In the beginning, it was widely believed that cryptocurrencies like Bitcoin were a shelter for criminals since they were completely anonymous and untraceable.
But when businesses and the general public learned more about blockchain technology, it became clear that the public transaction record for Bitcoin was actually a rich mine of data for law enforcement. But the matter of cryptocurrency’s anonymity still stands.
Cryptocurrency: What is it
Cryptocurrencies are forms of digital or virtual money that are used as a form of exchange. With the exception of the lack of a physical representation and use of cryptography, which makes it nearly hard to forge or double spend, it is identical to real-world currency.
Your KYC information is recorded by the bank when you open a typical bank account. However, using a KYC cryptocurrency exchange is not required in order to trade. In fact, a lot of exchanges are legally allowed to operate in countries that do not require KYC, which puts them in a limbo about their legal responsibilities. As we discussed in a recent blog post, this essentially means that there is nothing to stop one user from opening hundreds of “addresses” and using them to transfer money between accounts without raising any suspicions. For this reason, cryptocurrencies have quickly emerged as a preferred method of money laundering for criminals.
The conundrum of cryptocurrencies is that the data they generate leaves a trail that could suddenly reveal all of your financial transactions. Anyone connected to the network can view every single transaction that occurs using Bitcoin. The identity of the persons behind such addresses are not tracked, but the addresses that money is sent to and from, the date, time, and amount of each transaction are.
The most well-known and valued cryptocurrency is still bitcoin, which was the first blockchain-based currency. Numerous alternative cryptocurrencies with different features and specs are available today.
How private is it
Cryptocurrency is completely anonymous, on the one hand. On the other hand, it is totally traceable and transparent.
Being able to hold a crypto address without disclosing any personal information about yourself makes it anonymous. There would theoretically be nothing connecting such addresses together or identifying the owner if one person held many addresses.
Virtual cash transfers are similar to writing anonymously. Everything a writer has ever written using a pseudonym will be connected to them if that pseudonym is ever connected to their identity.
In order to prevent transactions from being associated with a single owner, it was explicitly advised that users use a different address for each transaction in the initial Bitcoin whitepaper.
Why does this matter
Everything in the Bitcoin universe is traceable because of the way the algorithm is set up.
This results in a degree of transparency that may surprise some users; for instance, if someone published their Bitcoin address on their website, anyone in the world might find out how much money they have.
The address you receive money to in Bitcoin is your pseudonym. If your address is ever linked to your identity, all transactions involving that address will be linked to you because every transaction involving that address is recorded in the blockchain.
Because every transaction is permanent and visible, a huge map is being built over time that enables analytical tools to depict the movement of bitcoins. Although Bitcoin addresses are ‘anonymous,’ if they can be used to identify a real-world person, Bitcoin has no privacy. There are several techniques to link addresses to real-world identities, most commonly through blockchain analysis and KYC & AML regulations at exchanges.
Complete anonymity requires achieving “unlinkability.” Recent research reveals, however, that the addresses of these cryptocurrencies and the transactions that use them can be connected to real-world identities. Since most cryptocurrencies are pseudonymous rather than anonymous, it is acceptable to argue that this is the case.
How we can assist
The unpredictability of the compliance and regulation landscape for cryptocurrencies is one thing you can rely on. Businesses dealing in crypto assets must be ready to adapt quickly, embrace new standards, and shield their operations from regulatory scrutiny because anti-money laundering legislation are constantly evolving.
Tools that correlate consumer data with bitcoin transaction histories can stop criminal conduct in its tracks. This can make it simple to detect high-risk clients, maintain AML compliance, and steer clear of the stigma attached to cryptocurrency money laundering.
We at Acuant specialize in bitcoin KYC checks while offering a variety of options. We provide quick global verification, and all of our solutions are accessible through our lone API, Sodium.
Use a single component or a number of procedures; the choice is entirely yours. Learn more about how we can support your efforts to automate and streamline your verification processes so that you can gain greater insight into your clients.