics portray Bitcoin as an untraceable means of payment that facilitates various kinds of financial crimes. That implies Bitcoin users can conduct transactions with complete anonymity so that none can trace their identities. However, that is not necessarily how Bitcoin works. Although it offers enhanced privacy than traditional forms of payment, it is not as untraceable as cash transactions. The following article explores the reasons behind the anonymity of Bitcoin transactions to give you a clear picture of how it works. 

Bitcoin's Blockchain

Bitcoin transactions occur on a peer-to-peer network, which runs on blockchain technology. However, Bitcoin exchanges do not involve intermediaries to verify transactions, like in credit card transfers. Instead, all transactions are verified and stored by the blockchain. 

Bitcoin's blockchain is a public ledger containing all transactions that have taken place on the network since inception. No single entity maintains the register, like in traditional payment methods but through different computers worldwide. Each of those computers has a copy of the Bitcoin transactions, as confirmed by miners. 

Miners validate Bitcoin transactions by competing to solve complex math puzzles. The first miner to crack the mystery generates new Bitcoins in exchange for rewards.  

Since blockchain validates and permanently keeps precise records of all Bitcoin transactions, all users can always access the data at their convenience, anywhere. That would mean Bitcoin transactions are not entirely anonymous. However, the system encrypts data with a unique public key, which conceals the real identities of the individuals involved in the trades. 

Many reputable investment and trading companies, such as bitcoin profit, have closely followed a similar idea, creating automated and binary trading apps that allow investors to trade Bitcoin and other currencies anonymously. 

Why it isn't easy to Trace Bitcoin Transactions 

Whenever you transact with Bitcoin, the system assigns you two digital keys; a public key or address and a private key. The Bitcoin blockchain publishes the public key and is visible to other users since it serves as the account number that others will use whenever they need to send or receive payments from you. On the other hand, the private key acts as the user's signature, only known. 

The private key provides proof that the user authorized the transaction. However, Bitcoin's blockchain only shows transaction data using the users' public keys. Data indicate only the amount of Bitcoin transacted and the time of transaction. As a result, users can easily view the transactions but hardly match each transaction to an individual or entity. 

Despite the increased privacy and security of Bitcoin transactions, a data breach is a possibility that users should not ignore. For instance, crypto trading exchanges usually require individuals to provide personal information when signing up. Although the information collected varies across exchange platforms, standard requirements include users' first and last names and telephone numbers. Some may also generate users' IP addresses. That could expose users' personal information in case the exchanges experience data security breaches. 

Breaches of exchanges have occurred in the past and could still take place. Besides, those institutions are also subject to regulatory requirements that could sometimes allow government entities to access Bitcoin users' information and transactions. 

The Bottom Line 

Despite the few privacy concerns, Bitcoin is a secure means of payment and financial asset, tied to no government or central authority. Besides, there are various ways to increase your privacy on the network. One of them uses a new Bitcoin address for every transaction, making it more difficult to trace your transactions. You could also take additional precautions like using an anonymous browser to access Bitcoin exchanges and creating an account without including your real names. Storing your Bitcoins in offline wallets could also offer protection from the hacking threats experienced in online third-party wallets.

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)