KYC propagation beyond my ownership

[88mph]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

[1714831968]

1714831968

[1714831968]

1714831968

[paid2]

If you are really afraid of this, you can either :

-use a P2P service for the original purchase of your BTC, without KYC, so you don't have to worry about all that.
-or use a coin mixer before sending it to your friend, but you risk to flag the coins doing that

This is another excellent reason not to use a CEX to buy your coins. There's no point in using them, as we have Bisq, Peachbitcoin and many others at our disposal (kycnot.me is your friend).

As for the substance of your question, it's complex, the real question is more: why would an agency be interested in your friend's activities ? He would need to truly exagerate to get them to look for you following a transaction he might have made with the coins you sent to him...

[PX-Z]

I never think anything like that before, because if i do, i may be paranoid of using bitcoin for any transaction using an exchange or any crypto-related service that uses KYC. Also, I don't think it would be necessary in chainalysis to know the owner of the origin of every bitcoin/transaction since then where the bitcoin comes from, because if they do, you will not be considered as the first owner of that coin nor the exchange/service you buy from, it might came from other platform before the exchange so on and so forth.

[Eternad]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would be still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

This is same with with tainted fiat money on bank. You will be subject for investigation but with right proof or documentation on how you spend Bitcoin then you will be off the hook on the analysis chain of transaction. I don’t believe on tainted Bitcoin especially if the original coins is already splitted in smaller parts and use in different timeframe that will for sending to different ownership.

I think the person who directly send the Bitcoin to the culprit will be the main subject of investigation because most Bitcoin might be come to the hands of illegal transaction since Bitcoin was used on dark web marketplace payment during the early days.

[Fiatless]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would be still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

Since it is only you that provided KYC that can be used to trace the transaction, it can be traced to you. It will be assumed that you know the person you sent the money to. You might be requested to reveal the identity of the owner of the wallet you sent the Bitcoin. This is one of the risks of using a centralized wallet, you will always be the first contact when something goes wrong. Using a decentralized wallet will give you the privacy you need.

[88mph]

If you are really afraid of this, you can either :

-use a P2P service for the original purchase of your BTC, without KYC, so you don't have to worry about all that.
-or use a coin mixer before sending it to your friend, but you risk to flag the coins doing that

Thanks for the reply. And for the pointer to kycnot.me (and others).

I'm curious if coins obtained from all non-KYC sources of Bitcoin are equally at risk of being "flagged". Say I buy some Bitcoin off Bisq. Is there a risk I might never be able to send it to a CEX or other "government compliant" entity as it's flagged? In an ideal world everything would be P2P, and this would be a non-issue, but that's not the reality at this stage. Maybe I'm being unnecessarily paranoid, but these are the questions that come up as I'm trying to learn. Thanks again.

[Hatchy]

Viewing it from that perspective can somehow be right. Yes, after you buy Bitcoin through exchanges which requires kyc your identity is actually tied to the ownership of that coin. But after you have used that coin or transferred it to another users, you are actually signing full ownership to a new recipient wallet.

 You don't have any  reason to worry how the new owner spends it. If he carries out illegal activities, sure it would only be seen on the Blockchain that you were the previous owner of that coin. But I don't think you would be penalized for that.


 

[88mph]

But after you have used that coin or transferred it to another users, you are actually signing full ownership to a new recipient wallet.

 You don't have any  reason to worry how the new owner spends it. If he carries out illegal activities, sure it would only be seen on the Blockchain that you were the previous owner of that coin.

Thanks. But though I may conceptually be "signing full ownership to a new recipient wallet", from a chain analysis perspective, there may be no way to know that that new wallet is associated with someone else. It could just as easily be another wallet I created. (Of course if the new wallet has KYC Bitcoin associated with the new owner, that would presumably associate the Bitcoin transferred from me with their KYC. Right?)

[Findingnemo]

If you are really afraid of this, you can either :

-use a P2P service for the original purchase of your BTC, without KYC, so you don't have to worry about all that.
-or use a coin mixer before sending it to your friend, but you risk to flag the coins doing that

Thanks for the reply. And for the pointer to kycnot.me (and others).

I'm curious if coins obtained from all non-KYC sources of Bitcoin are equally at risk of being "flagged". Say I buy some Bitcoin off Bisq. Is there a risk I might never be able to send it to a CEX or other "government compliant" entity as it's flagged? In an ideal world everything would be P2P, and this would be a non-issue, but that's not the reality at this stage. Maybe I'm being unnecessarily paranoid, but these are the questions that come up as I'm trying to learn. Thanks again.

I understand your concerns of buying Bitcoin from Non KYCed marketplace so as precaution you can mix your coins before using it on any KYCed platform so the traces of those Bitcoin will be erased but we can't ensure anything that we receive from the mixer which may arise further query. However It's worth noting that even if your coins are flagged, it doesn't necessarily mean you won't be able to use them. It just means that they may be subject to additional scrutiny and investigation by exchanges or other entities that have to comply with government regulations. So if you didn't involved in any illicit activities and have the record for your income then you can survive.

[uchegod-21]

I never think anything like that before, because if i do, i may be paranoid of using bitcoin for any transaction using an exchange or any crypto-related service that uses KYC. Also, I don't think it would be necessary in chainalysis to know the owner of the origin of every bitcoin/transaction since then where the bitcoin comes from, because if they do, you will not be considered as the first owner of that coin nor the exchange/service you buy from, it might came from other platform before the exchange so on and so forth.

This is very thoughtful of Op. I have never reasoned something of this nature and I also think that majority of the people in this forum have not also thought about this. But if this is the case, I'm beginning to be scared of centralized exchanges. One can actually be implicated for what they know not about.
No wonder someone like o_e_l_e_o use to emphasis on privacy every time you see him write.

[m2017]

If you are really afraid of this, you can either :

-use a P2P service for the original purchase of your BTC, without KYC, so you don't have to worry about all that.

There is just cause for concern. What are the guarantees that when buying from others, there are bitcoin of them without a KYC (one of the past transactions) or have a connection with criminal money? A criminal trail can lead to you, a completely random person in this case, law enforcement agencies. My point is that the shadow of the activities of the previous owner of bitcoin (or one of them) can fall on you.

Probably, only a direct purchase from miners will help here.

-or use a coin mixer before sending it to your friend, but you risk to flag the coins doing that

Here, too, there are no guarantees that the service doesn't collect data about its customers and law enforcement agencies will not get access to this data, as was the case with the chipmixer.

This is another excellent reason not to use a CEX to buy your coins. There's no point in using them, as we have Bisq, Peachbitcoin and many others at our disposal (kycnot.me is your friend).

As for the substance of your question, it's complex, the real question is more: why would an agency be interested in your friend's activities ? He would need to truly exagerate to get them to look for you following a transaction he might have made with the coins you sent to him...

The question is more confusing than complex.

[Nwada001]

This all depends on how the KYC BTC is being spent, and it also depends on the gravity of the crime the new owner used it to commit. Since there is no name tag on every particular address, the address and its coin can only be traced back to you through the exchange where you purchased the coin. If they hand over access to the authorities and they are in pursuit of the person who committed a crime using the BTC purchased by you, They will call for your attention. Your documentary and explanation are the only things that could prove you not guilty and innocent. Even if you are not being charged for any crime, if the case is further investigated, you will be regarded as an active witness in a criminal case.

[Bitstar_coin]

If this were to be the case then all money from banks would carry same propagation and can also link the original sender of the money because all your details are in the bank. If this is not happening in the traditional financial system why would this be a problem in the crypto space?
People uses fiat received from other people on shady deals all the time I have never heard such money is being traced to the original sender. Is the situation not similar?

[Z-tight]

You can't protect yourself from buying coins that may be tainted, just the same way you may have used a 'tainted' dollar today without worrying about it, just use BTC freely and if you ever buy tainted coins that creates a problem for you with the authorities, which will unlikely happen, you can prove your connection with the coins.

Worry about flagged or tainted coins when it is within your control, for example when you use CoinJoin or Mixers, do not send such coins immediately into a centralized exchange, you can try to break the chain first or spend it through a p2p exchange.

[88mph]

Thanks for the various replies!

It seems that, in the case of KYC Bitcoin, keeping good records of the UTXOs sent to others or received from others would be important. Say I buy a used car off Craigslist. If I keep a careful record of the UTXOs involved in the purchase, and possibly also "KYC" on the person I bought it from, then I could always provide that as "proof" if the Bitcoin were ever to be used for something illegal and traced back to me. Hopefully it's an unlikely scenario, but at least keeping records would make it easier to put up a defense if there were to be an issue down the road.

I think it's starting to make more sense to me now. I appreciate the insights.

[thecodebear]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

Chain analysis is obviously not an exact science. They are using their best guesses to track bitcoins. If you don't do anything illegal you don't have to worry. Chain analysis can never prove you did something once you have bitcoin from a wallet it knows you own to a wallet it doesn't know you own. So if you send bitcoin to someone else chain analysis at best cannot prove you still have it, or otherwise if it can connect that other wallet to someone else then it can prove you don't have that bitcoin anymore. So the only way chain analysis can prove you spent bitcoin on something illegal is if in fact you did spend bitcoin on something illegal like doing that illegal spending from a wallet that they know you own through KYC.

Your worry is a bit like worrying that you'll be in legal trouble if you own a store and a criminal who stole money comes into your store and buys something and you are worried about facilitating the use of illegal money. You did nothing wrong, you are not the criminal, so you're fine.

Also realize that the number of people who do illegal things with bitcoin is very small, so not only can chain analysis not prove you did something illegal that you didn't do, its also extremely unliikely you're gonna be sending money to someone who then goes and does something illegal with that money.


No need to worry yourself over needless things. If you don't worry about this sort of thing with fiat you shouldn't worry about this sort of thing with bitcoin.

[Ultegra134]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

I understand where you're coming from, but it's quite unlikely that anything unfortunate would happen to you, even if the Bitcoin you sold or moved was involved in illegal activities. You can simply show the transaction ID that it is no longer in your possession, but generally, it's doubtful that you'd get in trouble. I also had a similar question regarding KYCed Bitcoin, which is tied to your identity if purchased through a centralized exchange, but it was mostly regarding the taxation of cryptocurrencies.

Unfortunately, if you have transactions on centralized exchanges, it'll always be shown that you have purchased crypto in the past. This is why P2P exchanges come into place—to avoid being screened, even though it's quite unlikely, unless we're talking about thousands of dollars worth of crypto.

[CryptoHeadlineNews]

Hi all,

Sorry for the confusing title. I'll try to explain:

What if I buy some KYC Bitcoin through an exchange and then move it to a wallet. And then, let's say I either give some of that Bitcoin to someone else (maybe a charity or a friend), or use it to buy something (maybe a used car off Craigslist). At this point, from my perspective, I no longer own that Bitcoin (i.e. it is "beyond my ownership"). But now what if the person who now "owns" that Bitcoin uses it for some illegal purpose? I would have no knowledge of that transaction, but my KYC has "propagated" to the new owner. If that transaction were to be traced, assuming it hadn't been linked with KYC transactions with the new owner's identity, I would still be the last owner of the transaction from a chain analysis perspective, right? This is not something I've heard discussed before (but admittedly I'm new hear). Seems like a risk.

Thoughts?

Thanks.

First of all, I will like to correct the motion that there is nothing called "KYC Bitcoin" but rather we have Bitcoin that could be bought on an exchange that uses KYC (i.e Know Your Customer), whereby you are required to submit some documents to allow you buy, sell or trade Bitcoin. Secondly, the moment you gift your coin or it leaves your wallet you loses ownership of it to the next person.
However, I have seen situations whereby people get arrested simply because someone bought a coin from them through p2p with a stolen fund and when traced they happen to be the suspected victim, whereby in such case if only you could prove that you are innocent, you are likely to get allow free, which is why it's good to always use a reputable exchange.

[qwertyup23]

I think this kind of scenario speaks on the importance of mixers in the cryptocurrency space. The fact that they can at least hide your transactions make it more safer for you to send your BTCs to someone.

But think of it this way- if you have given paper money to someone and that someone uses it for illegal means, does this mean that you have propagated or enabled the person to commit the wrong done? I think not- it still boils down to the person in which he/she used the BTCs for, whether legally or illegally. If this were the case, I am confident that nothing would happen to you and no one would be able to question your intentions.

If you are really skeptical about it, then you may also exercise the option of purchasing BTCs in exchanges that do not require any KYC documents to be submitted.

[vv181]

Maybe I'm being unnecessarily paranoid, but these are the questions that come up as I'm trying to learn.

No, it is a valid concern. So I don't think you are not unnecessarily paranoid.


Bitcoin is pseudonymous by nature and it has a public blockchain. The concept of fungibility and taint is also preserved to be discussed here. Some entities flag and consider some bitcoins as bad/dirty or good/clean. Some governments maintain a blacklisted address. Some mining pool was trying to filter a specific utxo. Also, A mixer coinjoin operator collaborates with the blockchain analysis company to scan the bitcoin before they are able to be mixed.

In regard to your case, I think you have found an understanding of the matter. For further options to acquire bitcoin in a more privacy-preserving way, consider the non-KYC solution. Also, I suggest this resource for related information about Bitcoin privacy: https://www.lopp.net/bitcoin-information/privacy.html.