Bitcoin upgrades and FATF (Travel Rule)

[Bttzed03]

Please check this topic first before reading mine - [D-8] Bitcoin is getting 3 major upgrades - Schnorr, Taproot and Tapscript

After reading the topic above and some of the comments there, I had this thought that exchanges might have another trouble/headache from regulators once Bitcoin's upcoming upgrades are implemented. It is said that these will not only improve scalability, they will also increase the privacy of bitcoin transactions.

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The two things most of us want and which has been debated on a lot is scalability
and privacy. In my sinple language and understanding of the technical details of
Bitcoin both Schnorr and Taproot will add more "value" and "usability" and potentially
take back some of that from mixing services and privacy projects like Monero
and Zcash.

The idea of masking transactions is exciting, significant and a real game changer
in my opinion.

As such, Taproot offers all the benefits of MAST, while under normal
circumstances no one will ever know that a regular transaction was hiding
such a complex smart contract as a fallback.

When the FATF travel rule was released, some exchanges started delisting privacy coins like Monero (XMR), Zcash, Super bitcoin, Horizen, etc. in order to comply with the guidelines (I've written about it in this topic). Exchanges will find it hard to delist BTC and I doubt they will do so but I cannot tell for sure what will be the response of FATF to the increased privacy of Bitcoin. One thing is certain though, they cannot stop its development and they cannot stop people from using it.

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[malevolent]

These upgrades would give Bitcoin users more privacy when making multisignature transactions. An exchange can still ask strange questions about the provenance of your bitcoins, or where you're sending them off to, and/or freeze/ban your account, and these upgrades won't change that, especially if the FATF travel rule ends up being enforced.

[Bttzed03]

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An exchange can still ask strange questions about the provenance of your bitcoins, or where you're sending them off to, and/or freeze/ban your account, and these upgrades won't change that, especially if the FATF travel rule ends up being enforced.

I agree that those upgrades won't change how exchanges will act. There are exchanges that are already asking for proof of funds but I have never heard of one asking where users send their funds to. That's probably what FATF will require exchanges to do once the travel rule becomes mandatory.

I won't be surprise if they force all exchanges to go 100% full KYC too. There will be no more minimum of xx amount of btc as an added measure.

[malevolent]

but I have never heard of one asking where users send their funds to. That's probably what FATF will require exchanges to do once the travel rule becomes mandatory.

Binance Singapore made the news a couple weeks ago when they suspended a user's account just because he withdrew his coins to Wasabi.

I think Bitstamp was known for asking what a user intends to do with their coins, too.

[Linkkoin]

In cases like that, the most likely solution would be that you may not be able to get your withdrawal accepted unless you can prove that you are the verified/registered owner of a wallet (supposedly from some sort of a white list accepted by authorities as meeting FATF standards).

[Carlton Banks]

After reading the topic above and some of the comments there, I had this thought that exchanges might have another trouble/headache from regulators once Bitcoin's upcoming upgrades are implemented.

not really

hiding branches in a script isn't anything like the privacy offered by e.g. Monero. All that happens is the transaction doesn't need to write unused parts of the script to the blockchain, it's a waste of storage space. The part (i.e. branch) of the script that does get used in a transaction is still written to the blockchain, and any third party who takes an interest in a taproot transaction will therefore still know what happened, they just won't know what alternatives could have happened

These upgrades would give Bitcoin users more privacy when making multisignature transactions.

not quite.

a taproot address makes any script based spending conditions more private, not just multisignature conditions (multisignature is just one possible type of script)