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Can the US Government Really Track Bitcoin Transactions?

In the last decade, Bitcoin has had significant attraction and growth across the world. Today, Bitcoin has the support of hundreds and thousands of users and has become a bastion in the crypto landscape. Despite its tumultuous history, Bitcoin continues to serve as the most reliable and profitable long-term investment.

On the other hand, the viability of this cryptocurrency is not as anonymous as people think. Of course, BTC holders can avoid the control of traditional financial institutions. But it also carries an added risk that has managed to attract many mysteries and myths quickly.

For instance, in the event of Colonial Pipeline ransomware, the FBI successfully recovered paid Bitcoins. It dismisses the misconception that cryptocurrencies are not traceable at all. Bitcoin transactions are highly secure on a decentralized blockchain. However, they’re not completely anonymous and not impossible to track.

Bitcoin Fundamentals

Bitcoin payments and trading work through a P2P network that works around multiple computing devices to store and share files. Each participant on the same network can serve as a peer or BTC holder. But contrary to naïve perception, Bitcoin payments are not anonymous. Instead, the cryptocurrency makes it difficult to trace.

Nonetheless, the more participants engage in the network and perform transactions, the more blocks come into play. The creation of blocks on the blockchain refers to Bitcoin mining. In addition, each participant has its own identical copy on their device.

Technically, Bitcoin offers a more secure process to conduct transactions and cuts out the need for a bank to store financial information. However, BTC holders are solely responsible for validating and processing each transaction when it comes to Bitcoin.

Now, to understand the security parameters of Bitcoin, you should get familiar with blockchain. The more familiar you are with blockchain, the better you can understand the anonymous status of Bitcoin. Blockchain runs through a decentralized ledger that makes transactions visible to participants inside the crypto wallet.

As Bitcoin becomes more mainstream, it takes minimal effort to link a dedicated wallet address to an IP address or specific user. It is why law enforcement agencies hire cryptocurrency specialists and mandate identity verification on crypto exchanges.

Legality of Bitcoin

After years of growth, the major risk associated with Bitcoin security is federal regulation. In developed countries like Japan, the UK, and the US, Bitcoin is legal. But, conversely, cryptocurrencies, including Bitcoin, have started to face stringent rules and regulations that might dissuade future investors and halt mainstream adaption. For instance, China has banned cryptocurrencies altogether and eventually wants to adopt its own digital currency regulation in the coming years.

How Safe is Bitcoin?

Blockchain is the foundational technology that fuels Bitcoin, and it makes the cryptocurrency highly secure. Therefore, in terms of safety, you can use Bitcoin for numerous financial purposes. But it is crucial to realize and recognize that even heightened security of Bitcoin is not anonymous. In fact, there are several risks for investors who want to invest in Bitcoin.

For starters, it is no secret that the crypto landscape is more volatile than ever, and prices are prone to fluctuate over time. But investors who perform comprehensive risk assessments and analyze market volatility end up getting high ROI.

On the other hand, there’s always a chance the market value of the BTC can plummet. In comparison, BTC fairs well as a more secure and safe cryptocurrency than others. Still, if you want to trade Bitcoin, follow the lead of experienced investors and seek out the expertise of financial investment firms to make wise Bitcoin investment decisions.

When it comes to security parameters, Bitcoin uses hash functions, digital signatures, and passwords. Despite these robust three protocols, Bitcoin data is vulnerable to cyber theft, loss, and forgetfulness. When cybersecurity issues are on the rise, Bitcoin protocols can become more susceptible over time.

Bitcoin Behind the Curtains

In layman’s terms, making Bitcoin transactions does not mean payments are invisible in the digital world. However, after new tracking initiatives, it has become clear that the criminals can no longer hide behind the faux anonymous status of Bitcoin.

Since Bitcoin works as a digital currency, transactions are online and have full visibility. For starters, a ledger with transactions stores information like amount, time, and the source of sending and receiving money in the wallet. This means any participant can analyze transactions inside a similar wallet.

It is one of the approaches for investigation agencies to pick up information crumbs and track the money trail. Now, it is common knowledge that Bitcoin transactions are far more traceable than hard cash in the crypto circle. In fact, crypto experts believe that it is a bad move to launder money through Bitcoin.

Bitcoin Anonymity

Technically, wallet records of Bitcoin are open to the public. The catch is that there’s no integrated system that can identify the owner. In hindsight, Bitcoin is (more or less) absolved from traditional KYC (know-your-customer) protocols. It means BTC holders can use a wallet without having to worry about KYC requirements.

Still, Bitcoin anonymity translates into heightened security. It is a robust model and works in favor of millions of BTC holders that perform Bitcoin-based transactions. Most recently, many crypto exchanges want to mandate a dedicated KYC identification before BTC holders can make transactions or share information with official authorities.

But if your Bitcoin wallet is empty, then you have an anonymous status. On the other hand, if BTC holders receive or send bitcoins, law enforcement agencies can look at uploaded KYC documents of the exchange and find the identities of receive and as well as the sender.

Moreover, investigative firms and law enforcement agencies have figured out “how” to combine the bits and pieces of information left behind by the wallet owner. While it takes a significant amount of time to follow the money trail and cross-reference information, agencies end up finding the identifiers on both ends.

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