To keep this straight and simple, a wallet address cannot be traced, but that does not necessarily mean that users who make use of such wallets cannot be traced.
• Tracing a wallet address has better chances when it is linked to a crypto exchange. That way, records of the transactions can be retrieved from that exchange.
• You need some technical knowledge if you want to uncover transactions that cannot be traced to your crypto wallet.
• Wallet addresses cannot be traced on their own, except when used by individuals to carry out transactions that are recorded on the blockchain.
• Setting up a node to mask a wallet address will require a lot of skill and technical know-how before such can be achieved.
SEE ALSO: What Are The Different Prefixes For Crypto Wallet Addresses?
SEE ALSO: What You Should Know About Bitcoin Address Formats
SEE ALSO: What are Unspent Transaction Outputs (UTXO)?
While a wallet address may be untraceable on its own, the fact that it is being used by you or any other individual means that the wallet address can be traced, especially when it is used for fraudulent activities such as money laundering or cybercrimes.
Note that transactions done by the user are traced to the user’s wallet and not to the user’s identity which is obviously well protected as hackers/criminals can easily protect their identity to escape being caught.
Tracing a Wallet Address Linked To a Crypto Exchange
Top crypto exchanges come with know-your-customer (KYC) regulations where users must submit some of their personal details before they can fully utilize the exchange, which includes having access to a wallet.
What this means is that as long as the user makes use of that exchange-based wallet to carry out transactions, those transactions can be traced back to the wallet address since every transaction is stored on the blockchain.
So a person simply needs to access the exchange records and the blockchain to see the transaction records and every transaction that was sent to or from the wallet address.
Tracing a Wallet Address Not Linked to a Crypto Exchange
This is where things get very complicated. Tracing a wallet address made by a user who has no affiliations with a cryptocurrency exchange will necessitate the use of sophisticated software tools and algorithms to decode the exact wallet that made the transaction.
Companies like Chainalysis and software tools such as Coinpath technology have proven to be able to trace back transactions down to a single wallet address.
This is because even if the user decides to use multiple wallet addresses and private keys to cover their tracks, they will first need to use a single wallet address to store the stolen crypto assets before diverting them to other sources.
But once these software algorithms and software tools can detect the original wallet address that was used, they can easily follow up from there to discover other wallet addresses where the crypto assets were diverted to.
Nonetheless, the possibility of tracing a wallet address not linked to crypto exchange is not 100% guaranteed, as it all depends on how skilled the user is and how complicated the process is.
Some users are highly skilled, and sometimes it might prove difficult to trace their activities to their wallet address. Tracing a wallet linked to cryptocurrency exchange is mostly the way wallet addresses can be traced without any complications.
Challenges of Tracing a Wallet Address
Some wallets tend to mix up several transactions together, making it more complicated to track a single user to a transaction.
Users who have multiple wallets may end up using them for numerous transactions, thereby eliminating the source wallet, which will make it even more difficult or virtually impossible to trace their wallet address.
Running a Full Node
This is where the skills of very talented users come into play. By creating a node, the user increases his anonymity and channels both his transactions and thousands of transactions by other users through the same node, which will make it an uphill task for anyone trying to trace the transactions of the user’s wallet address.
These are some of the challenges that are typically encountered when someone tries to trace a user’s wallet address.
Some of these users even combine all of these challenges mentioned, thereby making their wallet addresses virtually untraceable to the authorities and government agencies, although it requires a very high skill set to achieve.
Tracing a wallet address to its owner can be quite challenging due to the constraints involved and the skills that are required to do that successfully.
Nonetheless, it is not entirely impossible to trace a wallet address as long as you are highly skilled and you know your onions.
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