How times change. Not so long ago, cryptocurrencies were first choice for those wanting to carry out illegal financial transactions that couldn’t be traced. Now, crypto trades are among the most public and permanent in the world.
The transparency of blockchain lies in its decentralised model. Transactions are distributed and shared on linked computer nodes which stretch across the globe. DeFi is, quite literally, there for all to use and see. This is why so many users choose it over conventional finance models.
It can be challenging for those seeking transactional privacy. Yet the visibility of blockchain also allows authorities to apply crime-busting tools which ultimately protect broader user security.
How Bitcoin promotes user privacy
While private and public keys keep user details secure, the open nature of the blockchain makes it hard to hide transactions. With Bitcoin addresses stored permanently on the network, for instance, no user can be fully anonymous.
Bitcoin addresses are used to direct where bitcoins are allocated and sent. These are created privately by each user’s wallet. However, anyone can see the balance and transaction history of any given address.
Bitcoin advises several actions to enhance user privacy.
- Use a new Bitcoin address for each payment received, to avoid building up a visible history.
- Use multiple wallets for different purposes, so your transactions are not grouped in one place.
- Avoid publishing your Bitcoin address on social media, unless you are calling for public donations.
- Use an app like Tor to hide your computer’s IP address, blocking third-party trackers.
An example of KYC provisions coming into play
In Australia, the Qoin platform is growing in popularity. Participating merchants use Qoin tokens as digital currency to buy and sell goods and services. Users can also trade the currency itself.
The Qoin exchange is compliant with the requirements of AUSTRAC—the federal government’s financial intelligence agency. This means all users who cash out Qoin on the exchange are documented under Know Your Customer (KYC) provisions. Individuals and businesses must confirm their identity to prevent illegal activities like tax fraud and money laundering.
This protects and monitors customers as they link their Qoin wallets to bank accounts for withdrawal. Banks are also obliged to report transactions of more than $10,000 to AUSTRAC, along with account holder details.
This is a far cry from the early unregulated ‘cowboy’ days of crypto, when some users thought blockchain offered a convenient refuge from the law—and the tax office.
No expectation of anonymity or tax-free profits any longer
As law enforcement tracking tools become more focused and sophisticated, those seeking to draw a veil over their blockchain trades—for illicit reasons—may be forced to look elsewhere. There really is nowhere to hide.