In the earliest days of Bitcoin (BTC) perhaps it could be said that Bitcoin (BTC) was anonymous. This is indeed why Bitcoin (BTC) became the currency of choice for darknet markets like the Silk Road. However, Bitcoin (BTC) transactions have always been traceable on a publicly accessible block explorer. Back in the day, it may have been extremely difficult to connect the identity of a user to a Bitcoin (BTC) address, and equally difficult to figure out what the Bitcoin (BTC) was being used for. However, with the rise of blockchain forensics, it is now relatively easy to attach identities to Bitcoin (BTC) addresses and see what those Bitcoins (BTC) are being used for. Some people say Bitcoin (BTC) is pseudo-anonymous, but the harsh reality is Bitcoin (BTC) may not be anonymous at all anymore.
As of April 2018 blockchain forensics firms had raised tens of millions of dollars, with $1.5 million of purchase orders from government agencies like the IRS, DEA, FBI, SEC, CFTC, and ICE. These blockchain forensics firms are generally only accessible to paying customers, and those customers are government agencies, major cryptocurrency exchanges like Coinbase, and banks. The point of blockchain forensics is to conform with regulations and prevent illegal activity, but this comes at the expense of Bitcoin’s (BTC) anonymity.
An example of a blockchain forensics tool is BlockSeer. Back around 2014-2015 BlockSeer was free to use, and it would reveal if Bitcoins (BTC) were originating from certain cryptocurrency exchanges and if they ended up at gambling sites and darknet markets, in addition to identifying the identities of numerous active Bitcoin (BTC) users. BlockSeer is no longer free to use, but it can only be imagined how much the technology has advanced since 5 years ago. The important thing to remember is that government agencies, exchanges, and banks have access to such info, even if regular users do not.
The job of tracing Bitcoin (BTC) transactions is now far easier due to the prevalence of know your customer (KYC) regulations. At the point that someone buys Bitcoin (BTC) on an exchange like Coinbase or via a Bitcoin (BTC) ATM, all of their identification information is recorded. Transactions after that point can then be traced back to the user, giving law enforcement an inroad into figuring out the movement of Bitcoin (BTC) transactions. For example, if a person uses Bitcoin (BTC) in a legal way after buying it on Coinbase, but eventually that Bitcoin (BTC) is used for something illegal, it is straightforward for law enforcement to subpoena the internet service provider (ISP) of the person who originally purchased the Bitcoin (BTC) on Coinbase, and from that information connect the dots of where the Bitcoin (BTC) went.
In other words, KYC at the points of Bitcoin (BTC) purchase and sale provide easy inroads for blockchain forensics firms and government agencies. Due to regulations Bitcoin (BTC) users have little choice but to submit to KYC when buying and selling, and even if they did a peer to peer deal it is likely that the Bitcoin (BTC) originated from a venue which uses KYC at some point. It can, therefore, be seen how this compromises the anonymity of most of the network.
Now onto the topic of how the compromised anonymity of the Bitcoin (BTC) network makes it so Satoshi and other early adopters can’t move a single Satoshi without putting their anonymity in peril.
On Twitter, there is something called Whale Alerts which tweets every time a big or old wallet sends a transaction. This is a form of blockchain forensics, and the basic idea is that it gives investors a tip before major market movements.
Imagine if Satoshi sent Bitcoin (BTC), even a tiny amount, from one of his old wallets from 2009. That would cause Whale Alerts to go off, as well as all the other blockchain forensics tools in the world. If that Bitcoin (BTC) then ends up on any known website, or worst of all on a KYC compliant exchange, then regulators would be able to make inroads into figuring out who Satoshi is.
This may be a good reason as to why Satoshi has not touched any of his hundreds of thousands of Bitcoins (BTC), and other early Bitcoin (BTC) miners face this same problem.
Essentially, due to blockchain forensics, people with tons of Bitcoin (BTC) cannot even use any of that Bitcoin (BTC), unless they are willing to risk their identity and all the troubles that come with compromising one’s identity when in possession of hundreds of millions or billions of dollars of Bitcoin (BTC). Such troubles include taxes, government investigation, and being a target for criminals.
This brings to mind the Curse of Adam from the beginning of the Bible, where it is said “Because you have… eaten of the tree from which I commanded you not to eat, cursed is the ground because of you; through toil, you will eat of it all the days of your life. Both thorns and thistles it will yield for you, and you will eat the plants of the field”. Basically in the sense that although Satoshi may have billions of dollars of Bitcoin (BTC), he probably is unwilling to use them and may be forced to work a regular job to earn his money.
Thus, many say that Bitcoin (BTC) is pseudo-anonymous, but due to blockchain forensics, it has little to no anonymity, to the point that not even Satoshi can safely use Bitcoin (BTC). Users should be aware that they lack anonymity when transacting Bitcoin (BTC), and should perhaps choose a stealth cryptocurrency like Monero (XMR) if they want true anonymity.