How to have reasonable privacy safely when paying?

[apogio]

What I would like to know is a way to test your utxo before you send it into a KYC exchange, to know if they are tainted or not. Since we have no way to know where the coins that you recieve are comming from, it would be useful to run the utxo through some sort of database, like similar to haveibeenpwned website but for addresses, and this way one would make deposits and transactions with a better peace of mind.

This is exactly what blockchain analysis companies do. I am strongly against them! Essentially what you want to do is to make sure that a UTXO pass certain rules. Thus, what you want to do is to mess with Bitcoin's fungibility, making it look like some coins are good and some coins are bad.

Let me draw a picture for you. Let's say that instead of you, bitcoin nodes decide to do coin analysis.
Imagine a node, that runs blockchain analysis and validates only the transactions that pass certain rules. This would be a disaster for Bitcoin. All our efforts, all our hopes would be gone!
By the way, Bitcoin Knots is hard form of Bitcoin Core. They do exactly that! The node allows only for specific input size, making it impossible for them to validate transactions from Whirlpool coinjoins. Do you think this is correct?

Do you know that KYC exchanges are allowed to run blockchain analysis software to allow incoming funds only from coins that haven't been mixed or coinjoined? Do you think this is correct? Imagine receiving a UTXO, making coinjoins with it, to make it impossible to tell which input matches which output, and then sending it to a KYC exchange to cash out. Then, the exchange will simply run its software and they will say "thanks for gifting us the bitcoin, good luck in your life".

Do you also know that "The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins." ? This is a tweet that was made by wasabi devs. Just saying... I didn't invent this tweet, I didn't imagine it... They said that they can "potentially" refuse your coins from being coinjoined. Do you think this is correct?

I am in favor of coinjoins. I am in favor of doing whatever you like with your coins. Don't fall into the trap of "tainted" bitcoin. If you want the piece of mind, just do some coinjoins and you will be fine.

Don't use KYC exchanges anyway because they know who you are! So they know who "takuma sato" is in real life.

Use bitcoin as a tool. That's what it's meant to be.

Decide wisely who the "enemy" is. If you are worried that you own coins from illegal activities, let me tell you that anyone potentially owns this kind of coins, even if we use coinjoins. The only way to tell if the coins you own derive from illicit activities is to run blockchain analysis.

But please, make sure to remember that KYC exchanges are a disaster. Blockchain analysis is a disaster. Use reputable open source software instead and maintain your privacy. Let's say that in order for you to be private, you need to find a way to make "takuma sato" a persona that receives coins from a campaign, but then this persona sends the coins somewhere and nobody knows where.

Cypherpunks say (I think it was https://bitcointalk.org/index.php?action=profile;u=976210 who said it):
- "If you’re not doing anything wrong, you have nothing to hide."
- "No! Because I do nothing wrong, I have nothing to show."

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[BlackHatCoiner]

Do you also know that "The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins." ? This is a tweet that was made by wasabi devs. Just saying... I didn't invent this tweet, I didn't imagine it... They said that they can "potentially" refuse your coins from being coinjoined. Do you think this is correct?

In addition to that, which one could reasonably assume they had had pressure from their government, they are very pro-taint in general. In this post, you can discover brilliant findings from the Max Hillebrand's podcast (a Wasabi dev), in which it is demonstrated that not only don't zkSNACKs treat each coin equally, but they're thinking of introducing the option for each client to approve and disapprove with whom they will do coinjoin.

Another good finding in the next post, in which Max admits blockchain analysis produces false positives and could treat an innocent individual as criminal, but they nonetheless fund it, and are quite happy with criminals being blacklisted as well. If you search on Kruw's posts in this board, you can find quite a lot of assertions of him being satisfied with tainted coin owners being deprived the right for privacy.

But, no. "Privacy for everyone in the digital age", above all!  

If you are worried that you own coins from illegal activities, let me tell you that anyone potentially owns this kind of coins, even if we use coinjoins.

That sums it up perfectly. Taint is simply inaccurate, because, to begin with, you can't tell with certainty whether a bitcoin changes hands.

[dkbit98]

Say I want to meet with someone that sells an item or service, how do I pay this person without revealing your funds?

You will have to reveal some your funds when paying with bitcoin, at least partially.
With right address management and with help of coinjoin, mixing and joinmarket you will significantly reduce the risk of someone knowing everything about your coins and transaction history.
Another solution is to use Lightning Network and second layer solutions like Liquid Network with L-BTC that has confidential transactions, and I think this is perfect for spending account.

2) In order to send the coins into the Android software, you have to transact from Bitcoin Core, into the mixer, then into the Android software address. This is a lot wasted in fees. There is no way to save some money in this process?

You can do the same thing I wrote above, use Lightning and/or Liquid Network and you will save on fees and time.

[takuma sato]

What I would like to know is a way to test your utxo before you send it into a KYC exchange, to know if they are tainted or not.

You should read [Blacklist] of unreliable, 'taint proclaiming' Bitcoin services / exchanges. "Taint" is a business model of chain analysis companies selling the notion of taint based on arbitrary conditions that can change at any moment. It's an attack on Bitcoin's fungibility and should be avoided. What happened to your money before you legally earned it is not your fault.

To quote myself on the subject:

I've seen several posts lately from people willing to treat Bitcoin as non-fungible because they believe some coins are "tainted".
I'd say this is a severe threat to Bitcoin, and I wouldn't be surprised if governments use this because they can't stop Bitcoin in any other way. If people believe Bitcoin is "tainted", they won't accept it anymore. "We" should really inform people not to fall for this.
Nobody would reject a dollar bill because it has previously been used in a crime, despite the fact that 85 to 90% contains traces of cocaine. Claiming Bitcoin isn't fungible is just plain stupid.

This site explains very well what it's all about:

Coin validation proposed to offer as a service to trace coins and try to give you a rating about how the history of the coin from your point of view and to offer that as a service to businesses. I think this could be quite dangerous because it goes back to that 17th century court case where now you could receive a coin that is perfectly valid at the time that you receive it, but a few weeks later a crime is uncovered and now your coin is tainted. So if this coin validation service is advicing many of the merchants where you would want to spend your coin at, it's tainted and now the merchant would refuse to accept your coin. That's a strange experience for you; you're holding a coin that you might have to sell at a discount to get rid of it. The aggregate effect of this might create a run on the bitcoin price. So it reopens this long-set legal principle that currency or currency units are all equal.

I can't stress enough how important this is!

Don't all mayor exchanges have Chainalysis or similar flagging software/service active? And if not, then it's just a matter of time they all do, probably legislation will force them to have them in place to stay in business. So all the liquidity will be sitting on these exchanges. You also have no control over where the person you send the coins to will be depositing them. Like I said, if someone pays you in BTC that is on some of these lists, and you pay to someone, then this someone puts it on Coinbase (most likely, most mainstream exchange) to sell, and this person gets asked where this money came from, this person will point to you. So yes, this is a huge problem when it comes to fungibility. A dollar bill is just a dollar bill. You are most likely just going to be spending it in a shop, not putting it into an ATM. Yes, you may be holding counterfeit, or fake dollar bills, but there is no permanent ledger, the cashier probably will just take the bill. People don't often spend BTC because it goes up in value, they will sell it for a profit in an exchange most likely in the future. It doesn't matter what is and isn't stupid, if someone makes a law around this and you end up in trouble it wouldn't matter, the consequences are real. So yes we should be pushing for this not to happen, but this is different than pretending to not care and just go around sending coins to exchanges without taking the necessary steps to not trigger these systems.

[LoyceV]

Don't all mayor exchanges have Chainalysis or similar flagging software/service active? And if not, then it's just a matter of time they all do, probably legislation will force them to have them in place to stay in business.

It's really up to their customers. As long as they keep using them and accept a "magical" unexplained thing called "taint", then indeed they all get away with it.

BTC that is on some of these lists

I have one of those lists! It's this one! And that shows the problem: anyone can make up anything about any UTXO.

[apogio]

I have one of those lists! It's this one! And that shows the problem: anyone can make up anything about any UTXO.

Oh my god, this explains my following point perfectly! But I will post it anyway, because I have written it already.

Like I said, if someone pays you in BTC that is on some of these lists, and you pay to someone, then this someone puts it on Coinbase (most likely, most mainstream exchange) to sell, and this person gets asked where this money came from, this person will point to you. So yes, this is a huge problem when it comes to fungibility.

No, this isn't a huge problem. Let me ask the obvious question. You say "this person will point to you". Who is this "you"? How will they know it's you?

Let me draw the picture again:

1. takuma sato gets paid 1 BTC.
2. takuma sato sends this 1 BTC to me (apogio).
3. apogio goes to a KYC exchange and deposit this 1 BTC (don't ask why, I just make it more difficult to prove that the scenario is invalid).
4. the KYC asks apogio (the real person behind the persona apogio), where did they get it?
5. apogio says: "I received it from someone with this address bc1q....".
6. then, the authorities (the most strict ones that you can imagine) search on google the address.
7. they (somehow) find that it is linked to a persona called "takuma sato".
8. they search in the forum for other posts and they make sure that "takuma sato" owns this address.
9. then?

Trust me, I am the one who will have a problem. I will be the one to answer the questions for having this Bitcoin. I will face the consequences for deciding to use a KYC exchange. That's all.

Notice, that in this scenario, I didn't add any protection measures from your side, just to make it more clear.

If between steps (1) and (2), takuma sato decided to do some coinjoins, or to just simply add one more address in the route, by sending to address B and then to apogio, then the authorities would have to search who this address B belongs to, before going back to "takuma sato's" address.

[takuma sato]

I have one of those lists! It's this one! And that shows the problem: anyone can make up anything about any UTXO.

Oh my god, this explains my following point perfectly! But I will post it anyway, because I have written it already.

Like I said, if someone pays you in BTC that is on some of these lists, and you pay to someone, then this someone puts it on Coinbase (most likely, most mainstream exchange) to sell, and this person gets asked where this money came from, this person will point to you. So yes, this is a huge problem when it comes to fungibility.

No, this isn't a huge problem. Let me ask the obvious question. You say "this person will point to you". Who is this "you"? How will they know it's you?

Let me draw the picture again:

1. takuma sato gets paid 1 BTC.
2. takuma sato sends this 1 BTC to me (apogio).
3. apogio goes to a KYC exchange and deposit this 1 BTC (don't ask why, I just make it more difficult to prove that the scenario is invalid).
4. the KYC asks apogio (the real person behind the persona apogio), where did they get it?
5. apogio says: "I received it from someone with this address bc1q....".
6. then, the authorities (the most strict ones that you can imagine) search on google the address.
7. they (somehow) find that it is linked to a persona called "takuma sato".
8. they search in the forum for other posts and they make sure that "takuma sato" owns this address.
9. then?

Trust me, I am the one who will have a problem. I will be the one to answer the questions for having this Bitcoin. I will face the consequences for deciding to use a KYC exchange. That's all.

Notice, that in this scenario, I didn't add any protection measures from your side, just to make it more clear.

If between steps (1) and (2), takuma sato decided to do some coinjoins, or to just simply add one more address in the route, by sending to address B and then to apogio, then the authorities would have to search who this address B belongs to, before going back to "takuma sato's" address.

It depends, if they are tainted linked to millions of dollars from selling drugs they may bother. You never know who sent you the coins. The problem is evident. They would try to contact theymos I guess, then check logs and so on. But im talking about buying in real life. You buy something in real life, and they will know who you are, even if you don't exchange personal details, you showed your face, there's cameras everywhere nowadays etc. If you don't see a problem of using BTC to pay someone and end up in some sort of investigation about drugs or whatever then I don't know what to tell you. BTC problem when interacting with KYC interfaces is obvious, wether you do it directly or you send the coins to someone and then they do it later on. And if you want to buy anything relevant (real state, diversify in assets etc) you are going to need to go through KYC). And if you want to buy in shops, pay for services etc, you carry yourself a person physically, when you pay you are there paying. This leaks information, and you don't know if your BTC are tainted or not. I don't see how this isn't a problem. It is basically a lottery everytime you deposit or pay someone with BTC where you hope your coins are not tainted. Chances are very low yes, but it's still there.

Don't all mayor exchanges have Chainalysis or similar flagging software/service active? And if not, then it's just a matter of time they all do, probably legislation will force them to have them in place to stay in business.

It's really up to their customers. As long as they keep using them and accept a "magical" unexplained thing called "taint", then indeed they all get away with it.

BTC that is on some of these lists

I have one of those lists! It's this one! And that shows the problem: anyone can make up anything about any UTXO.

If authorities know or suspect an address was used to buy drugs, pay a hitman or something, and these coins end up in your hands and you deposit them or pay to someone IRL with them, which then goes into a KYC exchange, then you are now linked to this problem when you don't even know it. If they can reach you they will come asking. I am personally not looking forward to that. It is not magical if it has real consequences.

[apogio]

It depends, if they are tainted linked to millions of dollars from selling drugs they may bother. You never know who sent you the coins. The problem is evident. They would try to contact theymos I guess, then check logs and so on. But im talking about buying in real life. You buy something in real life, and they will know who you are, even if you don't exchange personal details, you showed your face, there's cameras everywhere nowadays etc. If you don't see a problem of using BTC to pay someone and end up in some sort of investigation about drugs or whatever then I don't know what to tell you.

If you pay face to face, what is the difference between choosing Monero, Bitcoin or FIAT? Cameras will still get a picture of you. The vendor will also know your face.
If you pay online, you must use a shipping address. This detail will be the same, no matter if you use Monero, Bitcoin or FIAT.

It is basically a lottery everytime you deposit or pay someone with BTC where you hope your coins are not tainted. Chances are very low yes, but it's still there.

How is this different from what I said above? I will quote myself again:

If you are worried that you own coins from illegal activities, let me tell you that anyone potentially owns this kind of coins, even if we use coinjoins.

If you don't see a problem of using BTC to pay someone and end up in some sort of investigation about drugs or whatever then I don't know what to tell you.

I never said that it is not a problem. All I said is that I find it pointless to try to avoid it. If someone gives you $100 in dollar bills and you try to deposit at a bank, then if the serial number of the bills is flagged by the authorities, you will have the exact same issue. I am just saying this because it looks like everyone who uses the "tainted" coins arguments seem to forget it.

Anyway, it is obvious that we have very different opinions and that you follow the "tainted" coins approach / idea. I don't think we will ever agree, so, I think our arguments have been said and anyone can make their own opinion reading them.

[LoyceV]

If authorities know or suspect an address was used to buy drugs, pay a hitman or something, and these coins end up in your hands and you deposit them or pay to someone IRL with them, which then goes into a KYC exchange, then you are now linked to this problem when you don't even know it. If they can reach you they will come asking. I am personally not looking forward to that. It is not magical if it has real consequences.

Do you check the serial numbers of your bank notes for known crimes in the past before accepting them? I've said it before and I'll say it again: attacking Bitcoin's fungibility is the only way to attack Bitcoin. They can't shut it down, they can't stop it, they can't ban it, but they can make people believe they shouldn't accept it because certain coins might be bad!

If someone gives you $100 in dollar bills and you try to deposit at a bank, then if the serial number of the bills is flagged by the authorities, you will have the exact same issue. I am just saying this because it looks like everyone who uses the "tainted" coins arguments seem to forget it.

If this happens to banknotes, it's not to blame you, it's meant to catch a bad guy. There's a famous case in the Netherlands, where a murderer was caught when he started spending banknotes of the ransom he received, of which the numbers had been recorded. Karma eventually caught up with the murderer, when he was ran over by an excavator.
Catching murderers is a good thing! But with banknotes, it doesn't make people afraid to accept them, just like people shouldn't have to fear that certain Bitcoins are "different" than others.

[BlackHatCoiner]

BTC problem when interacting with KYC interfaces is obvious, wether you do it directly or you send the coins to someone and then they do it later on.

I believe there's a misunderstanding between Know Your Customer and "taint". Just because a company knows their customers, it doesn't mean they can trace their customers.

To put it this way: we all proceed to KYC when we make a bank account, or when we register to third parties like Paypal and Revolut. This has long been accepted as a necessary procedure to prevent money laundering. While in such institutions it is trivial to trace where the money goes, since they know all transactions and all transactions are made by identified individuals, that does not apply in the blockchain. When the bitcoin goes out of the KYC exchange, and several peer-to-peer transactions mediate, then nobody apart from the most recent owner can provably identify themselves. Exchanges deeming my coins as "tainted" holds as much water as my bank blaming me for deposing "tainted" banknotes.

That being said, I'm not sure what happens in a hypothetical scenario where you're accused of receiving bitcoin from drug lords. Does anyone know if there's a group of lawyers which have provided some insights regarding this matter, in the Bitcoin community?

[takuma sato]

If you pay face to face, what is the difference between choosing Monero, Bitcoin or FIAT? Cameras will still get a picture of you. The vendor will also know your face.
If you pay online, you must use a shipping address. This detail will be the same, no matter if you use Monero, Bitcoin or FIAT.

About using coinjoins etc being the same, if you use a coinjoin or something like that, you are hiding your amount held on an address from the payer, that is good, you increased privacy on your funds. You can also hide potential addresses linked to the one you are paying with. This is normal and anyone would want this when paying. Now if you deposit this into an exacty, it is true that who knows if they will or not trigger some chainalysis thing. So yeah, not much one can do that I can think of.

The difference frin fuat is the blockchain, it is permanent, public, and tied to that particular payment in that moment. Not so with fiat or Monero, even tho I would never use Monero, which has an even worse status than BTC, which leads to the next reply.

Do you check the serial numbers of your bank notes for known crimes in the past before accepting them? I've said it before and I'll say it again: attacking Bitcoin's fungibility is the only way to attack Bitcoin. They can't shut it down, they can't stop it, they can't ban it, but they can make people believe they shouldn't accept it because certain coins might be bad!

No, I don't check serial numbers. The difference here is, the systems at play with crypto are not the same as you giving some cash to a cashier or whatever. There is not some realtime global database on every payment. Also, cash in general, is used by regular people, grandmas etc. It doesn't have a bad rep (increasingly lately.. but in general, it is seen as normal). If you are a "Bitcoin person" you are standing out from the rest already. And governments hate crypto by default, banks do so too. This is why they block transactions all the time, even with KYC exchanges. So it's not the same thing at all. They will find any excuse to extract as much money as possible from you and scare you from using it. I am not looking forward to be used as an example of that. And as far as Monero, we can see what happened. It was kicked from most exchanges, you cannot cash out Monero to buy anything of relevance.

[LoyceV]

That being said, I'm not sure what happens in a hypothetical scenario where you're accused of receiving bitcoin from drug lords. Does anyone know if there's a group of lawyers which have provided some insights regarding this matter, in the Bitcoin community?

I've seen many real life examples with banks: they just block the account. Here (in the Netherlands), coffee shops are allowed to sell marijuana. Government "tolerates" it, although technically it's still illegal. But they let it be. So the coffee shops buy marijuana from illegal producers. It's a typical Dutch thing: a half-arse solution that doesn't do justice to either side of the equation. The end result is that banks see legal companies that do business with criminals, so banks just stay away from them. Prostitution is legal in the Netherlands, but again banks reject them as customers. The small number of customers is simply not worth the hassle and risk to them.
With Bitcoin, I think it's a different story now. There are far more Bitcoin users than coffee shops and prostitutes, so rejecting them all would be a serious cost to the bank.
I don't know how a crypto exchange would handle this. I've seen reports of funds being frozen, but it's never clear if that's a legit case and what happens. My guess is they'll just report it to authorities so they're compliant.
Back to banks: In the Netherlands, almost 2 million "unusual transactions" per year get reported to government. The money laundering fines lead to a huge increase of reports. I think banks now report just about anything, so at least they did their part.

Also, cash in general, is used by regular people, grandmas etc. It doesn't have a bad rep (increasingly lately.. but in general, it is seen as normal).

That's an interesting way of putting it. Cash is used by more criminals than anything else. The only reason it's seen as "normal", is because government approves of it. And they approve because they can control (and print) it.
I would argue fiat cash is a terrible system, and the more you understand how it really works, the worse it gets.
One of the main reasons I like Bitcoin is because fiat is so terrible, and continuously loses value. But ending the enternal inflation isn't in the interest of the ones in power. That may change if Bitcoin ever becomes big enough. I imagine a future in which fiat money has to compete against a currency that doesn't have inflation, so they can no longer print unlimited amounts.

[ranochigo]

No, I don't check serial numbers. The difference here is, the systems at play with crypto are not the same as you giving some cash to a cashier or whatever. There is not some realtime global database on every payment. Also, cash in general, is used by regular people, grandmas etc. It doesn't have a bad rep (increasingly lately.. but in general, it is seen as normal). If you are a "Bitcoin person" you are standing out from the rest already. And governments hate crypto by default, banks do so too. This is why they block transactions all the time, even with KYC exchanges. So it's not the same thing at all. They will find any excuse to extract as much money as possible from you and scare you from using it. I am not looking forward to be used as an example of that. And as far as Monero, we can see what happened. It was kicked from most exchanges, you cannot cash out Monero to buy anything of relevance.

Genuine question: then why would Bitcoin be in the discussion at all? If you are so worried, then using traditional fiat and ditching Bitcoin would be the way to go.

If your government is not fond of their citizens using Bitcoin, then they would find and make up reasons to find fault with you. Even if there is zero taint, I'm sure there is a good reason why you should get investigated. If you are afraid that there is a possibility that this would happen to you, stick to fiat. Else, if you are aware of your rights and understand how the law operates, I don't see how this would be an issue at all.

Otherwise, if you are afraid that exchanges would find fault with you, or whoever you're transacting with, then you should stick to fiat and PayPal. Zero taint doesn't exist, unless you are willing to pay a premium in exchange for freshly minted coins. You would probably have to declare your income source as well, I don't think it is worth the hassle and the paranoia for you.

[LoyceV]

Zero taint doesn't exist, unless you are willing to pay a premium in exchange for freshly minted coins.

You mean coins freshly minted by those evil miners who destroy the climate and emit more CO2 than my country? See what I did there? There's always another reason if a government wants to call something "bad".

[NotATether]

It's not clear to me how to go about this.

Use a new address for EVERY payment of Bitcoins that you receive.

Say I want to meet with someone that sells an item or service, how do I pay this person without revealing your funds?

Use coin control. Spend an output that is very close in value to what you are sending.

These are good, but they are not enough to ensure total privacy.

Ideally, you would want to send the transaction in a payjoin, which (and I'm sure you already know this) is just two transactions smashed together.

So there's going to be two inputs, and then there will also be I up to 4 inputs if the amount is not exact, otherwise as low as two outputs.

A payjoin is not easy to coordinate manually so this will most likely be orchestrated by the platform that you are trading on such as Bisq.

[takuma sato]

It's not clear to me how to go about this.

Use a new address for EVERY payment of Bitcoins that you receive.

Say I want to meet with someone that sells an item or service, how do I pay this person without revealing your funds?

Use coin control. Spend an output that is very close in value to what you are sending.

These are good, but they are not enough to ensure total privacy.

Ideally, you would want to send the transaction in a payjoin, which (and I'm sure you already know this) is just two transactions smashed together.

So there's going to be two inputs, and then there will also be I up to 4 inputs if the amount is not exact, otherwise as low as two outputs.

A payjoin is not easy to coordinate manually so this will most likely be orchestrated by the platform that you are trading on such as Bisq.

There will always be problems when dealing with fiat interfaces. I think the best possible thing to do would be to move to a jurisdiction that does not treat Bitcoin users as criminals by default. Unfortunately it is what it is. Which would be such jurisdiction? Im not sure, beside maybe Salvador, which im not into.
At the end of the day, what will bring the most privacy is an incentive for users to never leave the Bitcoin circuit. I think once governments ban cash, people will have an incentive to stay in Bitcoin and make payments, assuming LN manages to deliver an user friendly solution, and assuming there's enough privacy there to do so.

You will still require jurisdictions that are friendly to you to convert Bitcoin into any relevant tangible goods such as real state or diversifying in funds or stocks tho.

[ranochigo]

These are good, but they are not enough to ensure total privacy.

Ideally, you would want to send the transaction in a payjoin, which (and I'm sure you already know this) is just two transactions smashed together.

So there's going to be two inputs, and then there will also be I up to 4 inputs if the amount is not exact, otherwise as low as two outputs.

A payjoin is not easy to coordinate manually so this will most likely be orchestrated by the platform that you are trading on such as Bisq.

Which would involve what OP is afraid of; taint. I see this as a problem where can never be solved nor can it satisfy all of the requirements that people want. Compromises have to be made in one way or another, though I would argue that fungibility should be a given and that taint is a non-issue eitherways.