“While the ledgers showing transactions are public, the identity of account holders is anonymous, providing privacy for accounts doing legal transactions while exposing illicit transactions to significant scrutiny.”
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I don’t know that much about the details of crypto-currency ledgers. Does the ledger display some kind of “Username”? Maybe an account/member#?
If this is the case, then it seems likely that a program could eventually narrow down or even discover someone’s identity based upon where and when they frequently shopped/made purchases. And this does not even take into account a possible leak from those empowered to regulate the transactions taking place on the ledger.
For example, public exchanges like Coinbase probably couldn't hide their cold wallets if they tried, since they transact so heavily. And that means anyone can see the inflows and outflows from them. That means you can often trace funds back to a given exchange, and then law enforcement can ask them for account information on who withdrew the given funds.
If there are multiple steps after that point or it was an anonymous account, the trail may run cold. But in the long run law enforcement has gotten pretty good at tracking criminals down. Since the ledger is permanent, it is usually just a matter of time before a criminal screws up and is caught. For example a hacker holding a fortune in bitcoin may gift a bit to a girlfriend years later, who uses it for an online service - triggering law enforcement that is automatically monitoring downstream TX to contact the online service, who traces it back to the girlfriend, who winds up in an interrogation cell, and then you have the SWAT raid an hour later.
That's the basic idea at any rate. As mentioned, there are many permutations and exceptions. Crypto is no more one-size-fits-all than in the global stock market.
My first reaction to the author’s thesis is that the barriers into our private financial lives can be entirely eliminated by converting to a crypto economy. It is inevitable that the government will want to tie something ubiquitous, like our social security numbers, to these accounts. And they will retain the power freeze, thaw or even drain our accounts at their whim.
It is bad enough now that banks are required to record and report transactions over $10,000. The Biden Administration had previously proposed that that limit be lowered to $600.