Thanks. So essentially, any Electrum server that we randomly connect to can probably trivially link our wallet addresses together. They also know our IP address, but this can be mitigated with VPN, so I'm less concerned about that.

So in theory, blockchain analysis companies, the US government, etc. could be populating Electrum servers the same way they work to deanonymize the TOR network by populating exit nodes. It probably makes sense to separate holdings into different wallets if you want to avoid having all of your funds linked together.

I guess the solution would be to avoid randomly connecting to Electrum servers, and set up one of your own using a Core node. That destroys the bandwidth savings of running a lightweight node, though.

What are the privacy implications of syncing a watching-only wallet using a master public key?

I've always heard that Electrum had weak privacy due to the way it verifies transactions, but I never looked into the details. Does the wallet leak metadata that makes it easy to link addresses within the wallet? Is there any difference in this regard between using the desktop wallet normally and using a watching-only wallet?

Interesting, but not very compelling. If anything, these claims are just a business development move (targeting the Kremlin) after the US government kicked Kaspersky to the curb last year.


Not sure how this is an advantage for the US government. Ceding control over the monetary policy to completely private forces seems like a good way to lose authority. People make similar claims about the FED being private, but the US government has no authority to "reign in Bitcoin" like they do the FED.


That's one of the only aspects that makes sense to me. If anything, Bitcoin users (including criminals) have misunderstood Bitcoin's [lack of] privacy since inception. The whole narrative that "Bitcoin is anonymous" has turned it into a huge honeypot for criminals.

What does that have to do with anything? Someone wired GDAX money and they didn't credit it properly. They are apparently wiring the money back to the customer. So what?


The point was that tax authorities want your income taxes, regardless of where it is derived. You are the one making the assumption that laundering is necessary. If you feel the need to launder it, you can. You've done nothing illegal; you are merely assuming that you are automatically tied to crime with no basis. And then you refuse to do anything about it. If you are so terrified of your bitcoins, sell them to me at a steep discount. If you've got enough, I'll travel internationally and pay you in your local currency (cash).

Or are you terrified of cash, too?


As I said, I've been withdrawing considerable income from cryptocurrency trading for several years. That includes dead exchanges. I've earned from signature campaigns as well, although that's peanuts in comparison.


I gave you an answer about mixed coins and dead exchanges, too.

Blockchain analysis companies (and therefore governments) acknowledge that even the vast majority of mixed coins are not illicit in nature. You, transparently, are not tied to illicit activity. If you're so paranoid, though, you really should probably stay away from Bitcoin. This kind of paranoia isn't good for your health.

You're basically taking the position that your government will seize your assets regardless of anything you do. If that's the case, you should consider changing your country of residence.


Maybe you should provide cases where any of these circumstances led to asset seizure or prison, on their own? I've done all of these things over the course of years without issue. So have countless other people around here.


Says who? Goods and services paid in bitcoins = illegal? Cash transactions are illegal? P2P transactions are illegal? Altcoin trading is illegal? If so, your country of residence is the problem. Consider moving.


Who cares? What possible evidence do you have that paying the appropriate taxes on what you owe isn't sufficient? You're basically saying that if you withdrew 5 BTC and eventually sold it, and paid the appropriate taxes on all fiat money that moved through the banking system, that you would have all your assets taken and maybe thrown in prison. What possible evidence do you have for that?


That's ridiculous. That means cash transactions are completely illegal where you live. I doubt that's true.

And FYI, when I go to the casino and play cash games, there are no tax forms. I've pulled out 5 figures from the cage (cash) without the casino reporting anything to the IRS. It is my responsibility to pay taxes on my winnings. It is not illegal to transact in cash.

If it is illegal to interact with cash where you live, you should move.


That sucks, but you should have saved your trading history years ago. I paid taxes on everything from Mintpal and Cryptsy several years ago. If your tax argument is that altcoin trading = like-kind transactions, then you could hypothetically just fabricate records to explain how 1 BTC became 5 BTC. Under that tax theory, it literally doesn't matter anyway. And there is no way in hell that anybody is going to be parsing through Mintpal/Cryptsy transactions to decipher tax evasion at this point.

By "conversion services" do they mean mixers? I wonder what their margin of error is here, i.e. what does "verifiably" mean? I'd be surprised if < 1% of all coins entering mixers were from illicit sources. They're not free to use.

I find this tidbit interesting. I wonder what implications (if any) this could have for European regulations:


BTC is different because it's not very anonymous. It would be more private if not for the overwhelming use of third party trackers, timestamping and harmful data retention practices. As it is, there are clustering attacks where your wallet can be deanonymized and tracked fairly easily if you've ever interfaced with merchants or payment processors like Bitpay. And that's before considering techniques that exploit IP address.

This was one of the original (and strongest) arguments against XT, Classic, Unlimited, et al. If we simply increased the block size every time demand warranted it, services/custodians (and users) would never optimize their transactions. They would simply get used to increasing block size instead.


Segwit and Lightning aren't going to solve Coinbase's fractured UTXO set. And I suspect that's one of the reasons they've long supported hard forks. And we have to factor in onboarding costs as well (opening and closing channels). It's a bit early to say Lightning "will solve all those issues." On-chain transaction demand will only increase, so on-chain transaction optimization is going to remain extremely important going forward.

Actually, I gave a historical example: Al Capone. Read his Wikipedia section regarding tax evasion. He never got busted for racketeering; only for tax evasion. Money can be laundered; that includes cryptocurrency if necessary.

What kind of answer did you expect besides "make a good faith effort to pay your taxes?" There is no such thing as "proof" here given the lack of cryptocurrency-specific precedents, virtually everywhere in the world. I mention the IRS because I live in the US and am most familiar with US laws. The prevailing legal expectation is usually a standard of good faith. What countries are you even referring to? You never said.

And what "proof" do you have that "you aren't going to get away with it?" You asked about a question about taxes on signature campaigns, and even though all of this activity is perfectly traceable and legitimate, you continue with paranoia about "you aren't going to get away with it." Bitcoin is extremely transparent. If you are so paranoid about being associated with perfectly legal activities because they use Bitcoin.....maybe you should stop using Bitcoin.


Your logic is simply wrong. Your tax authorities are extremely unlikely to ever see the internal databases of any exchange, especially if you aren't in the US. And very few exchanges don't allow generation of new addresses at this point. How exactly are your newly withdrawn coins going to be traced back to your original coins? And more importantly, who is tracing your mixed coins anyway? Why couldn't they have been legitimately bought, as they were?


I've never come across such bizarre logic. "An exchange shut down, so now any BTC I withdrew from there makes me a criminal!" If you win cash from a casino, and that casino later shuts down, are you this terrified to claim your gambling winnings?

Gamblers and traders keep books. Those are your tax records. There are literally no other tax records in this situation. You can either make a good faith effort to pay your taxes, or you can continue wallowing and complaining about how your are so paranoid and worried. You want experience? I've been paying taxes on altcoin trading for 4 years now. I traded on Mintpal. I paid taxes on it. Every trade is a taxable event; every position has a cost basis. Your books should line up your BTC/fiat trades and fiat withdrawals. It's really not that difficult.

If law enforcement agencies look into you for it, your coins are even clearly traceable to Mintpal, etc. You're simply being paranoid and treating your coins as worthless for no reason. If you really think those coins are simply non-fungible, then I'm happy to buy them from you for a fraction of the spot price. PM me.

Honestly, tax authorities don't care where it was derived from. They care that income taxes are being paid. The IRS is happy to see drug traffickers paying their taxes; consider Al Capone. The IRS's position was (and is) that illegally earned income is subject to income tax. Therefore, if you are cashing out Bitcoin, show a blockchain and paper trail back to your original purchase. Pay the appropriate capital gains. If you paid with cash, you paid with cash; it's not as if that's illegal.

If you received coins from a mixer, they are fungible. Swap them for some new outputs (from an exchange, for example) if you are so paranoid about criminality. You can still show the timeline of your possession to tax authorities. You sent coins you owned to the mixer, you received coins back. So what? Pay the taxes you owe when you realize the gains.....

"Segregated Witness" was a soft fork feature that added new types of outputs and transactions. Native Segwit addresses start with "bc1" rather than "1xx." Segwit transactions segregate signature data, moving it outside of conventional blocks and creating a parallel chain for witness data. This saves considerable space against the original block size limit. As such, the space allowed for [Block + Witness data] was expanded from a 1MB block size limit to a 4MB block weight limit. Segwit transactions are "discounted" by the cost of data moved outside of legacy-style blocks. Right now, that amounts to ~2x savings in practice, more or less.


While I do recommend upgrading to Segwit, keep in mind that it was just a small linear bump in transaction capacity. You might save ~50% in fees by using a Segwit wallet, but that's it. It doesn't solve the exponential scaling problem. Lightning will hopefully result in much lower fees for the currency/payment layer.

My hope is that the inherent nature of geopolitics and competition among nation-states will prevent any such coordination like the German central bank is suggesting. But I won't lie. I'm not completely confident that we can rule it out. At some point, if the trend of money flow continues, I think that Bitcoin/cryptocurrencies will begin to uniformly degrade governments' perceived control over national monetary policy/sovereignty and economic stability. I worry that this could give global powers shared incentive to form a united front against them.

I'm tempted to believe that Bitcoin will survive regardless, but I wonder sometimes what a coordinated attack by nation-states would look like and how detrimental it could be. They could potentially cripple much of the meatspace service and mining infrastructure. It makes me think of one of Satoshi's posts:


Inevitably, Bitcoin is backed only by the faith of its users (who have simply picked Bitcoin as their money rather than something else). Thus, the trick for TPTB is to shatter that faith. Is that impossible? I'd be curious to see them try.

This was inevitable, but as expected, it was pretty tragic. I was reading through the Bitconnect subreddit before the mods made it private. It's gut-wrenching. There are so many stories about people investing 5-6 figures, their life savings -- sometimes without their spouse's knowledge -- and dumping it into this scam.

It's also depressing to see that many of them have Stockholm Syndrome. Some are happy that Bitconnect liquidated their loans and credited back BCC at atrociously high prices (90% above market prices) even thought it was highway robbery. Lots of the bagholders still believe that the price can recover somehow, too.


I don't feel bad for the operators or the MLM referral scammers. But from the look of some of those stories, some people will end up killing themselves over this. The amounts we're talking about today put the scams from the 2013 cycle to shame. The people who invested in BCC were reckless, but I definitely sympathize with their families now.

Have there been any noteworthy studies on the potential effects of bigger blocks since the IC3 and Bitfury studies? I suppose that data is a few years old now.

My biggest concern at this point isn't the marginal nodes and miners that couldn't keep up with the network. I'm much more concerned about the propensity for any hard fork to cause a permanent split with multiple resulting networks. Segwit was a one-shot deal; there's only so much you can do by discounting witness data. We can further optimize transaction size, but eventually, the notion of a hard fork block size increase will rear its head again.

That's inextricably linked to fees. That's what the entire scaling debate was about: creating a fee market with limited block size. Limited block capacity means (due to bandwidth and storage savings) that "it's easy for lots of users and small devices." But limited block capacity also means that there is a market for transaction fees -- limited supply of block space vs. demand for on-chain confirmation. And miners are incentivized to confirm the transactions that pay them the most. This has made on-chain micro-payments untenable.

So, "limiting the size of the chain" has everything to do with fees. That's why I brought it up.

I wish people could just learn to use decimal places. Is it really that hard?

I think that the scaling debate and rising fees affect the "unit bias" discussion. As it is, using the "bits" denomination seems pointless, since it can take thousands of "bits" just to cover transaction fees on median-sized transactions. What's the point? And don't even get me started on the merits -- or lack thereof -- of BIP176....

Smaller units will make sense when Lightning Network use is mainstream and people don't need the entire network to validate their transactions. Until then, I think this sort of sentiment will remain common. In other words, I think this is a transition period where people will continue to focus on the BTC unit, and many newcomers still won't understand that you can buy a fraction of a coin.

It's actually a very clever way to secure the system. The design accounts for low value at inception and high value many years into the network's life. I wouldn't be surprised even to see nation-states competing to mine out the last ~10% of the supply in the coming years.

It's pretty incredible that we could have been mining in the early days just with our laptop CPUs, and with standard GPUs not long after that. Kudos to those who had the foresight to mine early on. I heard about Bitcoin in 2010 but ignored it until 2013, so I missed out on the entire CPU and GPU eras.

Original article here: http://fortune.com/2018/01/14/metropolitan-bank-cryptocurrency-wires/

I haven't seen any announcements from Coinbase or GDAX about halting wires from their international customers. So maybe they have alternatives in place already.


The author notes that there are other cryptocurrency-oriented banks that can likely fill the void, like Silvergate Bank and Cross River Bank. This is just one intermediary bank. I'll become more concerned if we see similar moves from competing banks. That would suggest government/regulatory action is on the way.

No, I just saw the reference to The Politics of Bitcoin: Software as Right-Wing Extremism, which I've seen excerpts from before. I thought it was an article. Didn't realize it was a book.


Hence: "It's a stretch to call the software itself right-wing or even political in nature. Its design was largely intended to address the double spending problem, not make a political statement" and "The deflationary supply is characteristic of Austrian economics, which itself is just an economic school of thought."


I said it was associated with right-wing ideologies due to its proponents. Your response implies that you acknowledge that. I never said Austrian theory was based on right-wing ideology.

My point was more about not being surprised when these associations are highlighted by talking heads, academics, etc.

I'm beginning to think they are playing dumb. There are actually treasure troves of deanonymization tools available to governments which have been developed by Chainalysis and their competitors for years. They've got databases full of metadata like bloom filters, leaked tracker information and PII data, IP address data. For all we know, companies like Bitpay or other merchants are honeypots to identify our wallets via address clustering.

They're watching us and the problem is only going to get worse. If you think Bitcoin is "private" by default, then read this: arxiv.org/pdf/1708.04748.pdf


This guy's got the right idea. Bitcoin is incredibly transparent and trackable. That fact, combined with the pernicious use of third party trackers and lack of care with IP address privacy means that Bitcoin is serving a lot of our data to the government on a platter.

It's time to get smart, learn how to make your funds un-linkable, encrypt all communications, use TOR and I2P, get off the grid......

In theory, you can have multiple personas via multiple wallets. One is your "legit" wallet and one has coins that can't necessarily be accounted for. As long as bitcoins are fungible, the latter wallet still has value. You just need to be careful about a) linking it to your "legit" wallet in any way and b) use the funds as cash under circumstances that don't require KYC.


Why is that so? Once you remove all connections to your old UTXOs, can't you fabricate a new "origin?" Here in the US, I'm fairly certain that cash transactions in the low thousands get very little scrutiny. Hypothetically, one could use some "cash" (wink wink) to buy those mixed coins, and hold them as an investment to be sold later. As a buyer, how could you have known you were buying "mixed" coins? And why would it matter?


If it can't be traced, doesn't that mean you can just hypothetically make up the transaction details? No one can prove otherwise, right?

It's a stretch to call the software itself right-wing or even political in nature. Its design was largely intended to address the double spending problem, not make a political statement. The deflationary supply is characteristic of Austrian economics, which itself is just an economic school of thought.

But Austrian economics, due to its proponents, is closely tied to right-wing libertarianism. Murray Rothbard is often seen as the father of the "anarcho-capitalism" that became characteristic of both the right-wing Austrian movement and later the Bitcoin community, and was infamously incredibly racist. He preached "voluntary" racial segregation (akin to Richard Spencer's "peaceful ethnic cleansing") and made claims based in scientific racism.

There's no doubt that many of Bitcoin's earliest proponents were ancaps, and bitcoiners often show reverence to Rothbard and other controversial figures from the von Mises school. And there's no doubt that this culture still survives today, hence this sort of article.