Why KYC in Bitcoin is the Illicit Activity.
As you continue your journey down the bitcoin rabbit hole, you will start to notice other Bitcoiners talk about the importance of privacy and the risks that Know-Your-Customer (KYC) regulations pose to you, your family, and your bitcoin stack.
Go deep enough and you’ll even hear bitcoiners firmly stating that ‘KYC is the illicit activity’.
But what is all the fuss about? Aren’t AML and KYC regulations designed to stop illicit activity? Aren’t they there to protect you?
Let us explain in a bit more detail why KYC regulations are so contentious amongst the Bitcoin community and why they are something you should be investing more time into understanding and ideally avoiding…
The stated purpose of KYC regulation is to prevent and combat illegal activities such as money laundering, terrorist financing, fraud, and other financial crimes.
But how well do these regulations actually address these problems?
Well, they didn’t seem to prevent HSBC from laundering just shy of $1bn for Mexican and Colombian drug cartels in 2012.
And the world couldn’t have possibly forgotten the Panama Papers leak in 2016 Could it?
This leak of almost 12 million documents revealed the secret financial dealings of 35 current and former world leaders, more than 330 politicians across 91 countries and a litany of con artists, fugitives, and murderers.
In these papers we learned that powerful figures including former UK prime minister Tony Blair, the King of Jordan Abdulla II, and the presidents of Ukraine were just a handful of so called ‘trusted’ officials who were engaged in hiding their true income and vast wealth in shady offshore accounts and private trusts.
The Panama papers clearly show us that those imposing ‘KYC’ rules on the rest of the population were themselves actively engaged in flouting them to hide their own financial affairs.
And let’s not forget that while Jamie Dimon continues to bash Bitcoin, that it was his bank JP Morgan that provided banking services for Jefferey Epstein, a known child sex trafficker.
From where we are sitting it doesn’t appear that these KYC and AML rules are stopping much illicit activity at all.
If KYC Regulations don’t effectively combat the illicit activity they purport to, then what is their true purpose? Why do they become more widespread and onerous despite them not working as advertised?
The answer is simple. KYC regulation is simply a system of surveillance and control.
Whilst your world leaders are hiding their wealth and keeping their corruption and dodgy dealings well hidden, they think it entirely appropriate to be able to monitor every minute detail of your financial life.
Privacy for them but not for you. We think Comedian Geroge Carlin’ puts it best….
So, whilst the IRS in the United States now want you to report any financial transaction over the value of $600, corrupt world leaders and other criminals have over $11tn worth of assets secretly stashed away out of public view. (And no, they aren’t paying tax on any of it).
But heaven forbid you were to enjoy the same privacy. Imagine you earned some money without the Govt knowing? Or even worse, what if you sent money to support an anti-Government protest like the Canadian Truckers without them knowing? How would they know who to persecute for such disobedience? This simply isn’t acceptable to them. If you could transact and express yourself privately, how could they possibly control and relentlessly tax you?
The purpose of KYC Regulation is clear then. It’s designed to put you under constant financial surveillance, curtail your ability to spend your money as you see appropriate and to make sure they don’t miss a single opportunity to force you to pay the taxes that they themselves avoid.
Enough is enough.
So how does this relate to bitcoin and why should you be taking it seriously?
Well as you’re probably aware already, most exchanges where you can purchase Bitcoin will first force you through a KYC process that reveals your identity and other personal information.
This means that your personal data is stored in a centralised database along with thousands of other customers. This represents real risk to you, your family, and your bitcoin stack (even after you withdraw your coins from the exchange).
Consider that these exchanges could get hacked revealing your personal information including your name, address, how much bitcoin you bought and where you sent it next. This could lead to you being personally targeted for hacks or even physical attacks to relieve you of your corn.
And then there is the constant threat from your government. They now also have access to this information. They can identify how much Bitcoin you hold and trace how you spend it.
You’d better be well behaved and not get on the wrong side of them. And let’s hope they don’t suddenly decide to try and confiscate it in the interest of national security. Sure, you might refuse to give up your private keys to them, but when that knock at the door comes are you ready for that much heat?
Hopefully by now you can see that KYC regulations create risks and attack vectors that are worth considering and mitigating.
Thankfully, there are NON-KYC options for acquiring bitcoin and other privacy tools you can use to level the playing field. With Bitcoin you too can now have financial privacy even if you’re not in the ‘big club’.
Read on to learn more….
Thankfully the Bitcoin ecosystem offers you a variety of ways to improve your financial privacy and escape the tyranny and risk associated with KYC regulation.
Below are a few of the ways you can achieve it:
Buy Non-KYC Bitcoin
There are a variety of venues where you can buy Bitcoin without going through an invasive KYC process. Take a look at some of the options shown below:
These exchanges are a little different to your typical providers. They are peer to peer meaning they allow you to connect with other users to trade Bitcoin and fiat currencies directly. The exchanges never hold the Bitcoin, they simply connect buyers with sellers and provide an escrow service to keep everyone honest. This design allows them to bypass any need to collect KYC data about you.
Pretty cool right?
Now as you might expect, whilst you will enjoy a significant improvement to your privacy with these tools, you will pay for it in convenience. These exchanges are a little more cumbersome to use compared to something like Coinbase. In some cases, you might need to run specific types of software and use privacy tools like TOR.
Don’t be put off. It’s easier than you think and it’s well worth the time spent learning how to use them.
Now if you’re reading this in a sweat thinking “but I bought all my Bitcoin on a KYC exchange, my privacy is already ruined!” don’t worry.
Buying Non-KYC bitcoin isn’t the only way to improve your privacy. It’s also possible to improve your forward-looking financial privacy too. There are ways that you can regain your privacy even after your bitcoin stack has been attributed to you personally.
One of the most effective methods is by doing a special kind of transaction called a Coin-Join. This is where you and a bunch of other users mix your coins together making them harder to trace.
The simplest analogy we could find for a coinjoin transaction is that it is similar to you and a bunch of other people all putting a penny in a glass jar and shaking it up. Once you finish shaking the jar you each take a penny out of the jar again, but nobody can tell which penny is which. Did you get your original penny or a different one?
A coinjoin transaction on a block explorer looks like this:
Essentially a coinjoin transaction breaks the chain of traceability by mixing funds together. It can help you take funds that have been KYC’d and obfuscate what you do with them next. A useful trick if you learn how to do it effectively!
If you have read our other post on UTXO Management, you’ll already know that managing your privacy when using Bitcoin is an ongoing process. Just because you bought Non-KYC Bitcoin or did some coinjoin transactions does not mean your privacy will remain intact indefinitely.
Consider that if someone pays you in Bitcoin and you subsequently decide to add these funds to your existing ‘private stack’ then the person who paid you can follow the transaction to see how much Bitcoin is in that private stack! They could then also start looking into other transactions you made or received and start learning things about your finances that you’d rather keep private.
You could buy Non-KYC Bitcoin or mix your coins and still inadvertently reveal your identity later down the line if you don’t improve your skills when it comes to managing your bitcoin transactions.
If you want to use Bitcoin privately you should also be running your own Bitcoin node. When you send a transaction it’s best to broadcast that transaction to the network yourself rather than relying on a node run by a third party.
Running a Bitcoin full node means you can query Bitcoin’s blockchain directly and reduce the need to share your transaction data with others.
Hopefully we have convinced you that protecting your privacy is an essential part of using Bitcoin to its full potential and achieving true freedom and self-sovereignty. Securing and maintaining your privacy protects you, your family, and your generational wealth.
Don’t fall into the trap of thinking “I have nothing to hide, I don’t need to worry about my privacy this much”. That’s the same logic as saying, “I don’t have anything to say, I don’t need to worry about free speech”. This kind of thinking only leaves you exposed to unnecessary risk.
This post has also hopefully highlighted that nothing worth having comes for free. Financial privacy is absolutely worth having, but it will require you to put in some ‘Proof of Work’. You will need to learn how to use all the tools we mentioned here to become a more proficient and capable Bitcoiner.
But don’t let any of this put you off. It’s just software, they are just tools, and you will be able to learn how to use them. We are yet to meet someone we weren’t able to teach this to.
If you’re interested in getting to the next level and reclaiming your right to privacy then get in touch with us today. It’s time to start your training.
Disclaimer: Please note, The Bitcoin Way does not provide financial, legal, or tax advice. This article is for educational purposes only and is intended to offer insights into the technical aspects of Bitcoin management. Always consult with a professional advisor for advice specific to your situation.
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