Bitcoin Forum

....And if you happen to be the operator of an online wallet, for god's sake, please take it down and spare yourself of the legal trouble.

This post has not been triggered by any one news event. But regrettably, we have now reached the point where any developer of online wallet software is now potentially seen as a facilitator of crime if their open-source and non-custodial software gets too big and is too easily accessible.

They seem smart enough to figure out that offline programs that run on your computer are not money-laundering machines, but the same does not go for online sites implementing the same.

So that means, anybody who is hosting an online wallet, an exchange, a coordinator, a mixer, or any other kind of site that lets people deposit and withdraw coins, is now going to be a target of the FBI if they get too big. And there is nothing else you can do about this other than shut down because by design, an online implementation of the above cannot apply for licenses since they are technically not a business, despite judicially being considered as one.

As of now, US crypto policy should be read as: "If you do not have KYC practices, then you are in trouble with us." And banning USA users will not spare you from this.

This is a continuation of o_e_l_e_o's series which can be read here (Part 1 (https://bitcointalk.org/index.php?topic=5387401.msg59364081#msg59364081)) (Part 2 (https://bitcointalk.org/index.php?topic=5403254.msg60399271#msg60399271)) (Part 3 (https://bitcointalk.org/index.php?topic=5416383.msg61083357#msg61083357)) as he is no longer here to continue these threads.

Self-moderated against spam.

Firstly a +1 for the warning.
Many a Time I have come across posts like this warning people about hot wallets and online wallets. However the truth is  online wallets and hot wallets are as much as important as air gapped wallets and open source cold wallets are.

Not all coins can be kept in a cold wallet in an air gapped device. This is because some bitcioners out there have tons of coins In hot wallets because they transact constantly with them and therefore putting them in a cold wallet will make it difficult to transact easily.

All I can say is one has to be very careful and current as no one is happy losing coins. The best one can do is to be very watchful or if possible make use of lightning networks for smaller frequent transactions.
As for the KYC. And privacy aspect, it's definitely a personal choice as exchange still constantly demand these details for obvious reasons.

Don't forget to keep your keys safe

If we are advised to get our coins of of custodial wallets like Binance, Kucoin and the rest of then, how then does a developer of an open-source and non-custodial software become a crime facilitator?
It kind of confusing. Isn't this supposed to be the reverse?

Because to the government, you are providing an online "money transmitting business" to other people and are thus required to get a business license [somewhat hard] and introduce checks for fraud. [impossible]

Going to have to disagree with the 1st part. It's not that difficult to get a Money Transmitter License in some locations. Expensive perhaps depending on if you are actually making any money. Time consuming definitely in some areas. But even in NYS it not hard. It's just forms you have to fill out and records you have to keep. AND if you are actually making money running it as a business these are records you would have to keep anyway.

But, to the OP, yeah you should never have any real funds in a custodial wallet. This is not even new with regulations being tightened. Custodial wallets have always been a risk because they could just vanish with no notice.

-Dave

First thing is custodial wallet is totally out of question except you can bare the consequences which has now grown beyond just losing your funds to you probably facing crime case, also no one is actually saying that hot wallets don’t have any importance but keeping funds there is the most important warning that is ditched out here. You can make use of your hot wallet as the signing wallet for your cold wallet or simply keep some little funds there for little transactions, it should be amount you can afford to lose at least in case of compromization

They might also be targeting wallet developers especially because some of them already have an internal exchange which they could still be considered a crime facilitator.

It was in the news months ago that SEC and even the EU regulators are looking into Metamask.
Get out of the exchanges if you don't trade. I think it's best to just get out after all it's safer to have the private keys with you as they said, not your keys, not your coins.

If taking down Sir, without the notice to people having one access or the other in the given wallet, will they not be unable to access their coins or access? Will it not be better to preinform those having access in the given wallet before trying to put it or pull it down to avoid global murmuring and FBI intrusion and penalties?

Yep, I've seen that happen so many times over the years, especially with exchange wallets.  And why in the world would anyone use a web wallet these days?  I remember back in 2015 there used to be a few that I'd experimented with, but that was before I knew up from down in the crypto world.

OP, I didn't read Leo's posts about this, and although you said there wasn't any specific news motivating your warning, have there been any new developments that would make the community think that the FBI (in particular) would be involved in hunting wallet creators down?  I'd think that would fall under the jurisdiction of the IRS or some other alphabet agency, but I'm no expert on who's trying to tackle the oh-so-enormous problem of crypto money laundering and funding of terrorism....lol. 

We need a Republican in office, and even though I'm not a Trump fan it looks like there aren't many other options.

Hot wallet means cold wallet in some instances, so don't get confused to the point of mistaking hot wallet to mean exchange wallet which is the born of contention in this discussion, I think if you have hot wallet, you are safe from any form of danger from the government since you act as the custodial of your wallet and have no KYC any where that could be traced and.linkes to you.
We have been faced with cases like this in recent time, and currently my country law doesn't permit any business to transact in bitcoin or other Virtual asset's and any one caught in between will be tag a s money laundering or terrorism financing agent, and the amount to pay to get a licence to operate an exchange is quite High and out of the reach of many business.en who even have interest in carrying out such services.

Now here is where the risk is, there is never a guarantee that when a centralized exchange is going to be taken down that there is going to be any form of information about it, yeah in most cases if an exchange wants to end its service with any country or region they warn it’s citizens fore hand and give them time to withdraw their funds but that is not going to be the case when there is direct seizure of the exchange or worst come to worse if it is attack and the exchange gets hacked you cannot be withdraw as their no prior warning to situations like this. So just as OP stated take your funds away from then and that’s the only way to keep your funds safe

Not only get out from custodial wallets, but people should get our from closed source non custodial wallets, just like the case on iToken wallet You Can't Be Too Careful Over Private Keys, Can You? (https://bitcointalk.org/index.php?topic=5504400.msg64370299#msg64370299)

However if someone develop an online wallet or exchange, they can just add KYC rule in their terms to get away from legal trouble. After all most of them create project to make money rather than develop something new or fighting against centralization.

Besides three threads from him, there are other resources that I think can be added for readers.
Reminder: do not keep your money in online accounts. (https://bitcointalk.org/index.php?topic=5421039.0)
Not your keys, not your bitcoin. (https://www.youtube.com/watch?v=AcrEEnDLm58)
Do not use wallets that don't give you recovery data; these wallets are likely controlling your keys. (https://www.lopp.net/bitcoin-information/recommended-wallets.html)

Custodial wallets, no private keys given to users for wallet recovery by users. Non custodial wallets give users private keys for wallet recovery but one more condition to consider, wallets need to be open source.

The bold is the part I was trying to get at because most open-source projects don't make a ton of money, even with donations.

For Part IV of "GET YOUR COINS OUT OF CUSTODIAL WALLETS NOW", I'll shout out the top custodial "mixing site" that stole a lot of sats from Bitcointalk users last year: Chipmixer


Remember, you don't have to give up custody to gain privacy! Coinjoins are non custodial and make your Bitcoins untraceable.

True, but there are a bunch that make their money elsewhere like taking a % of an exchange service that the wallet offers, or placing ads, things like that.
Add on other services that they may or may not offer (buying - selling) and I can see them making some money.

AND if it's part of another project then you don't know what else they are doing for cash flow.

Probably not that important as to the why, as said and what should be in just about any post in this topic as a reminder. Just don't just custodial wallets.

-Dave