Topic: Would anyone be able to trace a coin through the following transactions? (Read 266 times)

Ok. There's a lot to unpack here but I will give you my full and complete opinion on the points you have listed. I apologize if my format is not the best. I am kind of new to the format of this but have been in Bitcoin for quite a while now. Also, I used to work as a customer support agent at both ShapeShift and Binance.US so I have a pretty decent understanding of how chain analytics works across chains.

That being said, here goes...

"2. But then I transfer this 1 BTC onto my personal Ledger wallet, where I already have 2 BTC. On my end, I can easily see that I have 3 BTC. But as Ledger will usually change the receiving address so as to spread the deposited funds across several addresses, will anyone else be able to see that I have 3 BTC, or will they just see that single 1 BTC?" 

- If you have a ledger, that means that you needed to initialize the device by going to their site to "activate" your ledger. Well, in this process, they keep a copy of your xPub key. While this doesn't give them the ability to spend your bitcoin, they are able to see every single address in your wallet. It doesn't matter how many coins you have. They can see EVERY SINGLE ASSET you have on your ledger. It's that simple. 



"3. Now I take 1.5 BTC on my Ledger and swap them over to ETH, which will give me approximately 21 ETH at the current rates. Will outsiders still be able to track and make heads or tail of this transaction, as it will draw funds from both of my BTC addresses and end up on a different blockchain?"

- There are a couple things to unpack here. It depends on how Ledger sends your transaction. In your hypothetical situation above, you mentioned having 2 BTC and sending 1 more BTC to your Ledger. If you send 1.5 BTC from your 2 BTC UTXO, then only Ledger knows that you sent that transaction (and it's public on the blockchain). If you send from both your 1 BTC and 2 BTC addresses, you are consolidating at least 2 UTXOs into a single output. This means that everyone in the entire world can see that someone (in this case, you) moved bitcoin from 2 addresses into 1 single address and generated some change.

On chain, the TX will look something like this:
1 BTC > 1.5 BTC (sent to Exchange)
2 BTC > 0.5 BTC (change output)

That's just the BTC transaction end of things.

Now onto the exchange portion of your question.

If you are using any sort of centralized exchange, then they know that they are receiving 1.5 BTC and sending out 21 ETH. Since almost every single centralized exchange in the world is KYC'd and has to comply with at least some sort of chain analysis, you can bet your balls that the government ABSOLUTELY knows that you now have 21 ETH.



4. "And then I further go on to transfer my 21 ETH on to Metamask, where I will use a DEX to swap it over to approximately 183 wBNB. It will still be on the ETH blockchain of course, and the same Metamask address too. But it will now be a different token, so can outsiders still be sure that it belongs to me?"

I am not too sure of this in relation to Metamask but if it is at the same address that you sent ETH to, then it can ABSOLUTELY be traced back to you since you bought the BTC on Coinbase and exchanged thourhg a centralized exchange.



5. "Then I use a blockchain bridge, to migrate my wBNB over to the BSC. This means the tokens will be swapped over to BNB and also on a different blockchain. Could prying eyes still keep track of this?"

Not sure what you mean by "prying eyes" but Binance sees everything on BSC. There's a lot of centralization on BSC so I am willing to bet that they have the ability to freeze your assets on BSC if they absolutely needed to.



"6. I then take half the BNB and swap it over to USDT, before I enter them into a liquidity pool. Now I will have a bunch of liquidity pool tokens consisting 50/50 of BNB and USDT. Is it still possible to trace?"

How do you "swap them"? With a centralized exchange? If so, then they are still 100% "traceable". If you use some sort of other third party service, I am not 100% sure and can't provide you with further details on that.



"7. I stake these LP tokens in a yield aggregator, where they will be added to a much larger pool of locked funds, and automatically reinvested 3x times to earn compounded interest, which I will then harvest in the form of CAKE tokens. But these CAKE tokens will be deposited to the same BSC address I used earlier, so does that mean it would be easy to understand for anyone else just what has transpired?"

This is where things get a bit more convoluted and may make it more difficult for third parties to track you but I can' be 100% sure. Again, it comes back to BSC and how centralized it is. Not sure if their CA program would be able to track you but if you're sending into addresses that are associated with you in any way, there's reasonably probability that they know that you control the assets at that address.


"8. I then swap the earned CAKE tokens back to BNB, and transfer them on Binance, which is of course again a well known exchange with KYC and probably established ties to authorities. But would these authorities be able to know that the receiving address belonged to Binance just from looking at the blockchain? And if they did, could they tell who owned the specific account?"

Now, you're sending them back to a centralized exchange that ABSOLUTELY answers to government requests for user info. Even if you provided bogus info with your Binance.COM account, they can still do a reasonable amount of chain analysis to trace this back to you. Again, I can't be 100% sure since I am not sure which DEX you are using but if you are using any third party that can respond to government, you have to assume that they will surrender any and ALL info that they have in relation to any requested info.

"9. I sell these BNB to USD, and transfer them to my old school bank account via SEPA, which should be a dead giveaway I suppose. But would anyone be able to see that the USD I receive stems from my initial 1 BTC purchase over at Coinbase?"

They probably couldn't see that your final deposit was related to your initial BTC purchase on Coinbase but at this point, you are entering money laundering territory since you have taken steps to layer and structure your payments before reintroducing them back into the banking system. While nothing that you have done is necessarily illegal, you might find yourself in hot water if they come asking questions. If you are doing something illegal and you don't mind exposing yourself to potential prison sentence, then this is all probably fine. If you want to enjoy living a free life with your friends and family, then I would do things differently.

After you buy the 1 BTC from Coinbase, it's difficult to send back any BTC that doesn't have a clear history. If you do, you probably run the risk of being asked a multitude of privacy invasive questions that will require you to provide proof of origin of your BTC.

I can't give any official advice but if you plan on reintroducing your BTC back into the Banking system via Coinbase, try to find someone who has a Coinbase account who is willing to sell you their "clean" Coinbase BTC for your "obfuscated" BTC at a premium. Like, you pay them 10% more than they pay you (all in BTC) and then you send your new Coinbase BTC back to your account. Also, if you want to add a layer of privacy at a couple points, I would suggest mixing them as soon as you withdraw them and before you send them to whoever you buy your new Coinbase coins from. This makes it statistically improbable that they can follow the flow of funds after you withdraw. It also makes it impossible for whoever you buy BTC from to follow the origin of your BTC.

If I were you, I would just buy and HODL for like 10 years but what you do with your money is none of my business.

Sometimes you are not tracked in this way, but in a smarter way, it all depends on who wants to track you and how much resources to be wasted to track you. For example, if a dangerous person is required and a government (like the United States) wants to track him and is ready to spend all the necessary resources, everything is possible.

let's look at other ways:

 - Keep track of your cookies.
 - Track the IP address from any CEXs and then the IP address if you use any explorer who can access his data. (Block explorers give a lot of information about you)
 - Try to find out all your addresses using them Electrum servers.
 - Send dust amount to your address (you have to use coin control feature to avoid it)
 - Social tracking ( using your IP and KYC data they can get more info from twitter, facebook, your iPhone, …etc)

Tracing transactions is possible but using coin mixer or other features where you can conceal your transaction then it would be hard to trace a transaction but the public transactions can be traced as explain in above posts. Swapping crypto requires a fee for each swap much like the same as exchanging crypto to other crypto. Those who are not into crypto like non techy person or non crypto user won't be able to tract.

Thank you very much to everyone who replied to this post. I've been working on it for a while, and finally managed to make a video out of this hypothesis where I try to explain how each of these steps could be traced. If anyone is interested, it can be seen here:
https://youtu.be/I8FRCeTImw8

Here's how I see it.

Step 1 uses a fully centralized exchange.
Steps 2 - 4 use a centralized company's servers who can see all your address and transactions, as well as your IP address, and link them all together as belonging to the same person.
Step 5 is swapping one Binance token for another Binance token. Binance is another fully centralized exchange.
Steps 6 - 7 depend on your DeFi providers, but ultimately the coins/tokens are coming back in to the same address as before so they will be linked back to you, even if it is unclear what has happened to them in the meantime.
Steps 8 - 9 again are using a fully centralized exchange.

Could an average Joe follow the chain here? Almost certainly not.
Could a blockchain analysis company which receives data from centralized exchanges and other services. Most likely.

The DeFi step is the only step with the potential to actually break the chain, but it depends entirely on whether the services you choose are actually decentralized (many aren't and just use the word as a marketing gimmick) and how much they respect your privacy. There are also non-blockchain privacy considerations, such as signing up to all these services using the same credentials and accessing them all from the same IP address.

I didn't even think about the fact that Ledger has its own swap service through a partnership with Changelly. Not that it's that important right now, but OP should know that swapping assets through Ledger's in-built exchange service will be done with a less favorable exchange rate than if he did it directly through Changelly or a similar platform. Not that I am promoting those instant exchange services. Ledger takes a cut from each exchange, so if he believes his 1.5 BTC is worth 21 ETH, he will surely get less doing it through the in-built exchange.     

Correct. Coinbase knows your identity because you underwent KYC with them. They will also know from where you deposited your fiat, the address your BTC was sent to on Coinbase, and the withdrawal address you withdrew your coins to.

If you send the coins from Coinbase to the same address where you already have 2 BTC, you will be connecting those two UTXOs. Anyone can see that an address that previously held 2 BTC has now received another deposit of 1 BTC. If you send the 1 BTC to a new address generated on Ledger, Coinbase won't know that you have 2 BTC on a different one.

Since you sent coins from different UTXOs and you were able to sign that transaction, that's proof that the coins in both those addresses belong to you. Coinbase and the public can check that the 1 BTC that was initially withdrawn from Coinbase was combined with another UTXO. Therefore, both belong to you. Additionally, if the transaction was sent to another centralized exchange, blockchain analysis could potentially discover which exchange that is, based on consolidated transactions to one or more of their wallets. Since most CEXs require KYC, government agencies could request the name of the account holder.  

The trail can still be followed to your MetaMask address, but unless that address has been connected to a service that required KYC, it's impossible to tell if it belongs to you. You could have used those coins to purchase some goods or services and it belongs to the merchant. I am not sure how the MetaMask DEXs work, so I can't comment on what happens next. I would assume that it's still public information and that you check the blockchain that someone exchanged 21 ETH for wBNB and those wBNB tokens were sent back to the same address from where the ETH originated from.

I don't know, but I don't think so.

Same as above. Unlikely.

I don't know how those liquidity providers function but they are all part of decentralized finance. You won't be asked for identifiable information according to what I have read and heard.  

When it comes to Bitcoin, Binance consolidates their funds in various hot and cold wallets. That's how blockchain analysis can determine that an address belongs to Binance. I would assume that the same thing happens with BNB.  

Too many things have happened in between for anyone to make that connection. I am not an expert in these matters, but I don't think such a connection could be made.

This is where you leaked your identity. After completing kyc on an exchange you do not have privacy anymore. All transactions will be traced to the Coinbase. Exchanges can be hacked, exchanges are not impenetrable. If you do not wish for this to happen, do not verify kyc on exchanges. You can buy bitcoin from p2p without exposing your identity[/list]

If you have withdrawn to an unused address, it may be that the other 2 BTC is not linked to you.
But if you use a SPV (e.g. Electrum) or Ledger Live, they will know that it's all yours. And from this point it depends whether the Electrum server owner or Ledger reports this or not to a chain analysis company.


You had 2 BTC at another address, so in theory that other address will be used here, as said, possibly with no relation to the 1 BTC from Coinbase.
Also.. "outsiders"? Chain analysis companies are, by far, not outsiders.


Here all I see is somebody over complicate things for himself. I am not convinced it'll help to lose track, especially if they look specifically for you.


At this point it doesn't matter what they can find out from blockchain. They can ask Binance nicely, can't they?


I would not exclude that. And I think that if you'll keep all those tokens in Ledger live they don't even have to search too much.
Also, as I said, the resulted money may very well not come from your 1 BTC. Your example would be more appropriate if you had at home only another less-than-1.5 BTC.

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My conclusion is that you just made your life overly complicated and won't help you much because of the use of various checkpoints that can be used for analysis. If you want to get rid of those, you better switch to local full wallets. Also if you avoid mixers and privacy coins the link is not completely broken and since the analysis companies also work with probabilities, if you do this kind of "mixing" multiple times, I expect that they'll find the missing links for the trace. But maybe I'm overly paranoid too.

All of them can be traced very easy, so you don't need to ask multiple times like you did.

Anyone can trace everything you did and connect that your initial coins and with your identity because it's all happening on PUBLIC blockchains, and you didn't use any services to conceal your transactions, like Chipmixer for example.
There are multiple companies like Chainalysis that work with exchanges and governments, so it's not really that hard to track your history especially if you are doing kyc on centralized exchanges.

EDIT: I'm not asking about how to hide my funds or maintain privacy. I'm trying learn about how tracing funds across several blockchains would actually work.

I've seen countless articles about how bitcoin and crypto in general is not as anonymous as it was once perceived, and how authorities have been able to track down people from their transactions. And although it is not difficult to see how you can trace a few transactions on a single blockchain from one wallet to the other, things are rarely as simple as that.

So I've set up a little thought experiment with progressively more complicated transactions, and wonder how many of these steps anyone could effectively track my funds across?

• 1. Lets say I start by purchasing 1 BTC on Coinbase, which I pay for with my VISA. As this is such a well known exchange which requires KYC and probably has established ties to various authorities, I'm guessing it would be fairly simple for them to trace this initial purchase back to me.
• 2. But then I transfer this 1 BTC onto my personal Ledger wallet, where I already have 2 BTC. On my end, I can easily see that I have 3 BTC. But as Ledger will usually change the receiving address so as to spread the deposited funds across several addresses, will anyone else be able to see that I have 3 BTC, or will they just see that single 1 BTC?
  
• 3. Now I take 1.5 BTC on my Ledger and swap them over to ETH, which will give me approximately 21 ETH at the current rates. Will outsiders still be able to track and make heads or tail of this transaction, as it will draw funds from both of my BTC addresses and end up on a different blockchain?
• 4. And then I further go on to transfer my 21 ETH on to Metamask, where I will use a DEX to swap it over to approximately 183 wBNB. It will still be on the ETH blockchain of course, and the same Metamask address too. But it will now be a different token, so can outsiders still be sure that it belongs to me?
• 5. Then I use a blockchain bridge, to migrate my wBNB over to the BSC. This means the tokens will be swapped over to BNB and also on a different blockchain. Could prying eyes still keep track of this?
• 6. I then take half the BNB and swap it over to USDT, before I enter them into a liquidity pool. Now I will have a bunch of liquidity pool tokens consisting 50/50 of BNB and USDT. Is it still possible to trace?
• 7. I stake these LP tokens in a yield aggregator, where they will be added to a much larger pool of locked funds, and automatically reinvested 3x times to earn compounded interest, which I will then harvest in the form of CAKE tokens. But these CAKE tokens will be deposited to the same BSC address I used earlier, so does that mean it would be easy to understand for anyone else just what has transpired?
• 8. I then swap the earned CAKE tokens back to BNB, and transfer them on Binance, which is of course again a well known exchange with KYC and probably established ties to authorities. But would these authorities be able to know that the receiving address belonged to Binance just from looking at the blockchain? And if they did, could they tell who owned the specific account?
• 9. I sell these BNB to USD, and transfer them to my old school bank account via SEPA, which should be a dead giveaway I suppose. But would anyone be able to see that the USD I receive stems from my initial 1 BTC purchase over at Coinbase?

I've purposefully left out any privacy coins, as I wanted to focus on how anyone could trace funds across public blockchains. So the question is simply: How many of these steps would anyone be able to trace? And just how would they do it?