Can Bitcoin be Traced if Used for Illegal Activities?

Bitcoin is known to offer privacy and decentralization. But can Bitcoin be traced if used for criminal activities?

Can Bitcoin be traced?

All cryptocurrency transactions are recorded in the blockchain, which means that all users are able to see transactions of a given network (in this case, Bitcoin).

Transacting through Bitcoin is known to offer a sense of relative pseudo-anonymity. Although the Bitcoin blockchain won’t reveal its user’s identities, some publicly available information can be used by the authorities to track Bitcoin transfers.

Once a public address is linked to any real-world entities such as a bank account, authorities will be able to identify who is using and transacting with a certain amount of Bitcoin.

The same goes for whitelisted Bitcoin wallets. These are wallets that are linked to a verified account of a cryptocurrency exchange platform. The exchange asks for personal information to verify the users of the Bitcoin wallets and keeps this information in case unusual transfers start to take place.

Why would the police want to trace Bitcoin?

Some Bitcoin transactions are involved with illegal and criminal activity, which turns them into evidence that can potentially lead to an arrest.

What this means is that BTC can leave digital “breadcrumbs” that can lead to a successful “breakdown” of illegal organizations and digital crime. 

Being able to backtrack all transactions made with Bitcoin, the authorities do not only capture the individual who happened to make or receive an illegal Bitcoin transaction,  but they uncover the whole activity prior to the transaction.

This can lead to the arrest of everyone involved in a particular crime, and not just those who are caught in the act. 

It might be worth noting that authorities now demand from cryptocurrency exchange platforms to whitelist as many Bitcoin wallet addresses as possible, in order to make the process of tracking Bitcoin easier.

Successful captures due to Bitcoin transactions’ tracing

On January 20, 2016, 10 men in the Netherlands were arrested for illegal drug trafficking. They used commercial Bitcoin services to convert Bitcoin to Euros and withdrew millions from ATMs. Their Bitcoin addresses were later linked to online drug sales, tracked by the Interpol and FBI.

In February 2015, Ross Ulbricht was sentenced to life imprisonment. He was the founder and CEO of Silk Road, a market in the dark web, which facilitated more than $1 billion of illegal drug sales in Bitcoin.

In Oktober 2019, more than 330 people were arrested in a major takedown of a website linked to child pornography. U.S. officials mentioned that the arrest was possible after following a trail of Bitcoin transactions.

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