The radical transparency of crypto transactions is powering an entire industry of blockchain analysis. Companies such as Chainalysis and Elliptic are employing advanced data science techniques to provide custom tools for customers who range from governments to hedge funds with tools to either ensure their own transactions are compliant with rules around of the movement of money, or to track those who are moving funds illegally or with illegal intent.
These services divide opinion among the crypto community. The ability to trace transactions and tie to a real identity at the point when funds reach a regulated entity – such as exchange – is a powerful tool against crime.
This was precisely how the perpetrators of the well-publicised Twitter hack/bitcoin scam (July 2020) were caught within two weeks.
Though admittedly the Twitter hackers were relative amateurs government agencies use blockchain analsysis to track criminal funds that range from terrorism to human trafficking, and in shutting down darknet markets.
By comparison, the work within the traditional financial system Can be more challenging given the levels of permission that are generally required to get to the truth. This is why data leaks like the Panama Papers (2016) or FinCEN (2020) are so controversial, as they shine a lot on the hidden world of offshore finance.
On the other side of the coin are those that feel strongly that transparency shouldn’t be at the expense of privacy. Just as corporations are weaponising block exploration, libertarians are fighting back through so-called privacy coins – like Monero and Zcash – designed to obfuscate information; privacy wallets and mixing/tumbling services designed to break the chain of fund traceability and the use of Decentralised exchanges where personal information (KYC) isn’t required, meaning transactions cannot be tied to individuals.
Whichever side of the argument you favour, it seems clear that cryptocurrencies offer a monetary system that is harder to cheat, clearer to understand, and reliably less risky.
By committing to radical transparency, cryptocurrencies are a new way of doing finance for the 21st century. The battle for privacy will go on but understanding how to explore a bitcoin transaction and the logic of value flow behind it puts these much bigger questions into context.
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