Writing this as @anon for opsec reasons, but here's the situation. My current system of cold storage is just a simple seed phrase backup that has been a software wallet several times and was stored semi-insecurely, so I'm moving everything over to a hardware wallet with a dice roll generated seed phrase. It's a few million sats, almost all of which are KYCed. I don't have a big concern about cleaning them right now or anything (I'm actually considering having both a KYC and non-KYC stack long term), I just want to make sure that it's an option in the future.
Thus comes the question. Should I move the sats all over into one big several million sat UTXO, or split it up into several smaller ones. Which choice would be better long term? If I choose to ever lightning clean or CoinJoin my cold storage, what UTXO setup would be most helpful for that? Does it matter? I've considered doing several small fake two-person coinjoins on Sparrow to move it all over, but I suspect the eventual consolidation under a single wallet would eventually kill any privacy benefits. Excited to see what you guys think. Cheers.
432 sats \ 1 reply \ @aoeu 19 Sep
Definitely create separate wallets for the KYC and non-KYC stack. You could technically use a single wallet and keep their respective UTXOs separate, but this would get complicated, in my opinion. Better to just have dedicated wallets for each that you could secure with a single hardware device or as part of a multisig.
I wouldn't go too small on the UTXOs because who knows how high fees could get in the future. If you keep several 50k UTXOs, fees eat up a large portion of that even now. I'm keeping my UTXOs at 300-500k minimum for that reason.
I'm a little hesitant to coinjoin all my stack because their will likely be other privacy options that are developed on L2 that might even work better. And, the issue that I have with the KYC stack is that no matter how many rounds of coinjoin I do, they company I KYC'd with still ultimately knows how many totals sats I bought through them. They wouldn't be able to trace the individual sats, but the total number would still be known in case of a rare "Executive Order 6102"-type order.
Under-rated points. The threat model of KYC coins is super important. If Coinbase (or whoever) knows you bought 10m sats, then it doesn't seem too far-fetched that an aggressive government will eventually want a detailed accounting of where they are now. They might not know the UTXOs, but they know what you had.
This is my chief worry about how things could go realistically. Someone always jumps in and says what an accounting nightmare this would be, how it's not feasible. I agree! Jesus, it's so confusing to keep track of your UTXOs if you did anything other than park them in cold storage immediately after buying them. But it doesn't have to be feasible, it just has to chill legitimate market use. If you can't buy them or spend them on anything without getting sideways with the government, hardly anyone will bother.
Btc won't "die" but I'm not keen on waiting out $500-$1k prices for the next twenty years, or moving to El Salvador or whatever.
If you plan to coinjoin before spending in the future, then just lump all the KYCd coin for now, imo. At the point where you start coin joining it'll make sense to have sets of utxos as the coinjoin output ( think of it like separate wads of cash that are not traceable to past consolidations of cash ) that you utilize for lightning channels / spending.
Keep the KYC'ed UTXOs separate from the non-KYC'ed (separate wallet or strict coin control). I have some KYC UTXOs that remain "forever" in cold storage and will not move. No need to coinjoin here.
However, every non-KYC UTXO I coinjoin now as the fees will be higher in future. Right now, it is relatively cheap to go into whirlpool as the mining fees are not that high.
Personally I'd consolidate everything into a single UTXO when fees drop. I don't think there's a reason not to do so if they're KYC'd anyway.
CJs are useful, but expensive. I'm not sure it's worth it for sub-BTC stashes. For private spending you could consider opening up a Lightning channel or two instead (although this isn't cold storage of course).
I would go for having Utxos of difesizes and when the time of using some sats you could choose the right Utxos for that occasion.
Something like: 100.000 Sats 1 Million Sats 10 million Sats
And so on...
I'd wait for onchain fees to come down before consolidating them into 1 UTXO.
Keep noKYC separate from KYC
I will repeat this over and over until people will get it https://stacker.news/items/257734/