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The Bitcoin System depends on anonymity, all money transactions are encrypted then recorded in the system. So how are criminals, who use bitcoin for illegal trading, arrested by governments?

user5670635
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  • Usually either because they want to obtain whatever illegal items they purchased, and get caught, or because they link to less anonymous forms of transaction (e.g. sell Bitcoins and get USD into a traditional bank) and someone notices. Bitcoin is only anonymous as long as you never do anything to associate with a given wallet code, after all. – Matthew Jan 13 '16 at 12:01
  • yeah it is an usual way,what i am asking actually is do you think that there is a backdoor in the system ? Satoshi Nakamoto is like a ghost and most of the people think that satoshi not exist and bitcoin are created by NSA if so they probably made a backdoor in the system,because they love it :) – user5670635 Jan 13 '16 at 12:07
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    That would be a very opinion based question. Might be a better fit on skeptics SE though – Matthew Jan 13 '16 at 12:25
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    Because Anonymity != Operational Security. – gowenfawr Jan 13 '16 at 12:59
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    Bitcoin does not depend on anonymity, it simply does not have identity built into it. – GdD Jan 13 '16 at 13:39
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    @user5670635 There are people who claim that because the identify of the original author is unknown, the system is likely to contain a backdoor. I recommend that you don't take those people seriously. The source code is available, and reading the source code is a much more reliable way to know if there is a backdoor. No amount of information about who wrote the code will be more valuable than the source code itself when judging whether there is a backdoor. – kasperd Jan 13 '16 at 17:14

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Contrary to popular believe, Bitcoin is the exact opposite of being untraceable. Any transactions between wallets are stored safely, unchangeable and completely public in the blockchain and can be traced at a later date. By anyone - not just law enforcement.

What's left for law enforcement to do is to find out which wallet belongs to which person. The easiest way to do that is by following the money. When a user wants to do something with their bitcoins, they either need to exchange it into "official" currency or need to order some products from someone which are then delivered to a physical address. Similarly, anyone who want to buy something with bitcoins, needs to obtain these first, usually by buying them from some company with real money.

Any company with an official existence which takes or sells bitcoins can be used by law enforcement to obtain the identity of their customers.

Also, when a computing device with a wallet key is seized during a search, it is proof that the owner of the device is the owner of that wallet. Law enforcement can then look at the blockchain to find out if the owner had any transactions with wallets which are known to be involved in criminal activity.

If you want to make a financial transaction which is really untraceable, use good, old cash.

Philipp
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    It may also be worth noting that Hacking Team (selling "*[offensive intrusion and surveillance capabilities to governments, law enforcement agencies and corporations](https://en.wikipedia.org/wiki/Hacking_Team)*") was also proposing a functionality in their software dedicated to "*Exfiltrate Bitcoin and other cryptocurrency wallet files to collect data on local accounts, contacts and transaction histories*". This goes near to the case you mention where the computer device is seized, but without the device being actually seized, only stealthily and closely monitored... – WhiteWinterWolf Jan 13 '16 at 15:09
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    Don't forget about existence of https://en.wikipedia.org/wiki/Cryptocurrency_tumbler though. – Oleg V. Volkov Jan 13 '16 at 16:19