Bitcoin Q&A: Exchanges, identity, and surveillance


‘Given the current status of Bitcoin and other
open blockchains, how can users who purchase their BTC on an exchange, exposing all of their [personal
information], protect their privacy and anonymity? Especially when governments have very sophisticated
tools such as Chainanalysis. Should there be infrastructure and a paradigm shift
on how users switch their assets from fiat to crypto?’ This is a great question. Right now, it’s actually very difficult to
protect your privacy because the fiat system has all of these rules that tie all transactions
to identity. Basically, the fiat system is designed to
be a surveillance machine. If your on-ramp, if your entrance into the
crypto space, is through the surveillance fiat system, then you start your journey under
full surveillance. As a result your privacy is going to be severely
compromised. This isn’t something that is necessarily the
fault of exchanges. Exchanges are trying to work as a bridge between
fiat and crypto, and fiat is a surveillance system. They can’t not do the surveillance that is
required by governments around the world… when touching the fiat system. How do you maintain your privacy? How do you maintain anonymity? How do you protect your human rights, your
ability to transact without everything you do being under scrutiny
(absent any suspicion or wrong-doing)? How do you protect yourself? One way is to think about how you get to the
crypto economy in a different way. I’ve talked about this before, but I think
it’s worth emphasizing again. That is, instead of buying cryptocurrency,
you earn it by giving your labour, your services. Effectively, by selling products or services
that you would sell otherwise doing your job, and earning your income in cryptocurrency. Then, it’s not [going through] an exchange. It doesn’t touch fiat. As a result, it’s not part of their surveillance
and reporting system. Of course, you have to report your income. Or you may choose not to, but you should report
your income under any requirements of the law. But you don’t have to report which crypto
address you received your income on, so you have a much higher degree of privacy when
you do transactions between individuals… rather than dealing with a regulated exchange. Another way is to think about various privacy
services that exist, that help you once you have cryptocurrency acquired through an exchange
[or elsewhere]. The receive address, for example after withdrawing
it from the exchange, is tainted. What does that mean? That means the moment you did a withdrawal,
the exchange will have associated your identity (which they’ve recorded) with the address
you sent the cryptocurrency to. They will either assume that’s someone you’re
paying, if they have information about that address belonging to a merchant through other
systems that are under surveillance, or they’ll assume that address belongs to you. As part of the deal that these exchanges have
with various analytics firms, in order to support what they call “know your customer”
(KYC) and “anti-money laundering” (AML) regulations, they will send information on every transaction to the
analysis firms, together with the identity that they have. In return, they’ll get some kind of risk score that says
whether they should allow that transaction or not. This is a very dirty deal, whereby in order
to receive a risk score from a KYC/ AML perspective, the exchanges are effectively forced to send
all identifying information about all incoming and outgoing transactions to the analytics
firms. The exchanges then become a giant surveillance
machine. This also applies to all of the merchant processing,
centralised points that perhaps are building e-commerce shops and things like that, or
converting cryptocurrency into fiat for merchants. In order for them to be able to comply with
the regulations and get a risk score, or an AML score, on any single transaction,
they have to send all transactions with… associated identities to the analytics firms. So the moment you do a withdrawal, your receiving
address has been tainted in its association with you. At that point, the only way to break that association
is to do some transactions between your own wallets. That will obfuscate the sources of those funds [a bit]. Depending on your jurisdiction, that may be
perfectly legal or it might not be. I’m not going to give you legal advice as
to whether you should or shouldn’t do that. Simply know that there are tools out there that will
allow you to add a layer of privacy to your transactions. By mixing cryptocurrency transactions with
your wallets and other wallets. In some jurisdictions this is perfectly legal;
in others it is not. It will allow you to perhaps add some distance
between an address that has been identified as yours, and an address that you
want to use in the future.

21 thoughts on “Bitcoin Q&A: Exchanges, identity, and surveillance

  1. Can anyone elaborate or link a vid elaborating on the switching coins to wallets / between wallets for added security for privacy that he touched on at the end ?

  2. Can anyone elaborate or link a vid elaborating on the switching coins to wallets / between wallets for added security for privacy that he touched on at the end ?

  3. Can anyone elaborate or link a vid elaborating on the switching coins to wallets / between wallets for added security for privacy that he touched on at the end ?

  4. Very good video – but one important question!

    If bitcoin transactions can be traced back to source via addresses, is it enough to shift between bitcoin wallets?

    To keep privacy should we really make sure we move between truly private coins like monero then back to bitcoin?

  5. Assuming an address belongs to a particular person is not enough. This is going to go the same way as IP addresses. There is enough plausible deniability that it will never hold up in a court of law. Unless some physical evidence is shown that you control the private key to a particular public address then Chainalysis are simply selling snake oil.

  6. Hello Andreas. With Lightning and Atomic Swaps coming, are we going to have a Lightning decentralized market place, and how would that work ?

  7. What do you think of Civic?
    Considering they are full on KYC/AML welcoming regulators playing to safe (which I like).

    Just curious what's the "expert" opinion on the project and perception.

  8. No, you don't have to report your income. All taxation is theft and every governement agent is a criminal.

  9. Why not use DASH or Monero? DASH has PrivateSend (Coin Mixing) and Monero has all anonymous private transactions. Will Bitcoin ever add Privacy features?

  10. Here's a point I think of often, and maybe someone here can add or detract.

    So far, after 35 years of business and 66 of life in general, the government (US, NYS) has never been a major hassle for me. I once had an audit, so I answered the fellow's questions, paid my accountant for his help, and that was the end of it. I don't mind living under government — which educated me, paves my roads, provides police and soldiers etc. Also, as a member of a community, I probably get a better deal with the trash hauling company than if I had to pay them by myself.

    Furthermore, I'm perfectly happy to have my government go after gun runners, dope peddlers, money launderers and the rest of the scoundrels who make us miserable. Theoretically, I'm PART of the government, and it's my job to watch them and make sure they continue to do my bidding. (Which isn't so easy, but I'm talking theory here.)

    While governments can go rogue and make people miserable (and it COULD happen here and NOW), I'm honestly more afraid of using my BTC to pay for a cup of coffee and having the merchant look at my address to see that I could buy a nice house in a nice neighborhood for cash. THAT worries me.

    In other words, I fear the loss of privacy, but I don't fear an absence of secrecy. With 8+ billion people around, we are — willingly or not — becoming a global village, and villages aren't very private. I'm an urban dweller, so I have no first-hand experience here, but that's what I've heard about village life.

    For these reasons, I'd like to see a layer-2 solution in the form of a FedCoin that insures my privacy (against prying by the coffee shop owner or the auto dealer), but that CAN be traced if a properly executed court order mandates it.

    I have several other reasons to like such a project, but if this particular reason grabs your attention (either pro or con), I'd like to hear your thoughts on the matter.

  11. really enlightening.Privacy and anonymity is already becoming an issue. In my opinion, FIAT as a surveillance tool only affects when you buy bitcoin. but if you move the money to privacy coins like deeponion offering stealth address and untraceable transactions, the trail disappears. privacy coins are the future and will be worth a lot soon due to their utility.

  12. I thought about this and decided to go with privacy cryptos. Knowing that Dash reached $1500 ATH, I know that the privacy market is not a joke and if regulators keep bugging exchanges, the public will eventually push towards privacy cryptos and decentralized exchanges. Especially Tor based wallets and exchanges that offer identity protection, like DeepOnion and Bisq.

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