You heard it right ! Bitcoin transactions are very much traceable nowadays, thanks to blockchain technology. You can actually follow the money. An investigator can trace a bitcoin transaction thread to a online bitcoin exchanges, even physical bitcoin exchanges locations. We all know why people do frauds or scams, there is a simple single reason behind that, they want quick bucks without putting actual efforts. And this is basic flaw that investigator exploits to trace them back as Fraudsters/scammers don't hold money for too long because of fear or lack of patience, they immediately look for conversion to real currency. This is where they end up exposing their real identities. Let's see what are all possible ways to trace bitcoin transactions easily.
Blockchain a liability for Fraudsters/Scammers
As we all know Bitcoin transactions are based on Blockchain technology, so once a transaction has happened, it will always remain on the blockchain to track back. There is no possible way for a user to delete a transaction from blockchain until an unless it was on a FORK and which itself occurs quite rarely i.e. it happened only twice in history of Bitcoin.
So if a transaction has happened, it will always remain on blockchain and we can check it any time, doesn't matter how old the transaction is. So we can say Blockchain has become a liability for scamsters. We recently heard a lot of news around RANSOMWARE's where hackers were using Bitcoin payment gateway for asking ransoms from victims and just want to bring it to everyone's notice that around 70% cases has been traced back to attackers by investigators and arrests have happened.
So if you are still thinking of using Bitcoin for your transaction gateway, beware you can also be traced. Nothing to worry about, if you are not doing anything illegal. But again, there are still lot of ways and obfuscation techniques to dodge these tracings, which i will cover in another story.
Tracing Bitcoin transactions on Online Exchanges :
Most of users utilizes online bitcoin exchanges for exchanging bitcoins into real currency for example bitpay, coinbase, localbitcoins exchanges etc. Anyone can create account on these exchanges but to do transactions, you need to verify your identity, phone number etc. Also during bitcoin sell or buy, user need to share their payment/bank accounts with sellers/buyers to receive money. And all these transactions, chats and details are stored in a transaction block in these exchanges, most exchanges maintain transaction information and chats during transactions for upto 6 months. Hence, its very well traceable that in which account real money got transferred.
Now, the main question arises here is how we can trace that to which exchange transaction is going? Ahah.. that's also quite easier to track, as just by looking on bitcoin address, we can easily identify of which exchange this address belongs.
There is another way also which can help to trace bitcoin transaction of these exchanges. As we all aware that these exchanges have few numbers of pro-traders and most people do transactions with them only as they are not only bulk traders but reputed traders too with lot of reviews. Since number of pro traders are quite a bit less in online exchanges, its easily to look into bitcoin transaction going to their bitcoin address.
Also, if you are doing P2P transactions without using VPN or TOR, you are very well traceable anyways. As we all know bitcoin does not have any built-in encryption when it comes to broadcasting transactions over the P2P network. When your client relays a transaction over a network, it passes your ISP details as plain text. Which can later be easily trace back to your IP address. And once we have IP address of anyone, we have everything :).
Tracing Bitcoin transactions on Physical Exchanges :
This is quite a bit easier to trace as we got surveillance system, we can easily track down at what time who is withdrawing funds. Also every Physical has its own address, and investigator can easily find out which physical bitcoin exchange user has used for conversion.
To finish of this article, i would love to submit some new's snippets where Silkroad Bitcoin transactions are traced back to individuals. Perhaps the most famous one is connected to the arrest of the Silk Road’s founder Ross Ulbricht. A former federal agent Ilhwan Yum was able to trace 3,760 bitcoin transactions from Silk Road servers to Ross Ulbricht’s personal laptop by following these transactions described in the blockchain, which had left a visible digital trail from the marketplace to his personal wallet.
In a test conducted under the patronage of Forbes, Sarah Meiklejohn, the leader of "group of researchers" was able to trace every transaction the publisher had made to the addresses associated with their account on one of the most popular Bitcoin wallet services i.e. coinbase. Those Bitcoin addresses were handed over to her by Forbes, but, theoretically speaking, any law enforcement agency can acquire this information if it sends Coinbase a subpoena.
So Scammers/Fraudsters, beware of doing scams, you can easily be tracked down and you are well aware with consequences.