Why Criminals Shouldn’t Use Bitcoin for Illegal Activities

Ever since its birth in 2008, bitcoin has been involved in various hacking attacks, data breaches and illegal activities. From 2014 to 2015, the number of hacking groups and criminals using bitcoin to demand ransoms increased to a point in which law enforcement agencies had to step in to regulate fraudulent transactions.

Because of the growing use of bitcoin in illicit transactions, the mainstream media has always portrayed bitcoin negatively to the general population, leading them to believe that bitcoin is anonymous. However, bitcoin by nature is definitely not anonymous. In fact, with intelligent blockchain analysis and transaction verification tools, anyone can easily track down bitcoin transactions to its origin, using methods such as clusterization. Clusterization is utilized by the majority of blockchain analysis platforms such as Elliptic, Chainalysis and Coinalytics to obtain different sets of data that are used to track down transactions. Some of the data sets include the history of incoming funds, transfer of funds between two addresses and a set of addresses used by the same entity.

Before understanding the concept behind clusterization, it is important to consider that bitcoin is a distributed ledger of transactions that are publicly displayed for users to observe. Thus, transactions and wallet addresses are left to be viewed openly by the community. However, one major issue in tracking down transactions on a public ledger like bitcoin has always been the size. The number of transactions that are processed by the Bitcoin network is too large to track down with conventional technologies.

Clusterization enables anyone to monitor the inputs of a transaction and track down some transactions that belong to the same wallet. As Moe Adam of BitAccess explains, clusters can be viewed as historical data points to form relationships of transactions and wallet addresses. With services from startups like Elliptic and Coinalytics, entities, especially government agencies, can easily obtain the necessary data to find the origin of a certain transaction and the wallet used to facilitate it.

However, Adam states that only businesses and law enforcement agencies are given access to such services and the bitcoin community is excluded from using clusterization to trace transactions. Although making bitcoin a more transparent currency could be beneficial for governments, it could be a negative factor for user privacy.

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