Bitcoin was created in 2009 as a decentralized, pseudonymous digital money that functions without a central controlling authority. Over the years, a complex ecosystem of wallets, exchanges, payment service providers and regulatory frameworks has developed around Bitcoin. Two central concepts that repeatedly clash are KYC (Know Your Customer) and NoKYC (no identity verification). KYC refers to the procedures used by financial service providers to verify the identity of their customers, usually by presenting identification documents, proof of address and, if necessary, background checks. NoKYC, on the other hand, describes services and ways of using or exchanging Bitcoin without going through such formal identity checks. Both approaches have technical as well as legal, economic and ethical implications, which are discussed in detail below.
What is "KYC-free Bitcoin"?
KYC-free Bitcoin is Bitcoin that is bought, mined or earned without presenting a government-issued ID that binds you to your purchase of Bitcoin. KYC exchanges store your information indefinitely and according to regulation, which could one day be used against you. Buying KYC-free Bitcoin allows your information to be selectively disclosed to the selling party, rather than being forced to disclose everything to anyone with access.
Why should I buy Bitcoin without providing KYC information?
As KYC data is stored on exchanges forever, there is a risk that the data could one day be leaked, as seen with exchange leaks from Gemini, Swan, Unchained Capital, NYDIG, Swan (again) and BlockFi, Coinmama. These can be matched with other leaks such as the Ledger customer data leak and the Celsius customer database to reveal your potential holdings and physical location, a dangerous combination. Governments can target Bitcoin buyers and you have access to a list of who bought how often and how much. Buying without providing KYC information reduces these risks.
What information do I need to disclose if I buy KYC-free?
This may depend on the payment method you choose. Some payment methods only disclose your name and phone number to the other party, others such as a bank transfer would disclose your name, account number and sort code. Cash is best for complete anonymity, either in person or by mail. Take a look at the list of payment methods on Bisq to learn more about each payment method. This is useful even if you are not using Bisq to make a purchase.
How can I run DCA for KYC-free Bitcoin?
The equivalent to the most automated way of "DCAing" KYC-free Bitcoin would be to mine it at home. The Antminer S9 is very affordable (<200 euros, usually comes with power supply) and there are many resources on how to get started with this particular miner. It is also possible to place buy orders on popular KYC-free exchanges such as Bisq and HodlHodl, which help with buying at specific times, but in a less automated way.
Do I need a new wallet for KYC-free Bitcoin?
In the long run, it is safest to completely separate your bitcoins bought with KYC from your bitcoins bought without KYC You can easily do this without buying a new hardware wallet. With Sparrow Wallet (software wallet), for example, you can create multiple wallets that use different derivation paths or accounts (nodes) with the same hardware wallet. Using a different passphrase is also useful to segregate funds with the same physical signature device, as this uses a completely separate set of addresses. Two separate wallets (2x BitBox02) are best of all.
What if there is no P2P liquidity?
This is an unfortunate reality in some places and is only solved by higher demand for P2P trades. You can post buy orders above the market price and wait, but that doesn't guarantee that someone will take your order. What helps is if more people do this and signal the demand for a serious market. With a service like Revolut, you can also get access to the global market. However, Revolut also requires a tax number.
What is a "premium" for buying KYC-free Bitcoin?
When purchasing ATMs or vouchers, the vendor may charge a fee (premium) on the price of Bitcoin you purchase. The amount of the "premium" may depend on the individual vendor. However, if you buy Bitcoin directly from another peer, this is the true market price of what someone is willing to accept to part with their Bitcoin. Consider instead accepting that KYC exchanges will give you a discount to sell you Bitcoin for your personal information.
If I already have KYCed Bitcoin from before, what difference does it make?
It matters because you could stop increasing the amount you (either the government or future potential bad guys who get their hands on the data) know about. Even better would be if you could exchange your Bitcoin back into USD/EUR (fiat money) and sell it back. Then you use this to buy Bitcoin without giving your KYC information. This way you would at least be KYCed for 0 Bitcoin.
What if I use a stablecoin or strike to "pay myself" "KYC-free"?
You should avoid having to KYC for a service that is Bitcoin or crypto related. Using these services, even if you don't buy Bitcoin directly, signals your interest in Bitcoin and puts you in a smaller pool of users.
Don't I already have to do KYC for my bank?
Performing a KYC process for your bank or similar general financial services account (not Bitcoin / crypto related) does not signal your interest or intention to buy and hold Bitcoin. You're in the same customer pool as everyone else using the service, which means: if you use your tactics, you're hiding in a crowd. If you want to avoid all forms of KYC, cash is the best option for buying Bitcoin.
If I buy Bitcoin that someone else is KYCed for, is it still KYCed?
The KYC applies to the customer, not the coins/sats/bitcoin. If you buy Bitcoin without providing your own KYC information to the seller, that Bitcoin is KYC-free for you because the purchase is not tied to your ID. It doesn't matter if the seller performed KYC to buy it in the first place. Could also be a miner who resells it on the P2P platform, for example.
What if I buy Bitcoin from a Fed?
At the moment, buying Bitcoin without KYC is legal. If you want to be as cautious as possible, you should use a payment method that allows you to remain anonymous and not have to meet in person - namely cash by mail. The danger here grows from creating a pattern that allows a single entity to determine the amount of Bitcoin you hold.
If Bitcoin ownership was ever made illegal, could a seller tell me?
Using payment methods that only share a minimal amount of information like a name and phone number will help, but it could still be used to identify you if you're dealing with a focused adversary. The best payment method to maintain the highest level of privacy is cash by mail.
How can I spend Bitcoin without KYC?
If you want to avoid anyone knowing about your Bitcoin holdings, you should use a privacy-friendly wallet like Samourai Wallet, which offers privacy-preserving post-mix spending tools alongside the best implementation of Coinjoins (Whirlpool). If you use Lightning Network, which has good privacy protection, you should be careful with your on-chain UTXOs when opening and closing channels.
What if the receiver blocks UTXOs holding P2P-purchased or coinjoin Bitcoin?
The only entities known to block these types of transactions are exchanges that require KYC in the first place. However, if more entities start doing this, there are still tools like Ricochet that can be used to circumvent such blocking. This is also a good case for the Lightning Network, but be careful about the privacy aspect in the chain and never get it on your node.
If I withdraw from a KYC exchange, I own the Bitcoin. What could they do about it?
Withdrawing does not cancel the KYC at all. The KYC is stored on you, the customer, not on the Bitcoin/Satoshis. Your data is still in the database and acts like a honeypot that hackers can steal, or for your government to use against you one day, like in a 6102 style attack.
What is a 6102-style attack?
In a 6102-style attack, possession or self-custody of Bitcoin becomes illegal. Most likely, the government would KYCed Bitcoin at a discounted price, similar to EO6102 with gold. The main difference, however, is the amount of information available about all KYCed Bitcoin holders today than about individual gold holders in 1933.
Would the government really come and try to take my Bitcoin?
You probably won't have to go to anyone's residence. It is more likely that you would require individuals to voluntarily surrender your Bitcoin and then send notices to those who have not. Since you know exactly how much each KYC buyer has purchased, you know if someone is under-reporting and need proof of sale.
Isn't it just as easy to confiscate KYC-free Bitcoin?
It's not, because to find out if someone bought Bitcoin without KYC, you would have to be approached individually. Then it is still difficult to determine how much Bitcoin that person has, as there are different methods to obtain KYC-free Bitcoin. All KYC buyers have their ownership and amounts known, which makes them the easiest target for a seizure scheme.
Why couldn't I just buy KYC and then leave the country?
You could, but you'd have to (a) be familiar with the laws related to renouncing your citizenship, and (b) get out before any raids start. The US, for example, has an "expatriation tax" on renouncing citizenship and such rules may apply to you.
What if I "lost it in a boating accident"?
If you claim to have lost your Bitcoin and there is a 6102-style attack against Bitcoin owners, expect a "boating accident" statement to be treated as contempt of court. Permanent incarceration may be the result. (see Tommy Thompson, still in prison since 2015). If you claim that it was stolen, you will usually be expected to file a police report documenting the theft at the time of the theft.
Can't I just pick it up and then send it to a different, non-KYCed address?
All KYC exchanges work with a chain analysis company to monitor your on-chain transactions. The two main problems with this are: (1) If you report this transfer as a sale, and (2) if you make a mistake with these UTXOs in the future (e.g. consolidation), the reported or unreported sale (1) is not credible/would be considered fraud.
Can't I just withdraw and then make a coinjoin?
No matter what you do on-chain, and coinjoin is a great way to regain your forward-facing privacy, the KYC record still exists. This record ties your information to a specific amount of Bitcoin ownership. Nothing can undo the KYC because it is a record about you, not the bitcoin/sats.
What if the government never does anything bad to KYC buyers?
Then you've still avoided having your name, address, ID, biometrics and other information added to a database linked to your bitcoin purchases. Such databases can be hacked or compromised at any time. Even if you don't feel threatened by government raids, KYC exchanges are 'honeypots' of data.
Bitcoin is language and math and can't be banned, why should I bother?
If the thesis of Bitcoin's "separation of money and state" is evident, governments will most likely go to drastic and possibly unreasonable lengths to keep the current system running. There have already been discussion points in the EU Parliament in the form of "non-hosted wallets" in relation to self-custody. Think about this point.
Can I buy something big with KYC-free Bitcoin?
You could, especially if you find a seller who is willing to accept payment in Bitcoin directly, even buy a house. This way, you're not relying on a middleman or trusted third party to complete the payment. You can also still report your sale of Bitcoin to your tax authority if you wish, even if you bought P2P, the cost basis is yours.
What you do with it is up to you to decide.
Satoshi Nakamoto said this in his white paper for a reason:
Abstract. A pure peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without recourse to a financial institution. Digital signatures provide part of the solution, but the key benefits are lost if a trusted third party is still needed to prevent double spending. We propose a solution to the double-spend problem by using a peer-to-peer network. The network timestamps transactions by hashing them into a continuous chain of hash-based proofs of work, creating a history that cannot be changed without re-providing the proof of work. The longest chain represents not only proof of the sequence of all witnessed events, but also proof that it comes from the largest pool of CPU power. As long as the majority of CPU power comes from nodes that do not cooperate in an attack on the network, they will generate the longest chain and shake off the attackers. The network itself requires a minimal structure. Messages are transmitted on a best-effort basis and nodes can leave or join the network at will, accepting the longest proof-of-work chain as evidence of what happened during their absence.
More on: https://bitcoin.org/files/bitcoin-paper/bitcoin_de.pdf
Conclusion
Ultimately, the question is: do you see Bitcoin as just an investment - or is there more to it? If Bitcoin becomes more to you, it makes sense to take a closer look at it. This article will help you do just that: It provides an overview and makes it easier to get started.
Buying via NoKYC or peer-to-peer is not rocket science. It is usually much simpler and faster than a formal KYC procedure and for many users less cumbersome than going through large trading platforms.
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Important note
The opinions and information provided by us do not constitute financial advice. They are for informational and educational purposes only and are not intended as a substitute for individual advice from qualified professionals.
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