Chain analysis is like digital forensics on the Bitcoin blockchain. Specialized firms or individuals trace coin movements, cluster addresses, and attempt to associate them with real-world entities. While the transparency of Bitcoin’s ledger enables these techniques, it also raises privacy concerns—especially when addresses can be linked to user identities via exchange records or public payment details.

On the positive side, such analysis can help law enforcement track illicit gains or stolen funds, and compliance-focused businesses rely on it to meet regulations. On the downside, it undermines the pseudonymity many users seek, fueling demand for privacy tools such as coinjoins or newer protocols with enhanced confidentiality.