Crypto Wallet Regulations: A damn good time to be paranoid

[Upgrade00]

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.

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[MusaMohamed]

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.

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.

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.

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.

[mk4]

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?

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.

Now i wonder what'll happen to open-source wallet (such as Bitcoin Core and Electrum) which hosted on GitHub/GitLab.

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/

[kryptqnick]

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.

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...

[wxa7115]

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.

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.

[ranochigo]

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.

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.

[o_e_l_e_o]

Hacks must be very big to shut down big exchanges.

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.

This way they might rely on the exchange reimbursing the loss in case of a hack

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.

but the more they try to regulate the market the more attractive DEXs becomes so I am not that worried.

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.

[mersal]

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.

[cabron]

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.

[mk4]

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...

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.

[o_e_l_e_o]

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

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.

But we all have the KYC already on different services and exchanges, and even in case it will be even more strict rules as we can imagine I think that people will find a suitable and comfortable way to be in crypto.

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.

While I think they should care, if they don't, it's really none of my business.

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?

[AicecreaME]

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.

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.

[fishbonez11]

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.

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.

[mk4]

While I think they should care, if they don't, it's really none of my business.

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 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).

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.

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/

[o_e_l_e_o]

A relevant thread, https://bitcointalk.org/index.php?topic=5169284.0

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?

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).

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.

[coolcoinz]

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...

[o_e_l_e_o]

Armstrong is already acting on those rumors and implementing additional KYC.

But remember, he respects your privacy!

People who traded for a long time on verified accounts are now asked for the source of their money and their line of work.

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

he's giving us 2 years tops until they'll be asked for full client verification on all transactions, including face to face.

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?

[mk4]

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.

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.

[thesmallgod]

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.

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

[witcher_sense]

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.