Bitcoin: How does transactions traceability work?

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During the operation carried out by the national gendarmerie to free David Balland, co -founder of the Cryptomonnaies Ledger company, and his wife, a cyber component made it possible to trace the payment of a ransom in cryptomonia, in the amount greater than 10 million euros. Although partially paid, the transactions were followed by the authorities, making it possible to identify the officials involved. Almost all funds has since been frozen for a seizure, testifying to the effectiveness of the traceability tools used within the framework of this survey.

Because unlike the idea of ​​a total anonymity often associated with Bitcoin, each transaction made on its blockchain leaves a traceable trace by all. This public and immutable register not only guarantees the safety of exchanges, but also to analyze financial flows and detect illicit activities. This traceability is based on rigorous technical mechanisms and sophisticated tools, which meet the growing needs of financial institutions and regulators.

What are the mechanisms behind the traceability of Bitcoin transactions?

Thus the traceability of Bitcoin transactions is based on a cryptographic system which is structured around two fundamental elements: the public key and the private key.

The private key, owned only by the user, is used to sign transactions and prove property of the funds. The public key, on the other hand, acts as an address visible on the blockchain, making it possible to send or receive funds.

These transactions are recorded in a chronological and permanent way in the blockchain, a decentralized register accessible to all. Each entry contains precise information such as the sender’s address, that of the recipient, the amount transferred and a unique identifier. This structured recording makes it possible to follow the financial flows associated with a specific address or transaction, thus ensuring total transparency of the movements on the network.

However, exploiting these data is not so simple. To be able to analyze this data, blockchain explorers, like Etherscan or Blockchain.com, allow you to question the blockchain directly. These tools give access to the complete history of transactions associated with an address and can provide detailed information on the held assets and the corresponding flows.

What tools can analyze Bitcoin transactions?

This traceability of Bitcoin transactions can be extended beyond the raw data available on the blockchain. Specialized companies, such as Chainalysis, Elliptic and Cipheruce, have developed advanced tools to develop predictive analyzes in order to identify risk behaviors.

Chainalysis is one of the most notable companies in this area. Its Reactor tool makes it possible to group together the addresses associated with the same entity and to view the complex transactional networks to trace funds. This solution is supplemented by Kyt (Know Your Transaction), which analyzes transactions in real time and assesses their risk according to predictive models.

Elliptic offers a similar approach with its navigator platform, which combines graphic analysis tools with an address database identified as linked to illicit activities. This combination facilitates risk assessment and the identification of suspicious transactions.

Cipheruce, on the other hand, focuses on traceability and regulatory compliance. Its Investigator tool makes it possible to view transactional flows and detect abnormal behaviors. CIPHRETRACE also offers Armada, a solution dedicated to monitoring exchange platforms and other virtual asset service providers to assess their compliance with international regulations.

What are the issues related to the traceability of Bitcoin transactions?

The use of these tools has made it possible to significantly strengthen the fight against illicit activities in the crypto ecosystem. Thanks to the detailed analysis of transactional flows, it is now possible to identify behaviors related to money laundering, the financing of terrorism or other criminal activities. These technologies also play a crucial role in the detection and prevention of fraud, by helping financial institutions to comply with international regulatory requirements, in particular those relating to the fight against money laundering (AML) and the financing of terrorism ( CTF).

However, anonymization techniques, such as the use of mixers or cryptocurrencies focused on confidentiality such as Monero or ZCASH, complicate the work of traceability tools and create gray areas that are difficult to analyze.

How do the authorities use traceability tools?

Several recent cases, including the kidnapping of David Balland and his wife, have demonstrated the effectiveness of traceability tools. During the attack by ransomware against colonial pipeline, the police were able to trace and recover part of the funds paid in ransom thanks to the analyzes provided by Chainalysis. As part of the collapse of FTX, tools like those of Elliptic made it possible to follow the fraudulent flows and to identify diverted assets.

However, cases like that of Bitcoin Fog, where anonymization techniques have been used to mask illicit activities, show that traceability remains complex in the face of actors very aware of techniques.

What are the prospects for evolution for the traceability of transactions?

The traceability of Bitcoin transactions continues to improve in particular thanks to artificial intelligence and machine learning, which allow an ever finer and rapid analysis of transactional flows. International regulators, such as GAFI, push for a standardization of transparency practices on exchanges, thus strengthening the overall compliance of the crypto ecosystem.

However, the balance between transparency and confidentiality remains complex. As anonymous cryptocurrencies and private blockchains gain popularity, traceability actors must develop increasingly sharp approaches. It remains to be seen who will be the fastest between the cat and the mouse.