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Blockchain Analytics Firms Can Trace Your Identity (And How to Stop Them)

Posted By: lootz On:


Blockchain Analytics Firms Can Trace Your Identity

Most beginners and veterans alike remain unaware that their identities can be traced to their digital wallets. Although blockchain technology created a paradigm shift in transparency, a whole new business opportunity has opened up to groups that make it their business to know who you are.

Blockchain analytics firms are employed by tax agencies, law enforcement, banks, and governing bodies. These firms use increasingly sophisticated techniques to trace wallet addresses to their owner’s identity. Blockchain analytics firms’ mantra is to leave no stone unturned, and by doing so, to account for every satoshi a person holds.

So now that you know what you’re up against, it’s time to learn how to stop them in their tracks.

Blockchain Analysis and The Trail They Follow

Even if you’re a complete beginner with cryptocurrencies, you know that your wallet has a public address, but lacks an associated name. You wonder, how can these analysis groups match my ID and wallet in the vast sea of public addresses? To find this out, you need to think how you purchased your first digital asset.

Like most of us, you more than likely bought your first Bitcoin or Ethereum on the popular exchange Coinbase. To purchase any digital asset on Coinbase, users need to first register with their full name, location, bank account, phone number, and even their social security number. Once those sensitive details are shipped off the Coinbase, you’re given the green light to make your first buy.

The moment you send your BTC or ETH to a personal wallet address or secondary exchange, blockchain analysis groups can immediately follow your every move. The distributed ledger functionality within blockchain technology is both a blessing and a curse, with the latter shining brightly if you hoped to remain anonymous.

The distributed ledger records every single transaction on the blockchain. The address of the sender, the amount sent, and the address of the receiver are all clearly documented in a transaction ID that’s timestamped. Analysis firms use these records to backtrack your movements to registered exchanges (Coinbase) that allow users to cash in or cash out.

Missing the Mark on Anonymity

The struggle for anonymity within the blockchain world has yet to provide reliable alternatives to bitcoin mixers and LocalBitcoins, both of which fail to keep their users totally anonymous.

LocalBitcoins allows for peer-to-peer buying and selling of bitcoin but usually requiring a cred/debit card. It’s possible to arrange face to face encounters through this platform, but this is often the last resort since it is incredibly inconvenient or even dangerous.

Bitcoin mixers have been touted as the go-to method for “tumbling” your bitcoins and other altcoins in coin pools to cleanse them of their history. Although these proved useful in the past, blockchain analysis groups have become much more sophisticated in their means for tracing coins to their owners. It also comes with added risk to use bitcoin mixers because you must send your tokens to an address out of your control.

Even privacy oriented cryptocurrencies such as Zcash fall short to provide completely shielded transactions. Zcash does offer shielded transactions, but these are optional, and exchanges don’t allow them to stay compliant with their local regulators.

Coinbase recently listed Zcash but made clear that they would not let the use of shielded addresses to keep customer transactions transparent. The fact that the most popular method used by Zcash are public addresses makes it entirely traceable. This traceability voids any kind of privacy that developers at Zcash claim.

Other privacy oriented cryptocurrencies are even further behind regarding their ability to allow users to send entirely anonymous transactions. Monero, Pivx, Nav Coin, Zencash, and others still have many hurdles to clear until truly private transactions become a reality.

Pirate Chain: A New Way to Stay Off the Radar

So far, the most private platform that doesn’t compromise their user’s identity is Pirate Chain. Pirate Chain addresses the core issue of privacy by shielding its users through the zk-SNARKs protocol.

Zk-SNARKs is based on zero-knowledge cryptography and allows both the sender and receiver to remain anonymous, all while allowing network consensus to validate the transactions. Although Pirate Chain is based on Zcash, their main difference is that Pirate Chain requires all of its users to send entirely anonymized transactions.

Recently, Zcash upgraded their network with Sapling. Pirate Chain has fully integrated the Sapling upgrade and will benefit from faster transaction speeds and lower memory requirements. Sapling is a major milestone that significantly increases the speed of shielded transactions. Once again, this option of full anonymity is optional in Zcash but required when using Pirate Chain.

Since all transactions are entirely private, blockchain firms such as Chainalysis would immediately lose your trail. Even if Chainalysis followed your steps from day one on Coinbase to depositing Pirate Chain tokens into your wallet, they would hit a roadblock once you initiate a private send.

To keep analytics groups at bay, Pirate Chain is also TOR network compatible. This means that all of your communications are end-to-end secure. Everything about Pirate Chain exists to keep analytics groups off your tail so you can freely use or invest your cryptocurrencies how you see fit.

It’s at this point that you’ve successfully stopped analytics from pairing your identity with your wallet address. The only way blockchain analytics will regain their trail and identify you is if you try to cash out from an exchange such as Coinbase. You can also be detected if you buy cryptocurrency from a central exchange using an account linked with your identity or bank account.

As regulators and tax agencies continue to impose strict rules for cryptocurrencies, projects such as Pirate Chain are the only line of defense between you and a third party collecting details regarding your identity and what’s in your wallet.


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