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Anonymity in Bitcoin...
285 sats \ 19 comments \ @linesgone 12 Aug 2022 bitcoin
In my 5 or so years involved with Bitcoin anonymity has been something I thought wasn't that important, at least for my intended use case, but more recently I've started to realize the implications of it related to Bitcoin as my intended use case(s) morph considerably. The recent Tornado Cash and privacy issues only are putting it front of mind for me. Therefore I have a few questions, rather points I'm wondering what others think.
Many of us have bought Bitcoin from KYC exchanges. Now I'm not debating the KYC of those exchanges, due to how national banking laws work in various countries. What I'm more considering is what is the future of Bitcoin bought from KYC exchanges? Obviously it can be tracked to your identity, so, will it;
  • Will KYC exchange Bitcoin need to stay as such, meaning the UTXOs can be (needing to be) linked back to the original purchase transaction(s)... in order for said Bitcoin to be able to be used for daily purchases from regulated vendors and/or to be off-ramped into fiat?
  • Will conjoined Bitcoin become something of a pariah given it will be easy to be flagged as such and therefore hard to use for daily transactions and/or off-ramped into fiat. -P2P Bitcoin, with non-conjoined UTXOs, but no "identity (KYC speaking)" attached to it be something coveted?
  • Will pure mined Bitcoin become something of a unicorn?
Obviously everyone's intention with Bitcoin is different and I'm sure there are many other privacy issues that have been discussed or considered that I haven't remotely gotten too. I feel like I'm only casually scratching the surface of it all.
Kind of thinking out loud here as I wrap my head around all of this.
Also...any good resources or key pieces written/recorded about this over the years? There must be endless ones...?
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30 sats \ 1 reply \ @badabing 12 Aug 2022
You're describing a breakdown of the inherently delicate fungibility of bitcoin (having different flavors of bitcoin).
We should strive to keep bitcoin as fungible as possible. Tools like e.g. CoinSwap could strenghten on-chain fungibility. Some are advocating for making every tx a coinjoin, to force fungibility that way.
I keep my KYC bitcoin in cold storage as such, and am slowly building a smaller KYC-free stack alongside it.
Your thoughts are not far fetched at all, so we should heavily support further privacy projects. CoinSwaps could unnoticeably destroy deterministic links, so I'm closely following that project.
Interesting times for sure...
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0 sats \ 0 replies \ @linesgone OP 12 Aug 2022
I’m considering the same thing you are doing… but want to think through the implications of it all, which so where my mind has been spinning the past week around this all.
I’m more thinking about later 2/3 applications of Bitcoin… not the layer 1 fungibility.
Though the “making every tx a coinjoin” idea is interesting… however isn’t that what a lot of privacy crypto already does (and why they fall afoul..)?
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21 sats \ 3 replies \ @om 12 Aug 2022
The answer to all 3: you can just put it into Lightning. No UTXOs in LN.
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0 sats \ 2 replies \ @linesgone OP 12 Aug 2022
Yes, I understood this...but also understood LN wallets were much more temporary than a non-LN wallet. Though now that I typed that, it doesn't make sense. Or does it?
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10 sats \ 1 reply \ @om 12 Aug 2022
That depends. Some wallets like Phoenix and Breeze are backed by companies that aim for permanent channels. "Permanent" here means that EU would probably butcher ACINQ earlier than ACINQ decides to drop your Phoenix channels.
Full node setups and other LN wallets have channels opening and closing all the time. When your channel is closed, you get your money in a UTXO. But if it's not the same channel from which your funds entered LN, it's non-trivial to link this UTXO with you.
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10 sats \ 0 replies \ @linesgone OP 12 Aug 2022
That was what I understood about the nature of a LN wallet. Thank you.
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0 sats \ 1 reply \ @1sats 13 Aug 2022
I started mining to get non-US-KYC bitcoin. Only the mining pool knows my IP address.
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10 sats \ 0 replies \ @Randomguy 13 Aug 2022 freebie
Look into adding vpn at the router level. Econoalchemist has a great guide. Long but good.
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0 sats \ 0 replies \ @cryptocoin 12 Aug 2022
When they tighten the screws on the formal markets, that forces economic activity into the informal markets. Bitcoin is no different.
This also can be labeled the "circular economy", or describing bitcoin being used as a "closed loop" for payments (i.e., not normally converting into or out-of cash / fiat).
Will that slow adoption? You bet!! At least, in the beginning. Will bitcoin stop? Not a chance.
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0 sats \ 9 replies \ @F 12 Aug 2022
How does a bank know you still have control over your KYC bitcoin? What about a boating accident? How can they verify your KYC-bought bitcoin is in another person's wallet, if they never move it, and have never disclosed their wallet to anyone?
I think this common worry about "tainted" bitcoins is null and void. Bitcoin is fungible.
Isn't it possible to sell / spend your bitcoin without ever even moving it on the blockchain? Just give the person your seedphrase in person.
Isn't all bitcoin "pure mined" ??
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0 sats \ 8 replies \ @linesgone OP 12 Aug 2022
It’s not banks I care about. It’s more the path the coin travels and how one wallet connects to another.
The use case I am talking about is Bitcoin is bought from a KYC exchange and move to a hardware wallet. Is not that hardware wallet now connected to your identity?
Sure boating accidents, etc etc… plausible deniability….
I’m more wondering how later 2/3s will handle this all.
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0 sats \ 0 replies \ @glix 13 Aug 2022
There are three distinct things, don't mix them up - UTXOs, wallet and identity. A wallet has many UTXOs, an identity can have many wallets (hence many UTXOs). Now, there is no link between the identity and the UTXO. Many people miss this key point which should be emphasised more, that you can't know for sure who controls the UTXO once it's moved out of your control, except for ofcourse when you just received or sent a payment where you know for sure what UTXOs your sender/receiver owns. There are many ways a UTXO can move and morph, and at every stage you can just make assumptions about who might have control over it, not be sure of it. Overtime, i believe many types of transactions will occur, coinjoined, coinswap, etc and will be in the majority and it would become even more hard (impossible rather) tell determine who owns a certain UTXO.
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0 sats \ 6 replies \ @OneOneSeven 12 Aug 2022
There is no way to prove I didn't drop my KYC bitcoin wallet into a lake on accident, is that what you guys mean by "boating accident" ?
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0 sats \ 5 replies \ @linesgone OP 12 Aug 2022
Yes, or so such scenario.... basically "my dog ate my homework" sorta argument.
Though legally speaking its BS (right?). Sure your "no longer" have possession of the hardware wallet but the is that wallet not now dead to you? As soon as you move the Bitcoin to another wallet...the entire history is there on the blockchain and it's now connect to that wallet, and the next wallet, etc etc.
I guess, the argument goes..."I dropped my hardware wallet with my KYC coin in the lake on my recent fishing trip... I guess someone must have fished it up and started moving my Bitcoin...but it wasn't me (sly smile)."
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0 sats \ 4 replies \ @F 12 Aug 2022
What about my point that you can spend/ sell your bitcoin to someone in person by giving them your seedphrase. No bitcoin ever moves on the blockchain, but you are now sitting on a yacht.
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3 sats \ 3 replies \ @ek 12 Aug 2022
Giving someone your seed phrase is inherently insecure since you could have just copied it. To make sure the buyer is the only one in possession of the private key, he MUST move it to a new wallet.
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45 sats \ 0 replies \ @tech5 12 Aug 2022
Unless you have a multi-signature setup where the parties' don't know each other and transfer the keys to the new parties.
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0 sats \ 1 reply \ @F 12 Aug 2022
Oh good point, didn't think of that actually! I'm stumped then.
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94 sats \ 0 replies \ @Lost_dogz 12 Aug 2022
This is why OpenDimes were invented. It's the closest thing there is to "physical bitcoin". It let's you verify that nobody has the private key and allows you to get the private key if you ever need to move it on-chain
https://opendime.com/
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