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Many people think bitcoin transactions can be anonymous or untraceable, but they're misunderstanding how the process works, Ben Weiss, CEO of crypto ATM operator CoinFlip, said at a webinar on digital assets this week.
"It's not anonymous. It's pseudo-anonymous. You can't buy any large amount of bitcoin without KYC or ID or driver's licenses," he said, referring to "know your customer" and similar identification checks.
"Bitcoin is actually more transparent in many ways than typical things in the financial system," he added.
The perception is that because the digital currency is often associated with illegal activity, then it must shield the identity of the user. But that is not true, Weiss said.
The bitcoin addresses may not have names registered to them, but in practice, they can be linked to real-world identities, he noted. That's because every investor is required to log their personal information before they buy the cryptocurrency.
A recent incident, the recovery of much of the $4.4 million ransom paid by Colonial Pipeline to a Russia-linked hacker group, raised questions as to whether bitcoin is free from government control and manipulation.
What isn't well-known is that relevant enforcement agencies can track down bitcoin purchases, if they are prepared to put in sufficient effort, Weiss said.
That's why one of the most stupid things anyone could do would be to attempt to launder dirty money using bitcoin, Weiss said. The US government can track bitcoin transactions with the help of blockchain analysts and through serving seizure warrants authorized by district courts, he said.
"You're really playing with fire if you tried to today," he said, adding that bitcoin transactions are more traceable than cash.
Tax is one area where some people are still learning that they are out in the open when it comes to cryptocurrency transactions. Many US taxpayers may not realize that if they fail to report crypto assets when filing their annual returns, these may be discovered and there may be consequences. Transactions on the blockchain are not hidden, and the records are public.
To hunt out unreported crypto-related income, the US Internal Revenue Service has launched "Operation Hidden Treasure". A dedicated team of IRS criminal investigation professionals is seeking out and targeting taxpayers who are not listing cryptocurrency transactions on their tax returns.
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