The world of cryptocurrency is not news nowadays except you live on another planet. This cryptographic technology unpins characteristics beyond the traditional tech industry like privacy, peer-to-peer, real-time transactions, censorship-resistant and many more.
These all come as a loophole to governments worldwide—why most governments have different jurisdictions over bitcoin and related cryptocurrencies. Hence, the legality of cryptocurrencies in different regions around the world.
Image source: wikipedia.org
Ripple has suffered a lawsuit from the SEC which criticized ripple as an unregistered security. To relate, "Many XRP holders buying through exchanges wouldn't have known who they were purchasing the tokens from, the company's filing said." Source: coindesk.com. As ripple's filing argues, the lawsuit explains why investors couldn't trace who they were buying XRP from as a sign of anonymity, but it should be argued that crypto coins obtained from third parties like exchanges can be traced which is the reason for this article. To that effect, crypto is not really anonymous, with many centralised exchanges offering fiat on-off ramps which require KYC, it's easy to track those bitcoins. This is the reason most knowledgeable people who with needed resources mined bitcoins which makes identifying hard to trace. Mined bitcoins are obtained through the "cat and mouse game" (solving a computational puzzle), this makes it difficult to trace bitcoins obtain from a block reward, hence the blockchain. If you can spot the shoe stamps of one in a group of people who walk on muddy land, hopefully, you can crack the code to trace mined bitcoins.
Image source: YouTube.
Mining difficulty also impacts the traceability of mined bitcoins, miners compete against each other for block rewards and with increased power and more participating parties hence an increase in the network. Mining bitcoin is more becoming like excavating tons of trash in a landfill to recover a hard drive containing thousands of bitcoins. That sums up the story of a former IT worker James Howell who mined the bitcoins back in 2013 before their value skyrocketed and he is finding it cheaper to excavate a landfill than mining. He lost the hard drive containing access to its keys and still have hopes to find it on a land filled with trash. Why wouldn't James Howell continue mining bitcoin than making efforts to search for the hard drive, ming difficulty has increased and mining is becoming more expensive, so it could be cheaper to find the hard drive. This also explains why mined bitcoins are hard to trace because he obtain them through mining and not through a third-party exchange.
To fully determine why mined bitcoins are hard to trace, it is easy to examine the unique features of the blockchain.
The blockchain underpins unique features in the modern world and since bitcoin utilises the blockchain and these unique features yield bitcoin much attention as more and more people are losing trust in central banks.
Bank of England says blockchain roll-out across all markets too challenging, Reuters.
Comments like these from the mainstream media should earn you a lot of your time and trust in engaging with blockchain technology.
Away from that, tracing bitcoin is hard due to its security system. Hacking or interfering with the bitcoin blockchain is hard this is because bitcoin uses an advanced security system known as cryptography. Also, it is hard for an entity that is not on the bitcoin blockchain to access transactions.
The anonymity of the blockchain makes it difficult to trace bitcoin, you are wondering why the blockchain as a public ledger shares anonymity at the same time. This is of privacy and confidential information which are most blockchain underpinning features, imagine how you can trace a bitcoin address to be that of Tom on earth instead of Jerry, on the bitcoin blockchain. Millions of people prefer bitcoin for fiat monies because of their private information, also, transactions on the bitcoin blockchain can not disclose who you are interacting with on the network.
Bitcoin is unique from fiat monies, it is virtual and makes it hard to trace. Also, it is relatively new, to trace something you do not know is difficult, since it is a new technology it takes a reasonable amount of time to study and understand how it functions. TH is why it will be more difficult to understand bitcoin.
Mining difficulty as first introduced in this article is one major reason why mined bitcoins are hard to trace.
Mining difficulty as explained by blockchain.com:
The difficulty is a measure of how difficult it is to mine a Bitcoin block, or in more technical terms, to find a hash below a given target. A high difficulty means that it will take more computing power to mine the same number of blocks, making the network more secure against attacks. The difficulty adjustment is directly related to the total estimated mining power estimated in the Total Hash Rate (TH/s) chart.
Notes The difficulty is adjusted every 2016 blocks (every 2 weeks approximately) so that the average time between each block remains 10 minutes.
You will therefore have a clear understanding of why mined bitcoins are hard to trace. Research more technical if you are interested.
The nature of the organisation, the blockchain is a decentralised technology which makes it more difficult to identify any user of the network, unlike centralised organisations as seen on the image below:
Image source: twitter.
As the screenshot above illustrates it will be more difficult to trace mined bitcoins due to the decentralized nature of the network. It is easier to trace transactions from centralized organisations than from decentralized organizations.
Final thoughts: mined bitcoins are hard to trace due to the underlying features of the blockchain. But the future is not guaranteed.
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