Despite the anonymity protocols of bitcoin, it is possible to trace bitcoin addresses using legal analysis. Bitcoin does not store any real-world identities, but it is flawlessly possible to trace bitcoin addresses to find real-world identities. The anonymity claimed in bitcoin transactions is a faux.
Bitcoin stores publish all transactions and wallet addresses on a public blockchain to provide transparency. Addresses on the bitcoin blockchain are accessible by the public, therefore anyone can find your bitcoin address and trace it back to you.
The danger threatens anyone who owns a bitcoin wallet, with trade bitcoin wallet owners being at most hazard. Bitcoin wallet addresses alone do not lead hackers to you, but by tracing bitcoin transaction addresses they can identify the owner of the bitcoin address.
How is it possible to trace bitcoin?
Considering there are 10 million transactions taking place every month on the bitcoin blockchain, millions of transactions are out in the wild for everyone to see. Although the bitcoin blockchain stores details such as addresses and public keys, tracing bitcoin transactions do not require an adamant hacker.
In the absence of any real-word identities, virtual asset service providers come up with a link to your real identity. Virtual asset service providers are digital services such as exchanges, wallets, and custodians. With the use of know-your-customer solutions, bitcoin hackers trace your real identity.
How to trace bitcoin hackers?
While standard blockchain explorers might not be much of a solution when tracking bitcoin transactions, using up-to-date algorithms can be of enormous help to track money flow. Investigating bitcoin transactions requires you to be able to interpret graphs, as you must know how to study numerous charts and graphs.
The main downside of tracking bitcoin hackers is the many intermediate wallets in the custody of the hacker. The many transitional wallets make the process longer and more complicated, creating a big problem for you to solve.
Taint Chain and the tracking of stolen bitcoins
Adjusting a 19th-century law, Enter Ross Anderson and colleagues at the University of Cambridge have discovered a new algorithm. Based on the idea of splitting the remaining funds after the breakdown of a bank or a financial institution, the law has become a basis for money administration in numerous cases.
The Taint Chain algorithm, according to researchers, gives away exceptional money laundering patterns when applied to the public record of bitcoin transactions. Enabling law enforcement agencies to track criminal bitcoin transactions, Taint Chain is the sole algorithm revealing hidden patterns of money laundering activities.
The business of money-laundering and cryptocurrency theft is only growing. The lack of a proper tool for recognizing criminal patterns in bitcoin transactions encourages cybercriminals. Criminals apply various methods to hide their trace, with one of the most common being putting several clean bitcoins beside stolen ones in a wallet.
With the addition of clean bitcoins, it gets more challenging to tell which is stolen, and which is not. Criminals proceed with transferring the spoiled bitcoins to other various accounts, hiding the traces of their money-laundering activities.
Clayton’s Law for the crypto market
Anderson and colleagues have recommended an unusual tracking method based on Clayton’s Law. Commonly used in accounting principles, the first-in-first-out formula claims the first person to pay in will be the first person to pay out in bitcoin transactions.
Assumed as the most decent method of allocating funds when a bank has collapsed, the first-in-first-out method is an embodiment of financial law around the world. Applying that same principle to bitcoin wallets, the Taint Chain algorithm claims the first coins to pay out of a wallet are stolen, only if the first ones to pay in were also stolen.
Moving further with the given assumptions, the Taintchain algorithm lays out money-laundering patterns. Considering the volume of transactions, visualizing the whole process is a demanding task; nevertheless, Anderson and Co succeed in spotting peculiar behaviors.
One pattern showing the division of funds by criminals reveals the allocation of funds occurs close to the time of the crime. Attempting to hide the traces of their unlawful behavior, many bitcoin hackers split their raid into hundreds of transactions.
Followed by a collection pattern, the division pattern is very repetitive and often ends up in gambling websites. Named as the “peeling pattern”, the method is most convenient for gambling and exchange websites. Using this method, the promoters pool the money into a single wallet and pay it to their customers consecutively.
Anderson and co also recognized that hackers mostly rearrange their keys to hide the traces. Immune to such skullduggery, the Taint Chain method does not fall for tricks, as it only considers the first pay in as well as the first payout.
Putting bitcoin addresses into different categories
Classifying bitcoin addresses decreases the number of possible options, therefore fastening the process and leading you to the bitcoin hacker sooner. The classifications might be on the basis of the number of daily transactions, and the amount of the exchanged money by the address.
Categorizing bitcoin addresses into different clusters helps you identify the virtual asset service providers such as payment services, custodians, wallets, and many more. Using know-your-customer solutions, you can reveal the identity of every interaction with a particular virtual asset service provider.
How can the police catch bitcoin hackers?
Once clueless as to how to catch bitcoin criminals, the police and regulators now boast years of experience regarding cryptocurrency investigation. With increasing government pressure, most exchange websites have no choices other than to cooperate with the authorities.
With the issuance of many new rules and regulations, investigators have come forward to gain more control and authority over exchange websites. Blockchain inspection tools are formidable and extensively used, making many to doubt the absolute anonymity of cryptocurrency.
Despite the various attempts of bitcoin hackers, they cannot skip the step where they will need to bring their coins back to bitcoin. Exchanging a vast amount of cryptocurrency requires converting them to bitcoin in the first place. As the most common and trusted cryptocurrency, bitcoin is much easier to convert to cash.
The introduction of new coins and technologies has done no damage to bitcoin’s reputation. Bitcoin has always remained the cornerstone of the crypto market.
If the destination wallet belongs to someone who lives in, let’s say China, it might be possible to convert the coin into fiat with no strings attached. Over-the-counter traders often neglect legal preconditions such as KYC laws, providing perfect conditions for money launderers.
Before, there were only bitcoin transactions between a theft and a movement toward the over-the-counter traders. With many emerging crypto coins, bitcoin hackers can trade coins other than bitcoin. Using unknown currencies helps criminals to a point, as they need to convert their cryptocurrency into bitcoin eventually.
The crypto laundering business is also getting bigger every day, with the top 100 over-the-counter traders receiving hundreds of millions of funds every month. The latter amount consists of 1% of all bitcoin transactions.
The main obstacles when tracing bitcoin addresses
Although essential to privacy, the absence of a real-world identity makes it difficult to identify transactions. A database consisting of strings and numbers, the bitcoin blockchain stores only bitcoin addresses.
Heavy-guarding through intermediate wallets
Considering the principles and protocols of the bitcoin blockchain, setting up thousands of wallets in the platform is an undemanding task for many. Unfortunately, using thousands of intermediary wallets is a beloved method of most bitcoin hackers.
Seeking to remove their identity, bitcoin hackers and other criminals direct money through thousands of wallets to the original destination wallet. Like any financial market, the crypto market is also not exempt from money laundering attempts.
With the purpose remaining the same, intermediate wallets bear the role of charities and inactive companies in faraway islands in this particular case.
- Mixers
Originally designed to improve privacy, mixers are a tool used by criminals to mix funds. Mixers complicate the money flow, making it more challenging to trace bitcoin transactions.
- Unregulated crypto services
Powered by a public blockchain, bitcoin is a public entity, allowing anyone to provide additional services. The prime cause for money laundering is that know-your-customer protocols are usually forsaken in many countries around the globe. Many criminals and money launderers, utilize unregulated crypto services to proceed with unlawful money and convert them into fiat currency.
Wrapping up
Although the partial anonymity of bitcoin transactions helps hide trade bitcoin wallet owners, it does not guarantee complete privacy. Tracing bitcoin transactions is a common business among bitcoin hackers. Using an e-mail address not associated with your essential activities might be a good idea as your bitcoin address can lead hackers to your e-mail address.
