KYC / NON-KYC Coin Control Question \ stacker news ~bitcoin

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1274 sats \ 8 comments \ @PictureRoom 28 Apr bitcoin_beginners

I went ahead and purchased more bitcoin via Strike. I then sent it to my self hosted node, which also holds some non-kyc coins.

My question is, how (or is it even possible) do I differentiate those KYC coins from the non-kyc for when I send them to cold storage? I am using sparrow wallet, so I have my UTXO's categorized by KYC / NON KYC.

Did I do something incorrect? How or what should I have done, and moving forward?

Any insight and additional protocols would be appreciated in this regard.

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42 sats \ 4 replies \ @fanis 29 Apr

I think in most cases the best way to go around this is to use separate accounts (e.g. different derivation paths). Sparrow lets you do that pretty easily.

If open your current wallet and head to the "Settings" tab, you'll probably see under the Keystores section that your derivation path is something like m/84'/0'/0' (could also be something else depending on your setup). Using the same seed (eg the same hardware wallet, if you're using one) you should be able to create a new wallet, and specify a different derivation path (eg m/84'/0'/1'). You can give it a clear name (like "KYC wallet") for future reference.

You now have 2 different accounts, backed by the same seed, but from which you cannot accidentally spend in the same transaction.

0 sats \ 3 replies \ @PictureRoom OP 29 Apr

Wow, this is super helpful, thank you. I had no idea that I could do that in Sparrow.

Could I also use this method when acquiring KYC bitcoin by sending it to a new keystore wallet within sparrow, and then transfer it into the main keystore? The reasoning I ask is with the intent of obscuring where that coinage has gone. Any additional help on good coin control is welcomed. I was thinking about sending to a phoenix channel wallet, then maybe sending that to cold storage on the newly set up keystore via sparrow.

I'm not sure if that makes sense, but hopefully you can steer me where I need.

42 sats \ 2 replies \ @fanis 29 Apr

Generally speaking adding a hop between a KYC exchange and your main wallet isn't going to do much privacy-wise. If you do exchange ---> temporary wallet ---> main wallet, then any surveillance company with knowledge that the funds sent to the temporary wallet belong to you will be able to infer that those sent to the main wallet also do, especially if the transaction from the temporary wallet to the main wallet is trivial to interpret¹.

Additionally coin control, however sophisticated, will never alleviate the fact that the KYC exchange holds a record of how much corn you bought. For instance, if your worry re. KYC is expropriation a la 6102, then the State would still know that you own at least the amount reported by KYC exchanges, and could come take it.

I think a common practice is to keep KYC and non-KYC stacks hermetically separated. It has the added benefit that KYC coins might be useful in the future, e.g. for any transaction that requires proof of origin (such as buying a house).

For example this recent transaction is probably a self-transfer because it transforms exactly one input into exactly one output. The odds of a transaction between two parties not involving any change output are thin, since it'd require the sending party to possess a UTXO that is very close to the amount requested by the receiving party. ↩

21 sats \ 1 reply \ @PictureRoom OP 30 Apr

Thank you, I appreciate the clarity in your explanation's. Learned a few things for sure. Going to think more about how I handle my KYC / NON KYC moving forward

0 sats \ 0 replies \ @fanis 30 Apr

Glad I could help!

21 sats \ 2 replies \ @tuma 29 Apr

First of all, remember to avoid using the same address when receiving Bitcoin. This way, you will not contaminate clean and dirty coins.

Second, as far as I know there is not an automatic way to do that, thus you have to manually label where the different coins come from.

Moreover, don’t forget to choose the correct UTXOs when spending. Try avoid spending together KYC-ed coins and clean ones, but choose only those coins that are labeled in the same way!

Finally, use the right coin for the kind of purchase you are making. Don’t buy drugs with KYC-ed sats 😂 (just joking, officer 👮‍♀️).

0 sats \ 1 reply \ @PictureRoom OP 29 Apr

Yep, check on never using the same address. That should be baseline numero uno for beginners.

I figured there is not an automatic way. Perhaps in the future, but I highly doubt it.

Gotta keep'em seperated...

0 sats \ 0 replies \ @tuma 29 Apr

I don’t know about the automatic part, you would have to have a list of addresses from big exchanges, in order to be able to know if they are dirty or not!

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