How do we use bitcoin in decentralized way?

[Fangtooth]

I have been studying bitcoin in depth for quite some time. I have understood that bitcoin is decentralized. But if I want to use bitcoin then I have to use an exchange to convert it to my local currency. Suppose I send bitcoin from my wallet to an exchange. In that case the employees or owners associated with that exchange will definitely know who the owner of this wallet is. Because, to use the crypto exchange, you have to submit various documents related to personal identity.

I myself have opened an account on an exchanger where my account was verified after submitting my personal information and a picture of the document as well as face verification.

So how can we actually be decentralized?


if someone has a large amount of bitcoin and has to use an exchange to spend some bitcoin from there then somehow the exchange authorities know who the owner of that wallet is. if the exchange company discloses the customer's personal information to an intelligence agency, an authority in the relevant country, or a scammer or fraudster, they can also use physical attacks to harm the bitcoin owner and try to snatch his bitcoin.

How do you protect yourself from such risks?

Because, I have understood that every bitcoin transaction is stored in the blockchain. while using the exchange, I have had to give them my identity and personal information. Since understanding these issues, these questions have aroused more curiosity in me.

[Ucy]

You could simply swap some of the Bitcoin for privacy coin like monero using an instant exchange. Once that is done you swap the monero back to bitcoin to a new Bitcoin address, then exchange the new bitcoin for your local currency. . This breaks the link to your main Bitcoin address, and eliminate or minimize traceability, atleast at your end or from your country. This means that bad actors in your country won't trace that to the main Bitcoin address. But you are likely not going to be hidden from foreign actors which is OK since they wouldn't take the chance to travel down to your country to steal from you. But understand that countries can share intelligence when it concerns addresses associated with serious crime, and they could very well trace things even if you use instant exchange, as long as the exchange is under their jurisdictions.



* In the future it will be possible to easily buy many kinds of goods and services locally with Bitcoin instead of exchanging the bitcoin to fiat.  And this will likely be in peer-to-peer decentralized manner

[Ambatman]

I will like to point that Bitcoin decentralization is different from financial privacy.
Bitcoin being decentralised means no central authority controls bitcoin protocol
Anyone can hold their own private key without permission or make transactions while relying on a third party.

if the exchange company discloses the customer's personal information to an intelligence agency, an authority in the relevant country, or a scammer or fraudster, they can also use physical attacks to harm the bitcoin owner and try to snatch his bitcoin.

There are decentralized exchanges like Bisq
It doesnt have to be a centralised exchange
You can even try an exchanger like peach bitcoin though there's a limit before kyc is requested.
There are other ways you can work on your privacy like avoiding address reuse and not disclosing your data online.

[Zoomic]

Just like @Ambatman rightly said, Bitcoin being decentralized does not mean that every platform that's built around it must also be decentralized, they're two different things and you need to understand the difference.

To own, hold or transact with Bitcoin, you don't need to put out your personal information, it's decentralized exchanges which independently operate as businesses that require such as part of their compliance policies.

If you want to remain private while using Bitcoin, then stick with self-custody and probably P2P trading. Also, Bitcoin transactions are public ledger and visible to all, practice "new transaction, new address" to reduce the chances of being traced through the your transactions on the block chain.

[serjent05]

@OP if you want to purchase an item from a centralized institution, it would be hard to apply the Bitcoin decentralization.  First, you are using a centralized platform, all transactions after that will be considered centralized because its foundation is based on a centralized institution, even if you pay for your purchase directly with Bitcoin, the transaction is recorded by the centralized entity.

I think you need to purchase an item directly from the seller and not use a centralized e-commerce platform.   This way the Bitcoin you send goes directly to the seller's wallet, and you do not have to register or undergo KYC on a centralized platform.  Any information can be communicated through a private channel, like a direct message between the buyer and the seller outside a centralized e-commerce platform. This way, no third-party centralized entity is holding the record of that trade.

[Alvin_talk]

But if I want to use bitcoin then I have to use an exchange to convert it to my local currency. Suppose I send bitcoin from my wallet to an exchange. In that case the employees or owners associated with that exchange will definitely know who the owner of this wallet is. 

No sane entity or exchange will rely solely on this if they want to connect account. For example, I receive my signature campaign earnings directly to my binance account, going by your premises I am the same person as my campaign manager just because he sent coins to my exchange address. I could decide to use my exchange address to receive small amount of coins from any user, so if you use this assumption it will definitely lead you to a false conclusion. And just as other users have said, there are exchanges that do little to no KYC, so if you are so concerned about privacy I suggest you go with those kind of exchanges.

[hmbdofficial]

No sane entity or exchange will rely solely on this if they want to connect account. For example, I receive my signature campaign earnings directly to my binance account, going by your premises I am the same person as my campaign manager just because he sent coins to my exchange address. I could decide to use my exchange address to receive small amount of coins from any user, so if you use this assumption it will definitely lead you to a false conclusion. And just as other users have said, there are exchanges that do little to no KYC, so if you are so concerned about privacy I suggest you go with those kind of exchanges.

Well maybe you kind of miss understood OP. I think he’s just worried and trying to find A way to spend his bitcoin without linking it to any centralised exchange that will require KYC because he doesn’t want his identity linked to a those bitcoin transactions. And you know frequently transactions from a particular address to an exchange could literally mean he owns that address. However I understand your point and example of receiving money from a signature campaign manager clearly but I think he’s only concerned about his privacy here.

I think using those instant swap that doesn’t require KYC to send those bitcoins to an exchange that might require KYC should solve his problem.  And from there he can proceed with his p2p. This way it break the link between the  bitcoin  address and the identity on the exchange.

[Abu-Naim]

Many people are using Bitcoin in centralized way, they rely on centralized exchanges to send and receive their Bitcoin, to buy for investment and so on, and these exchanges will request for your information as KYC, and from there, you can be tracked I think if something serious happens and the exchange is hold responsible for any criminal activities that might involve your wallet or so. I understand that p2p one of the reason why most people use exchanges, but there are alternative DEXs that can render similar service and will not request your information.

[Obari]

You could simply swap some of the Bitcoin for privacy coin like monero using an instant exchange. Once that is done you swap the monero back to bitcoin to a new Bitcoin address, then exchange the new bitcoin for your local currency. . This breaks the link to your main Bitcoin address, and eliminate or minimize traceability, atleast at your end or from your country. This means that bad actors in your country won't trace that to the main Bitcoin address. But you are likely not going to be hidden from foreign actors which is OK since they wouldn't take the chance to travel down to your country to steal from you. But understand that countries can share intelligence when it concerns addresses associated with serious crime, and they could very well trace things even if you use instant exchange, as long as the exchange is under their jurisdictions.

Don't you even with this methods you mentioned, you can still be easily tracked if they really want to track you ?
Just stay out of trouble at all cost
And I would have suggested using mixers but why on earth will I have to mix every of my coin for everytime I want to trade and most of these mixers have high deposit limits so for those who want to mix lower amounts might not be favored.

The issue with spending bitcoin directly and correctly for its purpose is becoming a major issue and should be of concern to everyone

[Cryptomultiplier]

@OP if you want to purchase an item from a centralized institution, it would be hard to apply the Bitcoin decentralization.  First, you are using a centralized platform, all transactions after that will be considered centralized because its foundation is based on a centralized institution, even if you pay for your purchase directly with Bitcoin, the transaction is recorded by the centralized entity.

I think you need to purchase an item directly from the seller and not use a centralized e-commerce platform.   This way the Bitcoin you send goes directly to the seller's wallet, and you do not have to register or undergo KYC on a centralized platform.  Any information can be communicated through a private channel, like a direct message between the buyer and the seller outside a centralized e-commerce platform. This way, no third-party centralized entity is holding the record of that trade.

That's in summary, knowledge of how to use non custodial swap  which encourage wallet to wallet trading without i.d verification is important.

Also, there's the use of P2P trading which of course bypass the use of a CEX and then there's using CoinJoin and UTXO management privacy tools which mixes up transactions and helps hide any trails of such transactions on the public ledger that can be linked back to you in an instant.

[macson]

I have been studying bitcoin in depth for quite some time. I have understood that bitcoin is decentralized. But if I want to use bitcoin then I have to use an exchange to convert it to my local currency.

The part I marked is pretty confusing. Is it me who's having trouble understanding it, or were you drunk when you wrote it?

And actually, centralized exchanges aren't the only way to buy or trade your Bitcoin. There are still options like decentralized exchanges that don't require KYC, or you can go P2P with someone else through forums or other platforms.

[Nothingtodo]

If you want to make transactions while hiding your identity then you will have to send them to the cex after swapping them in privacy coins. Or if you want to make transactions from the exchange to your wallet  you will have to send privacy coins from the exchange wallet to your hardware/software wallet. Privacy coins will show you different addresses when you make transactions, making it very difficult to find the right owner. For this reason, privacy coins create a ringsignature, i.e., your identity is mixed with multiple previous transactions to create a haze, making it impossible to identify you. This is one of the main features of privacy coins, where their only target is to give you a complete security ring.

[EluguHcman]

I have been studying bitcoin in depth for quite some time. I have understood that bitcoin is decentralized. But if I want to use bitcoin then I have to use an exchange to convert it to my local currency. Suppose I send bitcoin from my wallet to an exchange. In that case the employees or owners associated with that exchange will definitely know who the owner of this wallet is. Because, to use the crypto exchange, you have to submit various documents related to personal identity.

I myself have opened an account on an exchanger where my account was verified after submitting my personal information and a picture of the document as well as face verification.

So how can we actually be decentralized?

Just for an information, Bitcoin users are not Decentralized rather, it is the Bitcoin network that is Decentralized.
The exchange platforms are extremely regulated by the authorities and therefore demands users from uploading their KYCs and where you have revealed your identity, the authorities automatically takes control over your funds.

To enjoy Decentralization in the crypto space, you must use the non custodian Wallets that gives you total control of your funds whereas, you have your private keys under your custodian.

Also know that Decentralization in the industry is different from keeping anonymity while Bitcoin and crypto transactions is pseudonymous.

[Alvin_talk]

Well maybe you kind of miss understood OP. I think he’s just worried and trying to find A way to spend his bitcoin without linking it to any centralised exchange that will require KYC because he doesn’t want his identity linked to a those bitcoin transactions. And you know frequently transactions from a particular address to an exchange could literally mean he owns that address. However I understand your point and example of receiving money from a signature campaign manager clearly but I think he’s only concerned about his privacy here.

No, I didn't. If truly the reasons he stated are the major reasons why he is bothered about exchanges, I don't think it's really necessary because he is just over thinking the whole thing. That a wallet address frequently sends coins to an exchange is not enough evidence that it belongs to the user of that exchange address. It could be that the exchange address is a salary address or maybe a donation address as the case may be. I understand that privacy is important but not in this sense because no body its gonna keep chasing after the wind since there is no reliable way to truly confirm that these exchange and wallet addresses are connected.

[d5000]

How do you protect yourself from such risks?

There are currently a few ways to acquire Bitcoin without submitting personal info to anyone. Even on Bisq you have to provide your bank account information to your trading partner - they can then see who you are once you sent them money. And if you buy with cash, the counterparty sees your face - it's still a good method but in theory they could take a photo from you and search you.

The original way to get Bitcoin totally without intermediaries was to buy mining hardware and mine. But this is very complicated already since ca. 2013 as the hashrate is far too high for most "domestic" miners. You may try this method though with altcoins, or if you have access to almost free energy (e.g. solar, wind, flare gas etc.).

An alternative way is to acquire Bitcoin selling storage space. This works with some altcoins like Siacoin, or Storj.

The nice thing is: once you have a decentralized cryptocurrency in your hands, you can use totally trustless and decentralized techniques - mainly atomic swaps - to exchange them to Bitcoin.

It's way more compllicated to sell Bitcoin without providing personal data. With P2P exchanges you also provide bank account data, so cash is one of the few good options. But there's another way: you can simply spend the Bitcoin. In many cases merchants don't request personal information. And if you buy physical items you can use a friend's home address for the good to be delivered.