By CNBCTV18.comSept 13, 2022 7:32:50 AM IST (Published)
Bitcoin and many other cryptocurrencies are built on blockchain technology, which provides complete decentralisation. These digital assets can function without any oversight or control from a central governing body. As such, cryptocurrencies are widely believed to be anonymous, untraceable, and tamper-proof digital assets. But to what extent is this true? Let’s find out:
Bitcoin is a cryptocurrency that has gained a lot of popularity in recent years. It has seen an astronomical rise, with more and more people adopting it as a means of payment and investment.
Recommended Articles
Enabling Education 4: One must learn these skills in the changing world, but who should teach?
Mar 15, 2023 IST5 Min(s) Read
Early metaverse adopters will gain new customers, improve profitability: Wipro study
Mar 14, 2023 IST3 Min(s) Read
Pakistan economic crisis | Ramadan relief package for poor, seeking IMF leniency and crimes at gunpoint
Mar 14, 2023 IST5 Min(s) Read
These are the cities where freshers have high scope in blue & grey collar jobs in India
Mar 14, 2023 IST5 Min(s) Read
Bitcoin and many other cryptocurrencies are built on blockchain technology, which provides complete decentralisation. These digital assets can function without any oversight or control from a central governing body. As such, cryptocurrencies are widely believed to be anonymous, untraceable, and tamper-proof digital assets. But to what extent is this true? Let’s find out.
Are Bitcoin transactions traceable?
Since Bitcoin uses blockchain technology, there is complete transparency, and all the transactions are recorded on a distributed ledger. These ledgers are open to the public, and anyone can access them. This makes Bitcoin transactions traceable.
With the help of tools known as Bitcoin explorers, users can trace any activity on the blockchain. One can also trace the amount sent and the addresses involved in a transaction. However, you can only trace these transactions to the user’s public key; they do not provide real-world identification or personal information.
Therefore, while blockchain explorers can help trace transactions and obtain wallet addresses, finding the identity linked to the address is not easy—this grants the user pseudo-anonymity.
Are Bitcoin transactions anonymous?
The transactions on the blockchain can only be identified by a string of alpha-numerical known as a public key. This key makes bitcoin transactions pseudo-anonymous. This means that, while others can look at your transactions and your holdings, they cannot ascertain the real-world identity behind the public key.
However, this changes when you need to exchange your cryptocurrency for cash or other tokens or to get a crypto debit card. You need to register with a centralised cryptocurrency exchange, decentralised application, or crypto bank for any such services. These platforms will most likely need you to complete a KYC process to take you on as a customer. By doing so, you create a link between real-world data and the public key of a wallet, which can be used to uncover details of the identity behind a wallet’s public key.
Can Bitcoin be withheld?
One of the most significant benefits of blockchain technology is that transaction records and personal crypto holdings cannot be tampered with or modified. This is a feature known as censorship resistance or immutability.
Since blockchain technology is based on a decentralised system, no entity has control over someone’s funds or data.
Therefore, on-chain tokens cannot be frozen, withheld, or modified in any way. Perhaps the only way to block a user from accessing their on-chain funds would be to shut off internet services in the vicinity.
However, all this protection goes out the window when you transfer your funds to a crypto exchange, lending platform or DApp. A central authority is then involved and can freeze funds if necessary. It is a common occurrence where a centralised trading platform will freeze a user’s wallet.
This often happens if the user is involved in some criminal activity. Government authorities can contact the developers to freeze a particular address. The developers blacklist the address, preventing the user from sending or receiving cryptocurrency.
In some cases, the feature to blacklist an address can be misused by scammers. Usually, on decentralised exchanges, scammers can use this feature so that the tokens that are bought can’t be sold. This will inflate the price of the said token and lure investors toward the project. Once the prices are high enough, the scammers dump their tokens in the open market and disappear with a fortune.
Conclusion
In conclusion, Bitcoin can provide some degree of anonymity. However, with new KYC guidelines, maintaining this anonymity and making untraceable transactions is becoming more difficult. Cases of frozen wallets have also become common these days. However, the odds of someone tracing your account, uncovering your real-world identity, or freezing your account are extremely rare. It takes specialised tools and knowledge to pull off these tasks and usually entails law enforcement agencies tracking down some criminals.
