Can the government track Bitcoin?

At the foundation of cryptocurrencies like Bitcoin (BTC) is blockchain technology. A fundamental feature of blockchain technology is transparency, which means that anyone, including the government, can observe all cryptocurrency transactions made through this blockchain.

Bitcoin transactions are publicly available due to the transparent nature of blockchain technology. Also, Bitcoin transaction history is permanently stored on the Bitcoin blockchain, which implies that it is not difficult to observe BTC transactions. The government, in the form of law enforcement authorities, can thus monitor what is happening on the Bitcoin blockchain.

So can authorities such as the police, the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS) trace the ownership of Bitcoin? And, do the authorities know who owns which bitcoin? The traceability of BTC transactions depends on whether a person's transaction activity on the Bitcoin blockchain can be linked to their identity.

Anyone can observe all cryptocurrency transactions from any bitcoin wallet address. To find out where Bitcoin comes from and where it is sent, authorities can analyze the BTC addresses used for transactions. In this way, the authorities get an overview of what is happening and when.

Many Bitcoin users reveal their identity at some point (for example, on centralized exchanges or through interactions with known wallets). Thus, BTC transactions do not always remain 100% anonymous and the government can trace ownership of Bitcoin whenever a (series of) Bitcoin transactions can be linked to its identity. With this new knowledge, governments can enforce obligations such as Bitcoin or cryptocurrency tax obligations or combat criminal behavior such as money laundering.