Understand the traceability of bitcoin wallet addresses
There has been an upsurge in the cryptocurrency and blockchain industry since the introduction of Bitcoin. It was developed as a firm substitute to fiat currencies which are supported by government, to be used daily for purchases and transactions. There are different views and opinions on how effective and reliable digital currencies such as Bitcoin have been, in terms of the privacy, security, ease of access and transparent, as compared to traditional currencies. Investments and projects have been hinged on bitcoin due to its high value as related to fiat currencies like dollars and Euros. This has caused a great demand for Bitcoin in market and thus, it is necessary to understand the traceability of bitcoin wallet addresses. Can a bitcoin wallet be traced?
Payments and transactions with bitcoin are the most transparent in the world
Due to the Decentralized system of Bitcoin, it is believed that payments and transactions executed using bitcoin is usually anonymous. However, this is usually not the case as these payments and transactions with bitcoin are the most transparent in the world. There is a high level of transparency associated with bitcoin wallets which makes the transactions performed on bitcoin platforms traceable, public and stored permanently on the network. Bitcoin addresses which are peculiar to each wallet and also created by each user’s wallet, can be traced whenever it is used to perform a transaction or to make payments.
Due to the traceability, the content of a bitcoin wallet can be seen by the public and also all transactions performed through that same address can be monitored. In order to receive and send payments, the identity of a wallet owner is usually revealed; this obviously makes the Bitcoin wallet address traceable and less anonymous. It is highly recommended that bitcoin wallet address are used for specific purposes and change immediately that purpose is achieved.
There are certain steps that should be taken in order to limit the risks associated with the traceability of Bitcoin wallet addresses. They include:
- Use new addresses to receive payments: The traceability of bitcoin addresses exposes the balance after every transaction, hence, it is advised that you protect your privacy. This privacy is done through using new Bitcoin address whenever you need to make payments. The helps to limit the access of your client from viewing the balance of your bitcoin wallet.
- Be careful with public spaces: Another way to reduce the vulnerability of your wallet due to its traceability is to avoid public environment. When your bitcoin address is easily accessed on public space, it is easily tainted. Therefore, it is recommended that you avoid sharing your bitcoin addresses on a public space such as social media platforms or websites. You also endeavour to limit how you share your wallet details, payment history or transaction information.
With these traceability of Bitcoin addresses, experts are seeking ways to reduce the risks associated with it and improve the privacy of Bitcoin wallet. Efforts are currently being made on improving the payment messages API so as to evade the forgery of multiple addresses during transactions or payments. There are also research done to enhance the user interface to facilitate ease of payments and also avoid the repeated use of wallet addresses.
Elliptic traces bitcoin to hunt dark web criminals for the FBI
According to Elliptic, a cryptocurrency tracking company that works with law enforcement agencies such as the FBI and the CIA, the dark web is increasing 50 percent year on year. Although not all activities that take place in this internet underworld are illegal, those such as terrorism, drug trafficking, extortion, circulating child sexual abuse material and money laundering do account for a persistent proportion.
Bitcoin is renowned for being anonymous, but Elliptic exploits this partial misconception. “Actually, you transact through a bitcoin address, and if you can make a link between the address and a real-world entity, it means that you can look at a list of bitcoin blockchain transactions to build a picture of who is using the cryptocurrency,” says Tom Robinson, co-founder and chief scientist at Elliptic. It’s using this data to build a bridge between cryptocurrency addresses and real-world entities that constitutes the core of Elliptic’s business.
Elliptic uses various machine learning techniques to predict the probability that a given cryptocurrency address belongs to a certain actor. A dark marketplace will be doing thousands of transactions through thousands of addresses, meaning it’s difficult to collect all of the addresses within a given dark market. Instead, Elliptic looks at addresses that they know belong to those markets and can then use machine learning to discover other addresses and transactions that belong to the same dark market.
The company also encompasses a forensic and investigative services strand that is more geared towards law enforcement agencies. Whereas an exchange will simply be scanning multitudes of transactions and looking for bad actors, law enforcement take a different approach. “What they want is to look in detail at one transaction or one address and look at that activity and try to trace it the funds into and out of it,” says Robinson. For this purpose, Elliptic offers a graphical transaction explorer, which is used mostly by law enforcement agencies.
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Can a bitcoin wallet be traced?