Apart from data analysis carried out alone or in cooperation with private companies, authorities can request information from centralized exchanges. Due to regulations, centralized exchanges may also be required to share this information. However, not all cryptocurrency exchanges collaborate with authorities.

A centralized exchange is a cryptocurrency exchange operated by a single entity, such as Coinbase. To become a licensed trader in a given country or territory, centralized exchanges must comply with regulations.

For example, to reduce cryptocurrency anonymity and illicit cryptocurrency use, most centralized exchanges have incorporated Know Your Customer (KYC) controls. KYC is intended to verify customers’ identities while helping authorities analyze activity on the blockchain. In practice, individuals must submit a series of documents and their data before being allowed to trade, invest and transact.

Once KYC has been completed, exchanges may be requested or may be required to share this data with law enforcement agencies. Since the exchange has individuals & rsquo; personal data and transaction data, just like the government. Using information obtained from centralized exchanges, the IRS can identify unknown Bitcoin wallets using KYC checks and corresponding personal information.

However, not all exchanges use KYC. For example, it is difficult to make decentralized exchanges (DEXs) compliant with regulations because they do not have a head office and are not run by a centralized company or a small group of individuals.