Bitcoin Forum

"Not your keys, not your coins"

- You're probably already pissed off for hearing this a thousand times already, and this has probably been said a bajillion times already to the point that it's probably one of the most quoted statements in the bitcoin and cryptocurrency space.

Now, if the concept of not actually owning the coins on your exchange account doesn't make you uneasy enough..

Well, hopefully this does.

There has been rumours about the U.S. Treasury and the controversial Steven Mnuchin rushing out a regulation concerning non-custodial wallets. Now, what would the regulation most probably be about? Most likely, heavy KYC, and heavy invasion of privacy in general.

As per Brian's Tweets (https://twitter.com/brian_armstrong/status/1331745149693566976): "This proposed regulation would, we think, require financial institutions like Coinbase to verify the recipient/owner of the self-hosted wallet, collecting identifying information on that party, before a withdrawal could be sent to that self-hosted wallet." Imagine needing to reveal who you're sending your funds to everytime you send out your coins.

Take note though, the rumours aren't just from some random nobody on the interwebz. It's from Brian Armstrong, Coinbase's CEO. Definitely a huge name in the space regardless if he's quite controversial himself, and definitely not a rumour that we should just be ignoring.


If you're interested in the whole Twitter thread, I linked the full thread in article form(for better viewing) along with other articles at the end of this post.

Some people on other communities like on crypto Twitter are really concerned that some of them are telling people to get ready to "go dark" if ever such a strict regulation gets into effect.

And, it seems like some people are probably not taking this rumour lightly. As per data from Arcane Research(and glassnode), well, there has been a dip on the number of user's coins left on exchanges. Did the rumour cause this? Or is it just simply long-term holders withdrawing their coins to non-custodial wallets for long-term holding? No way to know for sure. But take note that the Tweet was posted on November 26th.


The question is: will this just be purely a rumour that will not amount to anything soon? Maybe, maybe not. But one thing's for sure, is it worth risking? In my opinion, definitely not.

And this is just the start. As Bitcoin grows in terms of adoption, expect things to get tighter and tighter. Better be safe than sorry.

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Some articles if you want to dig deeper:

• Brian Armstrong's full series of Tweets in article form (https://threadreaderapp.com/thread/1331744884856741888.html)
• Coinbase CEO: Trump Administration May ‘Rush Out’ Burdensome Crypto Wallet Rules (https://www.coindesk.com/coinbase-ceo-trump-administration-may-rush-out-burdensome-crypto-wallet-rules)
• US Lawmakers Tell Mnuchin to Back Off From Potential Crypto Wallet Regs (https://www.coindesk.com/us-lawmakers-tell-mnuchin-to-back-off-from-potential-crypto-wallet-regs)
• Industry Pros Weigh In on Rumors of New Crypto Wallet Regulations (https://www.coindesk.com/crypto-wallet-regulations-industry-pros)
• US Lawmakers Tell Mnuchin to Back Off From Potential Crypto Wallet Regs (https://www.nasdaq.com/articles/us-lawmakers-tell-mnuchin-to-back-off-from-potential-crypto-wallet-regs-2020-12-09)
• Bitcoin, crypto stocks plunge amid Steven Mnuchin's rumored regulatory bombshell (https://seekingalpha.com/news/3639658-bitcoin-crypto-stocks-plunge-amid-steven-mnuchins-rumored-regulatory-bombshell)

I don't understand why people are still putting Bitcoins into their exchange wallets. Custodial wallets are not safer than those which gives you complete control of the private keys and is definitely not the main point of Bitcoin; giving control of your funds to someone else.

Bitcoin did crash in the period of Nov 26 so that could potentially explain for certain decrease in the Bitcoins held by the exchanges as more people sell off their holdings and those long term prospective buyers moving it offsite.

Custodial wallets are already intrusive enough, they have unreasonable expectations to have taint-less coins as well as the present KYC/AML restrictions. The only way around it is to try to use P2P OTC exchanges or other wallets. I'll expect harsher regulations but they'll most likely affect US exchanges only.

I get that some people are simply too technologically illiterate to be able to self custody(especially the older folks), but it's mostly laziness and carelessness. The "Learn the hard way" way of learning is definitely at play here, the same way how a lot of people only become security paranoid only when they already got hacked.

I don't think it applies to the older folks only, many traders have their funds on exchanges for easy access, and before anyone pointing out dex trading remember the volume is not comparable, although not enough excuse to leave funds on exchange, better to have control of your funds to avoid future uncertainties.

We can't blame them, they chose not to listen to the people who knew better, they will have to face the consequence of that action. I do not get why they still go this way though, remembering what happened at Mt. Gox, they still do this kind of thing. Good thing that there are people like you advocating this because if shit hits the fan, they will not blame themselves, they will blame others for not warning them and educating them about the dangers, now they will never have an excuse.

The regulation comes here again, what's the main purpose of Decentralization when they role out new policies to restrict how your coins should be stored? Like @Anonylz has said above it is not about older folks alone, traders will prefer their coins on the exchange than custodian wallets for easier trading, conversion and access. Untill then let's be security cautious as we have always been.

Obviously this is for people who actually don't actively trade and just hold bitcoin as a speculative investment, and probably the traders that doesn't want to provide KYC/AML documents. Not sure why I have to make this clear lol.

Banning non-custodial wallets is the same as the government putting a ban on holding your paper money in your own wallet/pocket. >:(
I guess that the Federal Reserve wants the cryptocurrencies to be treated as financial assets only,not as real currencies.That's why they want all the coins to be held on licensed crypto exchange platforms,that have KYC verification policies.
The whole purpose is to have more control and more tax revenue.

Kinda ironic how it was another party that influenced those that store their coins in exchanges to actually use non-custodial wallets. Though it is them that is also attempting to influence those that still use custodial wallets, possibly in a negative (or more like a pain in the ass) way. People never really learn until they're hit now don't they, just hope that this message is enough of a warning for those still storing wallets in their exchanges. I'm pretty sure most people are investing in crypto aren't that idiotic, and probably most of those that would stay in exchanges are active daily traders.

Any meeting with big nations are difficult to get consensus and be applied in societies with real laws, regulations and policies. They tend to make very general statements that won't tie them too much and won't put them at risks if they can not get their promises done.

The news on crypto wallet regulations is another time to raise awareness on non-custodial wallets for crypto enthusiasts. They have to be aware of those wallets and be cautious with risks from sudden regulations from governments. Save cryptocurrency in non custodial wallets and try to use Tor when broadcast transactions, use changed addresses and try to never or less reuse address as possible.

Known exchange wallets are secured and are good to keep bitcoins but when we compare the risk between the exchange wallet and to the non-custodial wallet we can say that the non-custodial wallet are more safe. However, this is not an issue to the good exchange as what I had mention earlier like the coinbase, binance and other strong or having a huge market flow for cryptocurrencies as listed in the top exchanges. Yes, they require KYC which is somehow not really good and that can invade our privacy. Cryptocurrency will be just like the banks as they get into the same process of KYC. Regulation is bad actually in my own opinion. Bitcoin has already been functioning without regulations and are independent system. The only thing that it needs is to educate the users itself on how to protect themselves against the scam, fraud, hacking and phishing attacks.

That is why I avoid calling them "wallets", they are simply accounts that people have with some centralized company and the moment they clicked "Accept" on their terms of service they gave up all their rights to freedom and their control.

I wonder how reliable the chart in OP is, because technically even if people were moving their funds out of exchanges we also have another reason why more people move to exchanges and that is the price rise. In that chart which shows most of 2019 the number was declining coincides with the biggest price swings that we had and ends with the biggest price rise  that took the price to the previous ATH ($20k). This situation has increased the volume on exchanges by a lot which translates into a lot more bitcoins being on exchanges.

As long as people can trade on exchange many people will always have their funds on exchanges to trade, even those who do occasional flip still have their funds on exchange because it is not so easy to be moving funds back and forth whenever the price increases, I think this is something that will always continue to happen despite regulations.

I still can't understand why anyone stores their coins on centralized exchanges. The number of reasons which already exist to not leave your coins on exchanges are many - poor security, poor privacy, not trustless, you don't actually own anything, the exchange can decide who, where, and when you can spend your money, account freezes, coin seizures, hacks, scams, the list goes on and on. However, if none of things have yet convinced you to withdraw your coins and hold them yourself, then I don't think a little bit more KYC is going to tip you over the edge.

However, I would be hopeful this would convince the people who begrudgingly use centralized exchanges simply for trading to finally make the move over to good DEXs like Bisq.

Brian Armstrong can STFU though, as far as I am concerned. He has spent the best part of a decade invading privacy, selling out their users to the government, creating privacy invading and surveillance software and selling it to the CIA, FBI, IRS, DEA, etc. He isn't against this because it will affect privacy - he is against this because it will affect his profits. He doesn't give a damn about your privacy.

In other news, 4 Congressman, Warren Davidson, Tom Emmer, Ted Budd, and Scott Perry has urge Steven Mnuchin to stop this rumours for good.

So I guess we have some ally in the Congress and ask Mnuchin to re-evaluate before going into public.

https://i.imgur.com/ACGzmXD.png

https://twitter.com/WarrenDavidson/status/1336804544320327683

Every government implements restrictions on operations with cash, and each year they make them tighter and tighter. Sooner or later they will do the same with Bitcoin, and they aren't interested in trying to stop you from installing Bitcoin clients or anything like that, they want to make it hard to spend Bitcoin without doing KYC or explaining the source of funds in some cases. They might tell exchanges and other services to threat mixed coins as suspicious, and demand customers to show their transactions before mixing and freeze their funds if they refuse.

Not sure if you've heard of it but remember the youtube-dl fiasco like more than a month ago? Probably might not happen, but it's really not outside the realm of possibility.

https://thenextweb.com/dd/2020/10/27/github-took-down-youtube-dl-so-devs-made-more-copies/
https://github.blog/2020-11-16-standing-up-for-developers-youtube-dl-is-back/

I'm not an expert on US law, but since a new president has been elected, and he should take office in about a month, he will set up a new administration - by which time these Trump clowns can make laws - isn't there a transition period in which such actions should be disabled?

I’m not sure what Biden thinks about crypto (some sources say he has similar opinions as Trump), but if they do implement something like this, be sure they won’t be the only country with such rules.

They'll defend for easy access when bitcoin crash or pumps so that they will not bother sending/transfer their bitcoin to some exchange. Or as someone said on some thread here that exchanges are secured and their funds are insured even there's a hack like what binance do (well, not to cryptopia and quadrigaCX users).

They don't usually care about the point of having bitcoin, they just want profit, gains and whatsoever.

There is already precedent set of the US government restricting access and activities on GitHub (https://techcrunch.com/2019/07/29/github-ban-sanctioned-countries/), and other countries, notably China, Russia, and India, completely blocking access to GitHub.

What are the alternatives? A peer-to-peer repository?

They are only "insured" in the sense that Binance had enough profit to just eat the loss of previous hacks. All it needs is a hack which is big enough and the "insurance" no longer applies.

The scary part is; if individuals do not mind storing their funds on centralized exchanges and submitting their personal details to these platforms despite all the arguments against it, they probably would not be too bothered about identifying their personal non custodial wallets and some would probably just give up using such wallets all together. Centralized exchanges could then swoop in and set up a sort of non custodial wallet which requires KYC to set up.

This particular rumour might not be followed through, but there would be more power hungry government officywho would come up with ways to try and regulate or control Bitcoin usage. The more users patronize CEXes the easier it would be for them to do so.

I think Biden has more priorities to do than crypto. The society conflict, health system (vaccination and health policies from Federal to State to reduce infected and death numbers). United States House of Representatives and United States Senate are highly conflicted between the Democrats and the Republicans. Any policy from Biden will be challenged by the Senate vote that probably will be dominated by Republicans.

Financial, economic problems and foreign policies will be on top of Biden priorities.

If exchange can be able to keep their exchange operations after hack, the compensation and loss they are suffered from a hack can be recovered from customers' trading fees. Hacks must be very big to shut down big exchanges.

I was thinking about this too because of the youtube-dl fiasco. I might actually create a separate topic for this soon(unless we get a clear answer here) to hopefully get an answer from the highly technical folks.

While I don't hodl my money on exchanges, I think some might do it as a conscious choice. If one's choosing a reputable exchange, one might feel more comfortable with a serious company handling Bitcoin. This way they might rely on the exchange reimbursing the loss in case of a hack (I believe Binance took the $40 million hit fully on the company and users did not lose anything as a result), whereas nobody will give one anything if it's a personal wallet.
In any case, the talks about the US wallets seem more serious now than they used to, and I really hope they don't get to pass any sort of ridiculous KYC-demanding legislation or anything...

This is just about convenience really, people do not want to have to go through the trouble of trading their coins and as soon as their trade is over move their coins to a wallet they control, they are lazy and they only think of the commissions they have to pay and the fees for moving their coins in this way.

And all seems well until you are hit with a review of your account and you need to pass an incredibly invasive KYC that could last for weeks or months, and that is under the current rules, if this changes and becomes even more intrusive then you may never see your coins again if you cannot explain exactly where you got your coins from, but the more they try to regulate the market the more attractive DEXs becomes so I am not that worried.

Conversely, MtGox ran away with everyone's money after going insolvent. The fallacy that so called reputable companies are responsible for any mistakes that they make is flawed. Binance was kind enough to cover for their mistake and it shouldn't even have happened in the first place. If the hack is due to the user's negligence, there would be no reason for the exchange to shoulder the responsibility as well (sim jacking is fairly common nowadays), 2FA isn't an iron fort as well.

In addition, if Coinbase can seize and hold your funds, I would think that holding your own coins would give you the assurance at the very least.

That was my point. Hacks big enough to shut down exchanges have happened before. There is no inherent reason they couldn't happen to big exchanges like Binance or Coinbase. Coinbase were targeted with phishing emails paired with a zero day exploit last year which was successful in compromising and taking control of some of their computers. Luckily they were able to contain the spread, freeze affected accounts, and revoke several internal credentials, but a slightly different attack could have resulted in a significant loss of funds.

An exchange is only going to reimburse funds if they can afford to, and if the fault was theirs. If the user account is hacked, or phished, or their email compromised, or their computer infected with malware, or their phone stolen, or any of the other 100 ways an individual account can be broken in to, the exchange will not care. Even if exchange hacks were impossible, it is still significantly safer to keep a hold of your own coins, and that's without even mentioning the privacy implications or the fact that the exchange can simply stop you from using your coins.

As much as I hate this from an ecosystem point of view, as someone who only uses decentralized exchanges, from a personal point of view something like this would cause a huge surge in volume and liquidity. I still hope it never happens, though.

The positive thing will also come into crypto space if such kind of regulations gets implemented which is people are never going to use centralized services so the real decentralization can be achieved and also complete decentralized exchange will evolve to the next state of adoption from traders and investors. The government is trying to make people more inconvenient while using cryptos but they never realized that there is always an alternative way to bypass such stupid regulations.

Yes its time to get paranoid for this reason already. This is why the privacy concerned individuals are going for hardware wallets. I've gone to crypto.com recently and withdraw my coins there without KYC but just few weeks ago they want me to submit KYC.

I still have some coins out there CRO but not going to withdraw them maybe unless they value more than thousands that I can get. But right now, there is noway I'm going back there.

It's a somewhat slightly understandable excuse(though not enough to get me convinced) if it's the case that a certain person doesn't really care about AML/KYC. While I think they should care, if they don't, it's really none of my business. But this is completely assuming that only the hot wallets of a certain exchange gets hacked. If everything actually gets compromised(which is nothing new), welp, good luck getting reimbursements.

Over the past few years it has become abundantly clear that large centralized exchanges like Coinbase and Binance can go to extraordinary lengths to invade the privacy of their customers and literally millions of people will continue to use these exchanges to their own detriment. KYC for your own wallets, while completely ridiculous, will still be accepted by a large proportion of the community.

We don't all have KYC. There are users like me who have never completed KYC anywhere, and yet have no trouble buying, selling, and using bitcoin as a currency. If centralized exchanges start enforcing KYC for your own wallets, then the "comfortable" way to be in crypto is to avoid all centralized exchanges.

I was just talking about this in another thread a few days ago: https://bitcointalk.org/index.php?topic=5296465.msg55784433#msg55784433. Unfortunately with bitcoin, other people's laxity and general disregard for their privacy does affect us. If the community as a whole rolls over and allows governments to start demanding KYC for your own wallets and transactions, then what's even the point of bitcoin?

I agree.

Exchanges are prone to hacking that's why storing your coins on it if you're not actively trading is not really recommended. Also, it is possible that your coin could be burn even without you knowing since you're just holding your coins there, compare to the wallets you have control over the coins you have, it is more safer and reassuring that your coins are safe.

Some Governments are too greedy that even cryptocurrencies and its users are in danger because they might get something they won't see coming since we're talking about corrupted Governments.

I actually have all my funds under an exchange, I actually know that its not a good decision, since I have no full control of my funds. But I prefer to be in exchange since I can easily decide to convert my funds anytime I want to. But the truth is, putting the funds in an exchange making Bitcoin nothing like a centralised system.

I guess you're right, I totally ignored the network effect aspect. Pretty much somewhat a "strength in numbers" thing. While I'm not sure we can do anything with the KYC thing, and while I think it's a bit too unrealistically optimistic to think that most people would be doing coinjoins and mixing for on-chain privacy, I hope we get to a point where some coinjoin or mixing occurs by default on wallets(probably after every tx, or something).

You do you mate. But once shit hits the fan on the exchange you're using, don't tell us we didn't warn you. https://cryptosec.info/exchange-hacks/

achow101's post in there hits the nail on the head. Even if you set up a peer-to-peer implementation of Git for developers to continue to work on the code, how do you also implement open discussion for the submission of bugs, issues, and comments? How will you manage the communication?

As much as I advocate for privacy, I don't think something like that is actually necessary. Bitcoin was never designed to be anonymous. The users who want to use it anonymously (or at least, close to anonymously) will seek out ways to do so. The users who don't care about that won't. What we really need is just to stop users being happy with third parties inserting themselves as intermediaries in to our transactions. That is what bitcoin was designed to combat. We don't need other people holding our coins for us in web wallets. We don't need exchanges telling us where we can and cannot send our money. We don't need payment processors monitoring all our transactions and taking a cut in fees. And we certainly don't need "crypto banks", which seems to be the next upcoming trend. The more and more the community allow these things to creep in and spread throughout the ecosystem, then the harder it becomes for all of us to avoid them.

Armstrong is already acting on those rumors and implementing additional KYC. People who traded for a long time on verified accounts are now asked for the source of their money and their line of work. I have a friend who works for a local exchange (in the EU) and he said that based on the paperwork that's coming to them from the government, he's giving us 2 years tops until they'll be asked for full client verification on all transactions, including face to face. This is so dumb that I can't find words to describe. You can take 10k USD in cash, go to a local currency exchange, throw it on the counter and get an equivalent in EUR within 5 minutes. You do a similar thing with your coins and they'll ask you for an ID and a signature. They might even ask for a source of funds...

But remember, he respects your privacy! ::)

Is that all? No PDFs of bank statements and DNA samples yet? ::)

Can he explain how this is supposed to work? I meet up with someone face to face and transfer coins from my open source non-custodial wallet to their open source non-custodial wallet. We don't touch a single third party - no centralized exchange, no payment processor, no middleman. How can an exchange demand KYC on that exactly, short of taking control of the entire blockchain and blocking our transaction?

Yeap. I'm thinking more of an easily on-off toggle-able privacy option on hot wallets. Basically for those casual users that want privacy, but isn't willing to learn about utxos and other stuff that might be too technical for the casual everyday user.

But yea I mostly agree on the custodial part.

Most people that do that are people are easily want to use bitcoin and do not know much about custodian and non custodian wallet. till date, large numbers of people still prefer using this wallet than other DEX wallet. By the way exchange such as coinbase make it possible to buy with credit card and also withdraw to some local accounts. Most DEX wallet do not have this functions. This is just gonna make coinbase and others lose more users and probably reduce the rate at which sign up for the new account. Maybe they may be considering the fact that they do not want scammers and criminal to go unpunished but the privacy features that are most explore by crypto users has been defeated. We are also in an era where identity documents are being sold in the darkweb. users documents are not safe anymore

In my humble opinion, any ridiculously strict regulation such as regulation of open-source software wallets and regulation regarding enforcement of performing KYC procedures will be beneficial for bitcoin adoption. Presently, bitcoin adoption almost entirely depends on centralized organizations. People think of bitcoin in dollar price terms, they are buying things with it while measuring prices in national currencies, they trade bitcoin to make short-term profits in government fiat. Centralized cryptocurrency exchanges, with which people can trade, make profits, sell their bitcoins, store "their" bitcoins are the main driver of this movement. Currently, most people consider bitcoin just a magical technology that was created to enrich them all. No, bitcoin is about something else. Bitcoin is about the free economy, free trade, free interrelations, free access to money. With bitcoin, you don't have to ask for permission to buy something legal. With bitcoin, you don't need to comply with ridiculous regulations that became obsolete a long time ago. Once people realize that bitcoin is simply better and fairer than traditional systems and centralized organizations, that it can exist without them or despite them, they will switch to bitcoin and will never look back. What the authorities can do by introducing such ridiculous rules is to bring this moment of understanding closer.

Matrix protocol could be the answer, i saw few people mentioned it when talking about non-centralized communication protocol. I don't know practical is it for software development though.

Haven't dug deep yet, but I was really really hoping that it doesn't have a coin/token(though slightly expected that it has). I did a 5 minute research on it, and thank God.

Central Bank Digital Currencies can never replace real cryptocurrencies, do not be fooled on this guys. These centralized monetary attempt will only reproduce what we already have in another form. The path to a cashless society is running fast and the more it gets near the lesser freedom we will be keeping. It is a bit sad actually.
I hope bitcoin will continue to be like it is now and never derail, I guess that is our only hope.

Unfortunately, yes, we cannot afford to rule out negative scenarios. However, if we are talking about the spirit of freedom, those who would voluntarily follow these ridiculous regulations would likely be the same people who don't care about the principles of bitcoin. I said "voluntarily" because it is evident for everyone that such regulations are not easy to enforce. Should we even care about people who warmly support authoritarian regimes and the restriction of the rights and freedoms of citizens?

regulation will be a weapon for crypto currencies,
of course this can change the meaning of crypto currency,
even though crypto currency is decentralized as well as wallets, it's natural to be paranoid now.