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Author Topic: How to leave KYC for good  (Read 620 times)
n0nce
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September 07, 2021, 09:09:28 AM
Last edit: September 22, 2021, 02:43:34 AM by n0nce
Merited by hugeblack (6), DdmrDdmr (6), BlackHatCoiner (6), LoyceV (4), o_e_l_e_o (4), dkbit98 (2), d5000 (1), DroomieChikito (1)
 #1

Why?
As the topic title implies, I'd like to collect different ways to unlink coins that people bought through KYC on-ramps without getting into trouble later down the road.
The goal is to hold Bitcoin without losing privacy, but still complying with the law. We're not trying to evade taxes, just to improve privacy.
This is not about evading taxes while trading! The idea is just to keep your privacy while still being on the safe side in, say, 10 or 20 years time, when you'll want to cash out your holdings (or buy something with them which is usually seen as the same thing). Also governments, laws, everything, might look a whole lot different from today. So if your country doesn't collect wealth tax, thus not requiring you to inform anyone about your holdings, you won't be subjected to potential confiscation or $5 wrench method.

If you're further wondering why 'no KYC', consider giving this a read:
https://bitcoinqna.github.io/noKYConly/
Quote
Within the Bitcoin space, ‘creeping KYC’ is a disease that is slowly spreading. If you purchase through one of these regulated entities, you essentially tag your bitcoin addresses to your personal identity. This makes it trivial for chain surveillance firms, the companies they work with, or worse, governments, to potentially…
  • Track your spending habits
  • Prevent you from using other regulated services
  • Confiscate your bitcoin
  • Come after you for tax liabilities
  • Generally know more about you than they should

3 Possible Methods:
I personally like to always recommend buying through https://bisq.network/, but the reality is that many already have some amount of coin (or everything) bought from exchanges. I'm not a fan of 'having 2 stashes', as there's the risk to interconnect them through future (multi-input) transactions if you don't have separate devices / wallets.

To 'leave KYC for good', I came up with 3 options so far. As an end result, these methods all provide a wallet that has no links to your identity and contains the same amount of Bitcoin funds.

Option 1: Provably sell Bitcoin on KYC exchange again, then 'start fresh' by buying non-KYC Bitcoin and send to a new address / wallet.
+: Nobody can prove you own Bitcoin, not a company (exchange), not anyone they're selling your information to, and not anyone who goes asking like government.
-: Selling is usually (more info later) a taxable event and you will have to declare it.

For option 1, keep in mind: Also the non-KYC coin you will acquire need to be declared if your country collects wealth tax. Since they just want a fiat valuation and no public keys, you don't lose your privacy since your identity won't be linked to your addresses, unlike when owning 'KYC Bitcoin'.

Option 2: Mix the KYC Bitcoin through https://chipmixer.com/ or https://coinjoin.io/en and send to a new address / wallet.
+: No taxes to be paid, since Bitcoin is not sold.
-: The exchange will still know you hold X amount of Bitcoin and authorities can get that information very easily. You will still have your privacy since they won't know which address belongs to you, so they can't trace your purchases. In case your country collects wealth tax, you will also have to disclose your holdings anyway, but at least when disclosing non-KYC holdings, there won't be a potentially scammy exchange company also having this data and potentially selling it.

For option 2, keep in mind: Also the non-KYC coin you will own after mixing need to be declared if your country collects wealth tax. Since they just want a fiat valuation and no public keys, you don't lose your privacy since your identity won't be linked to your addresses, unlike when owning 'KYC Bitcoin'.

Option 3: Provably buy something with Bitcoin you would have bought anyway (e.g. a car) and spend the cash you would have spent on that object on new non-KYC coin.
+: If your country accepts that this is an object-object trade, there will be no taxes and your identity will own no Bitcoin afterwards (keep a receipt to prove the trade).
-: Most countries don't see a trade with Bitcoin as a trade of goods, instead treat it as a 'sell' of your Bitcoin and you need to declare the sell & pay the tax. So it doesn't really bear any benefit over option 1 in these countries.


In my eyes, Option 1 is the safest. Let's say in the future, wherever you live, laws will be passed e.g. to confiscate or heavily tax Bitcoin gains or anything of that kind, you will be able to prove that you sold the BTC and don't own any. This doesn't work in countries with wealth tax though, since you need to declare holdings value annually.
Also keep in mind, in some countries you pay less capital gains tax when hodling coins longer, like Germany. According to https://dejure.org/gesetze/EStG/23.html Bitcoin gains are tax-free as long as you held for 1+ years. So in that case I'd make sure funds didn't move for +1 year, then sell at exchange and buy again via an anonymous exchange.

Option 2 will be easier to do (less steps) and tax-free short term (since you're not selling anything), but you might get into trouble in the future in case government wants to e.g. confiscate Bitcoin holdings or something like that, since they'll be able to prove you bought amount X of Bitcoin. The information that person A owns X amount of Bitcoin may also be sold by the exchange (or 'lost' in a 'hack') and used to try to scam you or stuff like that.

The last option is more a niche thing since you'd need to live in a country where Bitcoin is widely accepted but it will allow you to prove you spent the coin (e.g. on-chain transaction including hash of the invoice) and there shouldn't be any tax issues you need to make sure your country counts this as a trade of goods and not a Bitcoin sell.

General recommendations:
1) Don't hide your Bitcoin from taxman if your country requires to show your possession at end of year.
2) Keep secret keys forever to prove you had a certain amount of Bitcoin at the time that you state you bought the coin at. Preferably also keep a paper trail up until a current-day wallet that you have, and if you mixed in between for anonymity, keep a receipt of the mixing.

It seems, it doesn't even make so much sense to go from KYC coin to non-KYC coin if just holding. If you want to hold it anonymously, you can mix them, then if you'll spend a little part of it, you'll be more anonymous. But you'll have a proof of buy time through the exchange and the mixer receipt which shows how they ended up in your current wallet.

I see no issue in buying non-KYC Bitcoin but keeping the keys where those coins arrived and maybe screenshots of the trades (e.g. of Bisq user interface). This will be needed to prove you actually bought them as early as you state you did and that you were able to afford them at that point in time.

Declaring your BTC correctly - it depends a lot on where you live (who would have guessed Grin).
Some information I gathered so far: !!!CORRECT ME IF SOMETHING'S WRONG!!!
* IT: Need to disclose your holdings end of year, but pay taxes on gains when selling a sum of over 51,000€. [1]
* FR: You pay taxes on the gains when selling, no need to disclose holdings earlier. [2]
* NL: You pay taxes on your holdings on 1st of January. Need to disclose your holdings end of year. [3]
* CH: You pay taxes on holdings, gains, or none at all depending on canton. [4]
* DE: You pay taxes on the gains when selling, if you held for <1 year. No need to disclose holdings earlier. (trading BTC for a material object or other coin is considered a 'sell', gains considered income & up to 600€ in gains from all of your appreciating assets together are tax free.) [5]
* AT: You pay taxes on the gains when selling, if you held for <1 year. No need to disclose holdings earlier. (trading BTC for a material object or other coin is considered a 'sell', no tax-free limit)[6]
* FI: You pay taxes on the gains when selling. No need to disclose holdings earlier. (trading BTC for a material object or other coin is considered a 'sell', no tax-free limit)[7]
* USA: Pretty good FAQ can be found on IRS webpage [8]

For all countries where I mentioned 'no need to disclose holdings earlier', I'm pretty confident it's fine to buy Bitcoin without KYC, not tell anyone, then when you'll sell or pay with the Bitcoin, you'll write down when you bought the Bitcoin and for how much fiat. If they don't trust you, you can use the private keys that you received the funds on (like Bisq private keys) to sign a message for them and prove you did buy when you say you did.

Also keep in mind I'd not recommend trading into and out of XMR over mixing, because trading is taxed in most countries, so you'll have to keep records of those trades as well, and pay taxes on them, so it's really unnecessary instead just mix them or submarine-swap them into a Lightning wallet and out of it again. Keep in mind it will not be easy to transfer full coins over LN due to usually smaller channels.

An interesting point for EU in general:
The exchange of legal tender (e.g. Euros) for bitcoins or vice versa, is exempted from VAT according to the case law of the CJEU  (see CJEU  22/10/2015, Case C-264/14, Hedqvist; UStR 2000 m.no.  759).

[1] https://www.ilsussidiario.net/news/bitcoin-come-pagare-tasse-in-italia-normativa-criptovalute-e-dichiarazione-redditi/2161267/
[2]https://cms.law/en/fra/publication/bitcoin-taxation-in-france
[3] https://blog.blockpit.io/en/crypto-taxation-regulations-netherlands
[4] https://blockpit.io/en/kryptowaehrungen-steuern/schweiz
[5] https://www.winheller.com/en/banking-finance-and-insurance-law/bitcoin-trading/bitcoin-and-tax.html
[6] https://www.bmf.gv.at/en/topics/taxation/Tax-treatment-of-crypto-assets.html
[7] https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies3/
[8] https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions


Finally, 2 Disclaimers:
Mining and even frequent trading are in part handled widely differently from buying & holding, all above mainly refers to HODLers!
This is obviously no financial advice, just collecting information - if anything's wrong, let me know I'll update the info!

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September 07, 2021, 09:13:54 AM
 #2

In my mind though, trading your (KYC) Bitcoin for an object should be a normal 'trade' like trading a car for another.

That option 3 caught my attention. I think that this point of view, although it would make sense, it's incorrect from IRS (or similar) point of view.
But I'm not that good in this kind of things, so I would like to see others' opinion, especially if they did bought goods with Bitcoin - how did they fill their tax papers.

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September 07, 2021, 09:21:48 AM
 #3

I keep 2 wallets: a "KYC" and a "mixed" wallet. If i buy, exchange, trade, earn any funds, it goes directly to my KYC wallet. From there, it goes to chipmixer and/or wasabi and it ends up in my "mixed" wallet. If i spend anything from my mixed wallet, the change goes back to my kyc wallet... usually i don't spend anything from my non-kyc wallet, so >90% of what i spend has been mixed or coinjoined.

My country doesn't add taxes to certain investments made as a private citizen in order to invest a smaller amount of your money you earned from your job... So, when it really boils down to it, i'm not even evading taxes, however my country's tax office is known to bend the rules in their favor (the rules are not black and white, and have a really big grey area). If the taxman ever knocks on my door, i'm going to use the principle: "innocent untill proven guilty". I'm not obliged to tell him where my funds came from, where i spend them, how i mixed them... If he wants to give me a fine, it's up to him to prove without a doubt that i did something illegal (which i didn't, at least not in the way i interpreted the law in my country).

I guess everything depends on which country you live in: i'm pretty sure that in a lot of country's i'd be evading taxes if i didn't declare every buy or sell i made... I'm just lucky the politicians in my country aren't tech savvy enough i guess...

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September 07, 2021, 10:00:47 AM
 #4

If the taxman ever knocks on my door, i'm going to use the principle: "innocent untill proven guilty". I'm not obliged to tell him where my funds came from, where i spend them, how i mixed them... If he wants to give me a fine, it's up to him to prove without a doubt that i did something illegal (which i didn't, at least not in the way i interpreted the law in my country).

If you have such laws that shift the whole responsibility of proving whether something is legal or not to tax office, then you can consider yourself lucky - because if a taxman knocks on my door and tells me to prove the origin of money or property, then it is up to me to prove it - otherwise, I have to pay taxes, or the money or property will be confiscated.


As the topic title implies, I'd like to collect different ways to unlink coins that people bought through KYC on-ramps without getting into trouble later down the road.

If a cryptocurrency is purchased through the KYC platform and with money that has legal coverage, and that same cryptocurrency is used to buy legal items or services, I see no reason to hide anything. Everything else that falls under some kind of concealment (for whatever reason) can be very easily done through a mixer - although it has been proven that most mixers can be broken (with the exception of CM).

I think it is very difficult to achieve 100% anonymity, because those who work on blockchain analysis do not do it for a month or a year, but almost from the very beginning of Bitcoin (ask ES and its former agency).

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September 07, 2021, 10:05:22 AM
 #5

If a cryptocurrency is purchased through the KYC platform and with money that has legal coverage, and that same cryptocurrency is used to buy legal items or services, I see no reason to hide anything. Everything else that falls under some kind of concealment (for whatever reason) can be very easily done through a mixer - although it has been proven that most mixers can be broken (with the exception of CM).
The idea is that things can change in the future and even though everything's fine right now for you, it's possible that e.g. if Bitcoin is banned in your country in the future, it's possible for authorities to obtain info about how much coin you bought on KYC exchanges, knock on your door and asking for those Bitcoins.

XKCD 538 kind of way:
https://xkcd.com/538/

In that instance, mixing doesn't help you. It would be more helpful to have a way to prove you don't own them (e.g. sold on exchange or exchanged for some goods).

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September 07, 2021, 10:40:22 AM
 #6

if Bitcoin is banned in your country in the future, it's possible for authorities to obtain info about how much coin you bought on KYC exchanges, knock on your door and asking for those Bitcoins.

I'm not certain that this could work, since in the same way one can buy coins without KYC, he can also spend without KYC. Or he can donate.
Or in certain cases one can claim that he wanted to just trade and his account was hacked and coins withdrawn to a wallet he doesn't have.
Also, you cannot imagine how many people use to lose their seed or private keys in fishing accidents  Grin Grin

Making a credible story is up to you. The fact that they don't know the underlying tech may or may not work in your favor.
I am not convinced that they can go that easy after you - even in an authoritarian state - with or without trying their 5$ wrench. And the number of bitcoiners is rising day by day, making it harder and harder to pick those worthwhile to put effort in making them confess.

I'm not sure my logic was clear enough, I hope it was.

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September 07, 2021, 10:45:53 AM
Merited by DdmrDdmr (4)
 #7

If the taxman ever knocks on my door, i'm going to use the principle: "innocent untill proven guilty". I'm not obliged to tell him where my funds came from, where i spend them, how i mixed them... If he wants to give me a fine, it's up to him to prove without a doubt that i did something illegal (which i didn't, at least not in the way i interpreted the law in my country).

I guess everything depends on which country you live in: i'm pretty sure that in a lot of country's i'd be evading taxes if i didn't declare every buy or sell i made... I'm just lucky the politicians in my country aren't tech savvy enough i guess...

You're lucky, indeed in most countries, you will need to come up with the source of the funds if the IRS makes an inquiry, the failure to do so will end with all the money and assets you can't justify seized.

And this is a major problem with the so-called non-KYC coins, if one follows one of the steps OP mentioned, what are you going to do in the long run with those secret coins, no matter what you try to do you will leave a trace, it's one thing to hide some coins and a private key it's something totally different when you will actually use them, well, why are you keeping them, not so that at one point you will use them to buy something? And at that point, unless you somehow use them only to buy stuff from private sellers, you use small amounts and exchange them again in a private deal for fiat for groceries you will end up being caught (if!) the taxman wants to. You get a $10k car, you have not wired a single penny to the buyer, you have not withdrawn anything from the ATMs for 3 years so you would have an excuse you have fiat stashed away, how are you going to explain where that money comes from?
Keeping a low profile will work, but any large purchases would land you in trouble, especially if you have decided to retire at 30  Grin



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September 07, 2021, 10:51:27 AM
 #8

And this is a major problem with the so-called non-KYC coins, if one follows one of the steps OP mentioned, what are you going to do in the long run with those secret coins, no matter what you try to do you will leave a trace, it's one thing to hide some coins and a private key it's something totally different when you will actually use them, well, why are you keeping them, not so that at one point you will use them to buy something? And at that point, unless you somehow use them only to buy stuff from private sellers, you use small amounts and exchange them again in a private deal for fiat for groceries you will end up being caught (if!) the taxman wants to. You get a $10k car, you have not wired a single penny to the buyer, you have not withdrawn anything from the ATMs for 3 years so you would have an excuse you have fiat stashed away, how are you going to explain where that money comes from?
Keeping a low profile will work, but any large purchases would land you in trouble, especially if you have decided to retire at 30  Grin
That's actually an interesting point: if countries enforce to know the source of money, how do they e.g. deal with mined coins? What if I claim I mined all coin myself and then want to use that coin to buy a car?

I even found people online arguing non-KYC coins might be worth less in the future since you might not be allowed to spend those (as you said: no proof when you bought it, for how much, etc.).

if Bitcoin is banned in your country in the future, it's possible for authorities to obtain info about how much coin you bought on KYC exchanges, knock on your door and asking for those Bitcoins.

I'm not certain that this could work, since in the same way one can buy coins without KYC, he can also spend without KYC. Or he can donate.
Or in certain cases one can claim that he wanted to just trade and his account was hacked and coins withdrawn to a wallet he doesn't have.
Also, you cannot imagine how many people use to lose their seed or private keys in fishing accidents  Grin Grin

Making a credible story is up to you. The fact that they don't know the underlying tech may or may not work in your favor.
I am not convinced that they can go that easy after you - even in an authoritarian state - with or without trying their 5$ wrench. And the number of bitcoiners is rising day by day, making it harder and harder to pick those worthwhile to put effort in making them confess.

I'm not sure my logic was clear enough, I hope it was. yup, gotcha!
These are very valid points, I must say. Tons of wallets have actually been lost forever; however, from those wallets, the coins never move. If that's your story, make sure that you mixed the coins early (like, now, for example) so you can later claim boating accident at a point in time that lies after the mixing event.

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September 07, 2021, 11:01:14 AM
 #9

Yeah, i'm pretty lucky to be born in a country that doesn't tax personal investments AND legally can't force you to incriminate yourself...

The thing is: the justice department and tax authorities in my country do try to put pressure on people to disclose things like cellphone pin numbers... They even bring discussions in front of the courts, and there have been cases where people were punished for not disclosing self-incriminating codes, but only in very high level cases involving multi million dollar drug rings or straight up murder. But it's a grey area, and i don't see them punishing me for not giving them the PIN to my hardware wallet so they can prove i was getting a very small amount of funds from small side projects that i haven't disclosed to the tax authorities TBH... I'm pretty sure that if they'd try, the evidence would be thrown out by any judge.

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September 07, 2021, 11:08:23 AM
Merited by o_e_l_e_o (4)
 #10

That's actually an interesting point: if countries enforce to know the source of money, how do they e.g. deal with mined coins? What if I claim I mined all coin myself and then want to use that coin to buy a car?

Depends on the legislation, mining is currently considered in a lot of places an economic activity so you would have to pay profits on that activity. There are a lot of taxation models for those right now, one in which your income is determined by the price per coin when you mined that block, and this one sucks in my opinion, and the other when you transform those in fiat currency.
When it comes to businesses, those laws are all over the place, it matters a lot in which country you reside.

But no, don't think that claiming you have mined those coins you will get exempt from tax, even the results of hobby mining are taxable.

I even found people online arguing non-KYC coins might be worth less in the future since you might not be allowed to spend those (as you said: no proof when you bought it, for how much, etc.).

By who? What is the point of denying somebody to spend those coins when you could let him do it and then ask him to pay the taxes?
Besides, how do you block somebody from spending those coins, if you have an account on an exchange and you deposit those you have already made them clean coins as you're verified, if you sell them on a BATMs they have your ID, so basically every non KYC coin will become KYC verified when you use them, even if it's for pizza delivery.
Blocking dark coins and keeping them forcefully outside the clean economy is counterproductive in my opinion.


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September 07, 2021, 11:31:59 AM
Merited by DdmrDdmr (6), o_e_l_e_o (4)
 #11

I'll highlight this part about taxes:
If you ever sell KYC bitcoin, depending on your jurisdiction, you will likely pay around 20% of your gain in Capital Gains Tax (or equivalent VAT/GST obligations). If you buy a 1 BTC at $10,000 and sell at $20,000, you are liable to pay around $2000 in taxes.

If you bought that same 1 BTC with a 4% premium over the $10,000 spot price you would have paid $10,400 for the same amount of sats and the only person who knows you own them is your trade counterparty.
This varies per country: I don't pay capital gains tax, but an annual tax (0, 0.59, 1.4 or 1.76%) on funds I own. Short-term this is better, long-term you lose more and more to taxes.
The reason to pay this tax is to be able to use funds legally when I want to in the future. What if you buy 1 BTC for $10,000 and sell it for $1,000,000? As much as I wouldn't mind having a suitcase filled with money, it's much more practical if you can legally use it to buy a car or house (or a jet).

If the taxman ever knocks on my door, i'm going to use the principle: "innocent untill proven guilty". I'm not obliged to tell him where my funds came from
Wait, I thought we live in the same country? As far as I know, I have some explaining to do if I pay a large amount in cash. And if it's not cash, the bank will require a similar explanation.

The idea is that things can change in the future and even though everything's fine right now for you, it's possible that e.g. if Bitcoin is banned in your country in the future, it's possible for authorities to obtain info about how much coin you bought on KYC exchanges, knock on your door and asking for those Bitcoins.
This doesn't make me worry about Bitcoin in particular, they can do the same to most other assets too.

I even found people online arguing non-KYC coins might be worth less in the future since you might not be allowed to spend those (as you said: no proof when you bought it, for how much, etc.).
It depends on the amount, and what you're trying to do with it. If you're into blackjack and hookers, you'll do just fine with a pile of untraceable cash. But if you want to buy a new Lambo, having half a million bucks on your creditcard is much more convenient than having 10 Bitcoin for which you can't explain how you got it.



I'm not a fan of 'having 2 stashes', as there's the risk to interconnect them through future (multi-input) transactions if you don't have separate devices / wallets.
It's trivially easy to create more than one wallet and avoid linking them on-chain. You could even use different passwords for the same hardware wallet.

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September 07, 2021, 11:39:45 AM
 #12

None of these options will work if you are already living under a totalitarian regime or your country is rapidly moving towards becoming one. Consider migrating to a more crypto-friendly place if you happen to have KYC-ed bitcoins, with which, by the way, you can buy a flight ticket to escape the hell. Otherwise, even the very fact that you purchased or possessed bitcoins in the past may result in an oppressive government sending you to jail. After that, they will seize all your property of whatever kinds, your car, your house, your wallets: everything will be lost, stolen, or destroyed. If your rights aren't protected in the first place, if man dictates the law, then don't rely on it and instead choose the place where it is the law that dictates man.

This doesn't make me worry about Bitcoin in particular, they can do the same to most other assets too.
I'd be worried. Not every asset poses a threat to the government's sovereignty and monetary monopoly.

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September 07, 2021, 11:52:59 AM
 #13

--snip--
If the taxman ever knocks on my door, i'm going to use the principle: "innocent untill proven guilty". I'm not obliged to tell him where my funds came from
Wait, I thought we live in the same country? As far as I know, I have some explaining to do if I pay a large amount in cash. And if it's not cash, the bank will require a similar explanation.
--snip--

Well, AFAIK, there is indeed a cap on how much cash you're allowed to spend (eventough i did not follow the discussion), i'm unsure whether or not the banks give you a hard time when you try to deposit to much... I've never deposited more than a couple hundred euro's at once, and it usually right after new year, when my parents give a bunch of cash to their children and grandchildren, so it's pretty obvious the money isn't coming from fraudulent sources. I barely touch any cash at all, my wallet usually contains 20 or 50 euro's just in case i ever need it, but i only have to pass by the ATM a handfull of times each year (at maximum). All in all, i have no experience with withdrawing or depositing large amounts of cash.

I'm merely saying that in most western european country's, you'll have the right not to give incriminating evidence against yourself, so they can try to make you give you your ledger's pincode, but afaik, they cannot punish you if you don't (some exceptions might apply, but i don't think they'll cover a couple hundred euro's in tax evasion).

Full disclosure: i'm not a lawyer nor an economist nor an accountant... Everything i know is gathered from reading online sources or talking to third parties. If the corona crisis taught us anything, it's that not all online sources or third parties are equally reliable... So, it's possible i might have misunderstood some of the principles. Don't take any of my words as an absolute truth Smiley


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September 07, 2021, 11:54:02 AM
 #14

The problem is, we don't have any local decentralized exchanges in our country. we only have the same exchanges that are asking for our identity when you need to withdraw your BTC. I think it's because of the recent Ponzi scheme where they used our local exchanges to show their victims the amount inside the wallet. When the Ponzi scheme was busted and they went to check the account, that huge BTC is lost and nowhere to be found. I think this is one of the reasons why the updates about KYC has been made and no one can move such huge amount again in the future without explaining where the money came from.

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September 07, 2021, 11:54:48 AM
 #15


The idea is that things can change in the future and even though everything's fine right now for you, it's possible that e.g. if Bitcoin is banned in your country in the future, it's possible for authorities to obtain info about how much coin you bought on KYC exchanges, knock on your door and asking for those Bitcoins.

XKCD 538 kind of way:
https://xkcd.com/538/

In that instance, mixing doesn't help you. It would be more helpful to have a way to prove you don't own them (e.g. sold on exchange or exchanged for some goods).

But why would the authorities ban Bitcoin and then try to confiscate Bitcoins from the people?
This doesn't make any sense to me.This is basically stealing financial assets from the population.
If the authorities end up knocking at my door asking for my Bitcoins,I will tell them that I have sold everything,even though such case scenario is highly unlikely to happen.I wonder how they will prove me wrong. Grin
OP,the whole topic seems a little bit paranoiac.Trying to be anonymous and to use mixer means that you want to hide something-your income and your wealth,which looks always suspicious in the eyes of the authorities.
They might assume that you are conducting tax evasion or other financial crimes




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September 07, 2021, 12:04:34 PM
 #16

The last option is more a niche thing since you'd need to live in a country where Bitcoin is widely accepted but it will allow you to prove you spent the coin (e.g. on-chain transaction including hash of the invoice) and there shouldn't be any tax issues, though jurisdictions might differ a lot here.
As others have mentioned, this usually isn't the case. Most jurisdictions which tax bitcoin consider buying a good or service with bitcoin as a sale of bitcoin, and therefore you are liable for capital gains taxes.

You also missed Option 4 OP: Never complete KYC or buy any KYC coins in the first place. It's very easy to keep all your coins away from your real details when you never hand them out anywhere. If I had coins I had bought through a KYC exchange, then I would simply send them all back to that KYC exchange, sell them, withdraw the fiat, close my account, and then go check out Bisq or LocalCryptos.

If i spend anything from my mixed wallet, the change goes back to my kyc wallet...
This is a potential privacy risk in your set up. Consolidating a bunch of change transactions will link your mixed transactions together, and even worse if you consolidate the change with an input to an address linked to your real details.

This doesn't make any sense to me.This is basically stealing financial assets from the population.
Right, because that's never happened before. (/s)

Trying to be anonymous and to use mixer means that you want to hide something-your income and your wealth,which looks always suspicious in the eyes of the authorities.
Absolutely incorrect. I protect my privacy not because I have anything to hide, but because I have nothing I want to share. If you are doing nothing suspicious, then you'll have no problem posting your social media and email accounts usernames and passwords so we can all have a good look at your private life. No? I didn't think so.

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September 07, 2021, 12:16:59 PM
 #17

--snip--
If i spend anything from my mixed wallet, the change goes back to my kyc wallet...
This is a potential privacy risk in your set up. Consolidating a bunch of change transactions will link your mixed transactions together, and even worse if you consolidate the change with an input to an address linked to your real details.
--snip--

There might be some misunderstanding here: when i spend funds from my "mixed" wallet, i use on or more unspent output(s) that came directly from chipmixer or coinjoin as an input, fund the address of the seller (or exchange) and send the change back to my "KYC" wallet.

Sure, the seller (or exchange) now knows that the USED unspent output(s) in my "mixed" wallet used to belong to me, they know the change in my "KYC" wallet belongs to me aswell, so when i consolidate the change with the other unspent outputs in my "KYC" wallet to go trough a mixer, they can be linked together... But all those unspent outputs can, one way or another, be linked to me anyways. The output of the mixer, however, is completely private.. So all unspent outputs in my "mixed" wallet are private up untill the point i decide to spend them... And at this point, there is no use speaking about privacy, since most of the places where i sent my funds either had to send a physical item back, or were regulated exchanges.

Best "they" can do is: know most of the unspent outputs in my "KYC" wallet, wether they came from sigpayments, exchanges, odd jobs or change from my "mixed" wallet doesn't really matter to me... HOWEVER, they can not know any unspent outputs in my "mixed" wallet, since those outputs came directly from chipmixer or from a coinjoin session with my wasabi wallet. I do not, under any circumstances send change back to my "mixed" wallet... Doing so would void my privacy..

I'll try to draw a diagram if i have some leftover time at the end of the working day... Explaining a setup using multiple wallets is kinda hard for a non-native speaker Smiley

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September 07, 2021, 12:45:21 PM
Merited by DdmrDdmr (4)
 #18

I understand what you are saying, but you are still linking your transactions together which is reducing your privacy.

Let's say you have 5 outputs in your mixed wallets. All are completely unlinked to you and unlinked to each other. Over time you spend all 5 of these outputs to a variety of places - buying some goods online, buying some goods in person, trading for fiat, sending to a centralized exchange. With all 5 transactions you send the change back to a brand new address in your KYC wallet.

You now consolidate those 5 outputs along with a couple of other outputs, including one which came from a signature campaign payment and one which came from a centralized exchange. After consolidating, you mix the coins, so the output is again private. But in that consolidation transaction you have linked all 5 of the original transactions together, and you have linked them to your real identity in a number of ways. Any of the recipients of those 5 transactions can see the other 4 places you have spent coins and can link you via your public signature campaign address to your online username. The exchange you use can also link your real name and address to your online username and the 5 vendors.

Now, having identified a number of addresses in your KYC wallet which are known to belong to you, those addresses can be watched for future consolidation transactions, linking the change from other mixed transactions back to you and therefore linking those transactions themselves back to you.

Change is one of the worst things for your privacy. I usually try to avoid creating change at all via careful selection of UTXOs or ChipMixer chips, buying additional goods or services, adding it to the fee, adding it to the payment as a tip, or donating it to charity. If I do create change, then it is better to either mix it individually or consolidate it only with other change outputs where linking the transactions together does not result in a loss of privacy.

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September 07, 2021, 12:49:31 PM
 #19

Wow, this thread exploded quite a bit! Excited to hear all the different opinions and experiences.


This varies per country: I don't pay capital gains tax, but an annual tax (0, 0.59, 1.4 or 1.76%) on funds I own. Short-term this is better, long-term you lose more and more to taxes.
The reason to pay this tax is to be able to use funds legally when I want to in the future. What if you buy 1 BTC for $10,000 and sell it for $1,000,000? As much as I wouldn't mind having a suitcase filled with money, it's much more practical if you can legally use it to buy a car or house (or a jet).

It depends on the amount, and what you're trying to do with it. If you're into blackjack and hookers, you'll do just fine with a pile of untraceable cash. But if you want to buy a new Lambo, having half a million bucks on your creditcard is much more convenient than having 10 Bitcoin for which you can't explain how you got it.
So you recommend to hold non-KYC Bitcoin ('better safe than sorry' kinda approach), then when you want to spend them in the future, declare 'ok I have X BTC which I bought at the time Y for amount Z' and pay the taxes on it? As far as I know you don't have to declare everything you buy (e.g. taxman doesn't know when I bought the laptop I'm typing from and for how much money), except when you sell or something like that.

Or what would be your recommendation to go from BTC to Lambo in 20 years?

It's trivially easy to create more than one wallet and avoid linking them on-chain. You could even use different passwords for the same hardware wallet.
Oh yes, absolutely it's easily possible, but I like to be better safe than sorry and these things aren't too expensive anyway Cheesy



None of these options will work if you are already living under a totalitarian regime or your country is rapidly moving towards becoming one. Consider migrating to a more crypto-friendly place if you happen to have KYC-ed bitcoins, with which, by the way, you can buy a flight ticket to escape the hell. Otherwise, even the very fact that you purchased or possessed bitcoins in the past may result in an oppressive government sending you to jail. After that, they will seize all your property of whatever kinds, your car, your house, your wallets: everything will be lost, stolen, or destroyed. If your rights aren't protected in the first place, if man dictates the law, then don't rely on it and instead choose the place where it is the law that dictates man.
Actually very good points, I must agree. Also such a radical regime change doesn't happen overnight, so I guess it does leave you time to move if you really need to.



The problem is, we don't have any local decentralized exchanges in our country.
Doesn't Bisq work in your country? Too few users?



The last option is more a niche thing since you'd need to live in a country where Bitcoin is widely accepted but it will allow you to prove you spent the coin (e.g. on-chain transaction including hash of the invoice) and there shouldn't be any tax issues, though jurisdictions might differ a lot here.
As others have mentioned, this usually isn't the case. Most jurisdictions which tax bitcoin consider buying a good or service with bitcoin as a sale of bitcoin, and therefore you are liable for capital gains taxes.
That's weird: on one hand, it's not considered money, but possession (thus there is tax when BTC value increases & it's sold again), on the other hand a 'Bitcoin trade' is not seen as a trade of goods, but a sale and there is tax to be paid as well.

You also missed Option 4 OP: Never complete KYC or buy any KYC coins in the first place. It's very easy to keep all your coins away from your real details when you never hand them out anywhere. If I had coins I had bought through a KYC exchange, then I would simply send them all back to that KYC exchange, sell them, withdraw the fiat, close my account, and then go check out Bisq or LocalCryptos.
That was by design: This topic is all about liberating yourself from KYC coins, of course the best thing is to never even get coins that are connected to your identity!

Trying to be anonymous and to use mixer means that you want to hide something-your income and your wealth,which looks always suspicious in the eyes of the authorities.
Absolutely incorrect. I protect my privacy not because I have anything to hide, but because I have nothing I want to share. If you are doing nothing suspicious, then you'll have no problem posting your social media and email accounts usernames and passwords so we can all have a good look at your private life. No? I didn't think so.
I agree that protecting privacy is a big point for non-KYC coins. And 'stealing from population' has indeed happened + the probability of a state wanting to seize something that can destroy the current financial model and thus their power through the central bank is surely higher than seizing other random stuff from people like their home.

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September 07, 2021, 12:56:35 PM
Merited by o_e_l_e_o (4)
 #20

I understand what you are saying, but you are still linking your transactions together which is reducing your privacy.

Let's say you have 5 outputs in your mixed wallets. All are completely unlinked to you and unlinked to each other. Over time you spend all 5 of these outputs to a variety of places - buying some goods online, buying some goods in person, trading for fiat, sending to a centralized exchange. With all 5 transactions you send the change back to a brand new address in your KYC wallet.

You now consolidate those 5 outputs along with a couple of other outputs, including one which came from a signature campaign payment and one which came from a centralized exchange. After consolidating, you mix the coins, so the output is again private. But in that consolidation transaction you have linked all 5 of the original transactions together, and you have linked them to your real identity in a number of ways. Any of the recipients of those 5 transactions can see the other 4 places you have spent coins and can link you via your public signature campaign address to your online username. The exchange you use can also link your real name and address to your online username and the 5 vendors.

Now, having identified a number of addresses in your KYC wallet which are known to belong to you, those addresses can be watched for future consolidation transactions, linking the change from other mixed transactions back to you and therefore linking those transactions themselves back to you.

Change is one of the worst things for your privacy. I usually try to avoid creating change at all via careful selection of UTXOs or ChipMixer chips, buying additional goods or services, adding it to the fee, adding it to the payment as a tip, or donating it to charity. If I do create change, then it is better to either mix it individually or consolidate it only with other change outputs where linking the transactions together does not result in a loss of privacy.

This is completely true, but for me personally it doesn't really matter... What matters to me is that the "bulk" of my funds is anonymous... I really couldn't care less if people are able to see how much BTC has gone trough each of my historic addresses, as long as they are no longer funded with  anything more than a couple weeks worth of signature payments at this point in time. This way i can use some plausible deniability... Did i spend those funds? Did i lose them? Did i gamble them away? They have no way of knowing how much btc i actually hold, they can only scrape together how much i used to have at a certain point in the past, but not how much i have right now or which addresses are currently funded... Offcourse, this would not work if i re-used addresses, which i only do for my tipjar and my sigpayment address, so i consider those values to be semi public knowledge.

I know, you can achieve much better privacy, and privacy is important... It's just that this level i achieve in this relatively simple way is good enough for me.

EDIT: i just want to clarify that i do agree that your method is better (privacy wise), i know this to be true... However, i know that if i make things to complicated for myself, i'll probably mess up sooner or later... My method gives me a tradeoff that's reasonable for me personally: one wallet i cannot spend from, one wallet for spending... change always goes to the wallet i cannot spend from, and once some funds have accumulated in the wallet i cannot spend from they need to be mixed (or coinjoined) to top off the wallet i can spend from... Not perfect, but simple enough for me Smiley

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