If you’re just getting started with Bitcoin and you perceive Bitcoin as an anonymous payment network where transactions are not traceable, then you may be wrong.
While Bitcoin enables you to transact and exchange money in a different and better way as well as provides an acceptable level of privacy for users, it remains the most transparent payment network in the world and all Bitcoin transactions are traceable.
So, if your question is, “Are Bitcoin transactions traceable?” Yes! Bitcoin transactions are traceable though not as easily traceable as transactions in fiat money. This article will open your eyes to a few things you must know about Bitcoin traceability.
Although Bitcoin transaction is traceable and not 100% anonymous, the focal question should be, “Why do you want your transaction to be anonymous and non-traceable?” If it’s to protect your identity from theft, then Bitcoin offers adequate privacy but if it’s to perpetrate money-laundering, tax evasion, or other illegal activities, your transactions are traceable.
All Bitcoin transactions are traceable, public, and permanently stored in the Bitcoin network. This means that each transaction can be traced and located in the network. However, the only information that defines where Bitcoin is sent from or sent to is the Bitcoin address and not the sender’s or receiver’s details like in fiat money
Bitcoin addresses are privately created by each user’s wallets. Once a Bitcoin address has been used, it becomes registered on the network and all the history of transactions it was involved with can be tracked i.e. anyone can track and monitor all the transactions of the Bitcoin address.
More so, Bitcoin addresses cannot remain fully anonymous because to receive some goods and services paid for with Bitcoin, users may have to reveal their identity, which can be linked to their Bitcoin addresses.
Also, Blockchain is “almost” permanent and indelible. So, it is important to note that Bitcoin transaction that is presently not easily traceable may become very easy to trace in the future.
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Why Do People Think Bitcoin Transaction Is Not Traceable?
What was responsible for the initial misconception and why do most people believe that Bitcoin transactions are anonymous? Here are a few reasons:
- Multiple Bitcoin addresses can be generated randomly for the same cryptocurrency account without the need to submit personal information. This means that Bitcoin addresses are not directly tied to a person.
For fiat money, bank account numbers are directly linked to the owner’s detail and no two account numbers can be linked to a single bank account.
While Payoneer, Skrill, PayPal, and other online fiat money transaction mediums offer a similar concept as Bitcoin by using email addresses for transactions instead of bank detail, no two emails can be used for one account and users’ information can be easily obtained through the email.
- During the Bitcoin transaction, the sender and receiver control the addresses to use for transferring and receiving Bitcoin and are not obliged to disclose any personal information. Hence, the two parties involved in Bitcoin transaction or any other party may not know each other.
This is similar to making transactions with fiat money that is not easily traceable by the banks.
- There are several nodes on the Bitcoin network and Bitcoin transactions are transferred to random nodes on multiple IP addresses. Hence, nodes do not confirm the original IP address of each Bitcoin transaction. Instead, nodes simply forward the transaction data based on the Bitcoin address.
How to Make Bitcoin Transaction Traceability Difficult?
Now that you’ve seen that Bitcoin transactions can be traced, here are a few steps you can take to prevent traceability of your Bitcoin transaction or at least make it difficult:
Use New Bitcoin Addresses for Transaction
As stated above, Bitcoin transaction is presently not easily traceable but may become very easy to trace in the future. Therefore, only one Bitcoin address should be used per transaction.
To further protect your privacy and avoid tracing, make sure that you use a new Bitcoin address each time you engage in Bitcoin transactions. More so, you can use multiple cryptocurrency wallets for different Bitcoin transactions.
By doing this, you’re isolating each of your Bitcoin transactions in such a way that makes it very difficult to find an association between all of them. Anyone who tracks your transaction would only see what you did with a Bitcoin address and cannot see what other Bitcoin addresses you own.
Be Wary Of Public Spaces
It is not advisable to publish your Bitcoin address on any public space like social media platforms, forums, or websites – if you’re concerned about your privacy – except if you intend to receive public payments or donations with full transparency.
Note that any transaction carried out on this “publicly exposed” Bitcoin address can be traced and if you transfer any fund from this address to any of your other Bitcoin addresses, the history can be tracked.
More so, always be wary not to publish information about the purchases and transactions you made with your Bitcoin addresses online as someone may be able to identify all your Bitcoin addresses like this.
Hide Your IP Address
Although it is very difficult, it is still possible to log IP addresses of Bitcoin transactions. For instance, all Bitcoin transactions are relayed by full node clients just like their own. Hence, tracking the IP address of any particular Bitcoin transaction can be difficult as the IP address of the nodes may be mistaken as the address of the transaction.
However, for improved safety and non-traceability, you should consider using a tool like Tor to hide your computer’s IP address so that it cannot be logged.
Be Wary Of Mixing Services
There are some online services known as “mixing services.” Just as the name depicts, the major function of mixing services is to mix traceability for Bitcoin transactions by receiving Bitcoin from the main senders and sending the same amount to the final recipients using some independent Bitcoin addresses.
However, you need to trust the mixing service provider and be sure that your fund will not be stolen or a log of your request kept. More so, though mixing service providers can break transaction traceability for small amounts of Bitcoin transactions, they may not be able to do the same for a larger amount of Bitcoin transactions.