Many prominent persons in the financial world and various governments have expressed alarm over the use of bitcoin because of the anonymous nature of the transactions within the network. They say that bitcoin can be used by criminals to hide or ‘cleanse’ (launder) their loot from criminal activities.
It is true that bitcoin has been previously used by criminals, particularly cyber-criminals, to collect their ransom and hide their money while remaining anonymous. However, it is becoming harder to stay anonymous in the bitcoin network. This is because of know-your-customer (KYC) procedures imposed by regulators and other self-regulation measures adopted by bitcoin wallet providers. KYC procedures require the user to provide multiple proofs of identity including a copy of a valid identification card, passport or a bill with the user’s name and home address.
Once your identity has been successfully linked to a particular bitcoin address your entire transaction history can quickly be revealed. It will be difficult for you to deny those transactions since you alone have the digital signature to authorize transactions from your wallet.
In fact, law enforcers around the world have been analyzing the bitcoin blockchain to successfully arrest elusive criminals involved in illicit activities including ransomware attacks (a form of extortion), hacking, online drug sales, money laundering, and sex trafficking.
Since remaining anonymous using the bitcoin network is becoming more and more difficult, criminals have shifted to using other cryptocurrencies, like Zcash, Dash, and Monero, which are designed to conceal the identity of the transacting parties.
Similar to money and the internet, bitcoin and most cryptocurrencies are merely tools for human usage. As tools, they can be used for good or evil. However, the economic and technological benefits of cryptocurrency cannot be denied even for law enforcement. The cryptocurrencies that criminals use to hide their identity can also be used to expose them.
Want to learn more about cryptocurrency? Check out the author’s book entitled Cryptocurrency 101: The Beginner’s Complete Guide to Bitcoin and Cryptocurrencies.