Activity-tracking applications and location-based services using short-range communication (SRC) techniques have been abruptly demanded in the COVID-19 pandemic, especially for automated contact tracing. The attention from both public and policy keeps raising on related practical problems, including \textit{1) how to protect data security and location privacy? 2) how to efficiently and dynamically deploy SRC Internet of Thing (IoT) witnesses to monitor large areas?} To answer these questions, in this paper, we propose a decentralized and permissionless blockchain protocol, named \textit{Bychain}. Specifically, 1) a privacy-preserving SRC protocol for activity-tracking and corresponding generalized block structure is developed, by connecting an interactive zero-knowledge proof protocol and the key escrow mechanism. As a result, connections between personal identity and the ownership of on-chain location information are decoupled. Meanwhile, the owner of the on-chain location data can still claim its ownership without revealing the private key to anyone else. 2) An artificial potential field-based incentive allocation mechanism is proposed to incentivize IoT witnesses to pursue the maximum monitoring coverage deployment. We implemented and evaluated the proposed blockchain protocol in the real-world using the Bluetooth 5.0. The storage, CPU utilization, power consumption, time delay, and security of each procedure and performance of activities are analyzed. The experiment and security analysis is shown to provide a real-world performance evaluation.