Are Bitcoin Transactions Traceable?

Some people blame Bitcoin for its use in criminal situations. In the past we have seen Ross Ulbricht, Silk Road creator’s case as well as Trendon Shavers’ case, who has plead guilty to running a Bitcoin Ponzi scheme starting back in 2011 until 2015.

All these revelations were based in the Blockchain that Bitcoin transactions create. Academic researchers and Bitcoin experts helped law enforcement put an end in these cases. But are Bitcoin transactions traceable?

Traceable unless designed not to be

Derick Smith, Architect at Protocol in Blockchain Solutions, comments:

“They are traceable unless they are expressly designed not to be so. This is the case with certain Bitcoin obfuscation techniques, or with a cryptocurrency like Dash's Darksend”.

Paul Glass, who has expertise in financial disputes, technology-related disputes and cyber security, in his article “How secure is blockchain?” says that at the Black Hat Asia conference in March 2015, Interpol demonstrated a proof of concept of software which could become malware allowing the subversion of the blockchain underlying Bitcoin. This uses the ability to introduce data unrelated to transactions into the blockchain.

Researchers from the University of Newcastle have also introduced a botnet command and control mechanism to send messages to bots on the Bitcoin network. These are early demonstrations of potential vulnerabilities, and the extent to which they can impact on an entire block chain is not yet clear.

What they do demonstrate, however, is that while blockchain technology may provide new ways of enhancing information security, those improvements will be another tool in a business' armory rather than providing a solution to the problem.

Fully traceable

People who want to use Bitcoin as a payment method are motivated by privacy concerns or just curiosity. Bitcoin has been in circulation since 2009 and promotes economic liberty based on anonymity and high-tech security through Blockchain. But the paradox of Bitcoin is that actually through Blockchain you make public information of your financial history.

Pierre Gerard, CEO & co-founder at SCORECHAIN, shares his view on the matter:

“Bitcoin transactions are fully traceable, it means that we can track any Bitcoin activities. Of course, there are some limitations. If people do mixing or agree to build common transactions, it might be difficult to track the origin of the coins. But it's already a piece of information. If you want to increase security, you can avoid dealing with people who have "suspicious" activity or very difficult to trace. Based on the way transactions’ input,output and amount are built, we can group addresses in entities (clusters), so we know that only one person or one company is the owner of several addresses”.

The main issue is to link these addresses with the actual person and/or company. This is why exchanges will be regulated. Gerard says that “we will be able to trust some exchanges as they control the exchange Fiat currency/Bitcoin so the entry and exit points”. It is already possible to get a lot of information on digital currencies activity.

Gerard concludes that the majority of people who use digital currencies want to build their reputation (“trust identity”) rather than hide. And this is what they are trying to do at Scorechain.