Blockchain technology is the backbone of cryptocurrencies such as Bitcoin (BTC). Blockchain technology has transparency as a fundamental feature. This means that anyone can see all transactions made via the blockchain, even the government.
Because blockchain technology is transparent, Bitcoin transactions can be made public. The Bitcoin Blockchain also stores the history of Bitcoin transactions, which makes it easy to see transactions. In this way, the government (in the form of law enforcement agencies) can monitor what happens on Bitcoin blockchain.
In short, yes bitcoin transactions can be tracked, but are still anonymous
Authorities like the Federal Bureau of Investigations (FBI), the Internal Revenue Service and the Police can track Bitcoin ownership. Do authorities have any idea who has which Bitcoins? BTC transactions can only be traced if the transaction activity of an individual on the Bitcoin blockchain can linked to their identity.
Any Bitcoin wallet address can be viewed by anyone. Authorities can examine the BTC addresses used to transact Bitcoin in order to find out from where it is coming from and where it is going. This gives authorities insight into what’s happening and when.
KYC make bitcoin transactions NOT anonymous
Many Bitcoin users will reveal their identities at one point or another (for example, on central exchanges and through interactions with known wallets). BTC transactions are not always anonymous. The government can track Bitcoin ownership if there is a pattern of transactions. This knowledge allows governments to enforce duties like Bitcoin and cryptocurrency tax liabilities, or combat criminal conduct such as money laundering.
Authorities may also request information from central exchanges, whether they are conducting their own data analysis or working with private companies. Centralized exchanges might also be required to share this information due to regulations. Not all cryptocurrency exchanges work with authorities.
Centralised exchanges always ask for personal verification
A centralized cryptocurrency exchange is one that is managed by one entity such as Coinbase. Centralized exchanges must comply with regulations in order to become licensed operators in a specific country or territory.
To reduce cryptocurrency anonymity and illicit use, many centralized exchanges now offer Know your Customer (KYC), checks. KYC is used to verify the identities of customers and to assist authorities in analyzing activity on the blockchain. Individuals must submit a variety of documents and data in order to be allowed to trade, invest, and transact.
After KYC is completed, exchanges might be required or obligated to provide that data to law enforcement agencies. The government can also access the transaction and personal data of exchange users. The IRS can use information from centralized exchanges to identify unknown Bitcoin wallets by using KYC checks and the corresponding personal information.
However, not all exchanges require KYC. It is, for example, difficult to make DEXs conform with regulations because they do not have a headquarter or are run by a small number of people.