Topic: How to leave KYC for good - page 2. (Read 785 times)

My point was that if you are laundering money, you can do so at rates far below 20%.

Because if I'm not running my own Lightning node, then I'm relying on someone else to open my channels, generate and broadcast my payments, generate invoices for any incoming payments, monitor and close my channels. An individual Lightning node in the route my payment takes might not be able to see the final destination, sure, but the person or service hosting my wallet for me will.

How this? The node provider (like the Breez node that all little Breez app nodes connect to) can't look inside the payment and see the destination. They just see the next hop; it's like onion routing.

Would you apply for KYC at a company that has no office?

As far as I understand money laundering, paying taxes isn't what they're concerned about. Let's say you've earned $206 million as a drug smuggler:

You'll be like this:


I'm pretty sure paying 20% on tax would be a very good deal to be able to legally spend $165 million.

Which is part of the reason why you should only ever use addresses once and be very careful about creating and consolidating change inputs, as I've discussed above.

Lightning can be better, but if you are not running your own Lightning node over Tor (which I would guess the majority of people are not doing), then you are either broadcasting your IP or you are revealing everything to your third party node provider.

Sure, but that is also a very ineffective way for a criminal to launder money due to taxation. If I buy 20 bitcoin at $50k each and sell them tomorrow at $50k each, I have realized no capitals gains and therefore owe no tax. If I claim that I mined my 20 bitcoin ten years ago, then I have now realized $1 million in capitals gains and owe whatever the tax rate set by jurisdiction, usually somewhere around 20%.

I agree, but I like to believe that they would accept a signature from an address that held 20BTC 8 years ago as proof that you acquired it 8 years ago, even if there is no trace to a current funded wallet.

That's good advice, since we established in this thread that how it will be handled, varies heavily by country. I didn't expect it to be this vastly different depending where one lives, but it makes total sense. Also any of the info I gathered could easily be wrong / outdated in 1 or 2 years time as laws change all the times. Sigh.

Yes, it's kind of like the fish that's in the water and doesn't even realize it's in the water because it's its normal environment.

Anyway, we are talking about in theory having bought and never spent without KYC.

It's one thing if you bought Bitcoin years ago, they're at one address, and you've never touched them. Even if you bought from a decentralized exchange, or Localbitcoins in person, it's easy to prove they are yours and you won't have a problem.

Another case would be if you have made transactions, but they are traceable, and you can sign messages.

But then we have the other case in which you supposedly bought Bitcoins years ago but they have passed through a thousand places, maybe you mined them but you can't prove it and they have passed through mixers and crypto casinos (which also help to lose track) and you declare this year that you have X Bitcoins for a long time.

I still think that if you can't trace the steps you can face a problem especially depending on the amount. If we're talking about $1k, you're not going to get in trouble anywhere. At a bad one they will apply 0 purchase cost but they are not going to start a criminal investigation.

I say this because if you declare say $1M saying that you bought 20 bitcoin cheap 8 years ago, but the only thing you can justify are the last transaction that was made from a mixer to the current address or addresses a month ago, that the treasury of a country let you declare for the price you say and the date of purchase that you say without being able to justify it, what they are doing is opening the door to money laundering everywhere.

Any mobster who wants to launder drug or arms money, could buy Bitcoin, run it through a mixer or several, casinos etc. and say he bought it a long time ago for $200.

I don't think the US or any other country's treasury will tolerate this.

The best thing to do, no matter which country you are in, is to consult a specialized tax advisor.

Gotcha! So I guess it’s not very clear cut what authorities accept as proof of buy time of Bitcoin.

I see! Here’s another point though: from my research, in most countries buying stuff with Bitcoin is considered a trade. So if you e.g. live on bitcoin (transfer all your salary into BTC and swap back to € via Bitcoin-cards and bitrefill or buy in shops that accept bitcoin) you’re essentially a high frequency trader
So people doing this I feel need to be extra cautious about their legislation and if it’s not gonna bite them in the ass in the long run. Like, it will be super hard to keep track on when you ‘bought’ and ‘sold’ how much BTC for how much fiat. So if a good amount in BTC accumulates by just spending less than what you earn, and Bitcoin price goes to the moon, a person can really get in trouble. I feel this is talked about way too little.

I know right! That’s always been one of the arguments for Bitcoin though, but I think being pseudonymous in your Bitcoin purchases ist most practical through LN. It proves to be very tricky to hold apart various addresses e.g. when using one to order something to your home, all anonymous purchases linked to that address get deanonymized and stuff. Lightning makes it much easier.

I'm saying: "it depends" For tax records and credibility with authorities, it's probably best to keep as many paper trails as possible. But for privacy, it's best to completely get rid of all of it.
So it depends on the reason you're using a mixer, and who you're trying to hide your trail from.

Exactly!

If you're an active trader making a living out of trading, you'll have to pay income tax on your profit. But there's quite a large gray area between "active trader for a living" and "trading once in a while".

For most people, the creditcard company knows all their darkest secrets

Wait, didn't you recommend to keep the receipt so you have a paper trail and can prove when you bought the coin? Or are you saying it's fine to trash the receipt, but keep original keys, so you can prove e.g. you possessed 100BTC in 2012 and possess 100BTC now, so those are equal amounts, and you're good, even though there is no connection between them?

Because without mixing receipts, the 2012 coins could have been lost or gambled to 0 and the 'new' 100BTC could have been acquired through illegal activities in the mean time.

Interesting, so this means NL would be worse than DE for HODLing, but better for traders, right? Since they don't care about your stash growing or shrinking, just about its total value at a given point in time.. Interesting.

Yeah, I have to admit: right now it seems to me that if you just buy to long-term HODL, it's not really too bad to have KYC coin, since:
1) If you live in a place with wealth tax, you have to declare holdings annually anyway, so you can't be 'anonymous' in a way that nobody knows how much you own. However, if you hold non-KYC coin at least there's no company (exchange) knowing your holdings, just the government.
2) If you live in a place with capital gains tax, it would be possible to keep verifiable evidence of the purchase for non-KYC coins of course, but it's easier to prove you bought on an exchange. And if you don't spend the coins until a very long time in the future, nobody can use your Bitcoin info to track your purchases etc. Maybe just exchange a small fraction for LN-BTC and spend that on stuff if you need.

I see one major point for holding non-KYC Bitcoin, which is if you also spend a little from time to time and want those transactions to be anonymous.

Also, reading more through all the laws lately (hence less activity on the forum lol): Germany so far looks very good. If you can prove that you bought your Bitcoin more than 1 year ago, you can sell (or trade for a property, car, etc.) without taxes.
Still be careful on the aspect of 'where did the money to buy your BTC come from' though. Let's say you transferred funds from an old wallet to a new one (yesterday) and threw the old one away (we already established in this thread not to ever trash pk's but let's assume this can happen): you must be able to prove you bought the Bitcoin yesterday, since you have no way to prove you bought them a long time ago, by destroying the old keys. So if you acquired tons of Bitcoins yesterday, but are atm homeless, things won't add up in the future and you might get into trouble about 'where does the money come from', even though there won't be a tax evasion issue in Germany due to +1yr holding.

I get the feeling many Americans don't realize how good a deal that is!

I suppose it depends in your jurisdiction. If you have been evading a wealth tax, then of course you will have to face the consequences as and when your tax authority finds out. But if your jurisdiction only requires tax to be paid when you cash out, such as with capital gains tax in the US, then I'm not sure what else you should do. The IRS have specifically said that if you have only bought bitcoin, and not sold/spent/traded it, then you do not need to declare it. I struggle to see how they could prosecute you for not declaring your holdings when they have specifically said you don't need to (although that's not to say they wouldn't try).

Well, I think we already talked about this in another thread. I'm not convinced by your analogy because when it was easy to win 600 bitcoins playing a few hands of poker, those 600 bitcoins were not worth $30M.

If you suddenly appear today before tax authorities and declare 600 bitcoins, it's very suspicious that you haven't declared anything before. That's why I was giving the example of Al Capone, they couldn't prove that he had murdered, extorted, etc. The only thing they could prove is that he had more money than he could legally justify.

Let's say you have an average salary of $50k per year. You haven't sold (or declared) anything when those 600 BTC have turned into $100K, $500K, $1M, $2M, etc? That's very suspicious. Not impossible but suspicious.

This will also depend on the country and its tax authorities. I wouldn't gamble my wealth and my freedom trusting that the country's authorities will understand how Bitcoin works and that if I show up with $5-30M out of nowhere, they will let me pay taxes without any problems.

If you show up with $30M today in a country where there is Wealth Tax let's say from $1M onwards, you will have more problems.


Yes, but I asked him what amounts we were talking about:


Not to suddenly declare $5-30M of which you cannot justify the origin.

I lost my basement in a tragic boating accident.

If you keep the receipt, you risk compromising your privacy, which is why you used a mixer in the first place. If you want all traces to be gone, you should not keep the receipt.

They ask for the total amount, in euro, on the first day of the previous year.

Short translation: miscellaneous possessions, such as Bitcoin and other investments. This also includes for instance the 8 tonnes of gold you have in your basement.

That's very good to know, thanks! I mean in a worst-case scenario, that's still better than having it seized or something. Especially for the early adopters I mentioned, who most might not have have the OG keys anymore: if one would sell a $1M Bitcoin in the future that they bought for e.g. 100$, taxing 999,900$ vs. taxing 1,000,000$ doesn't make too much of a difference.

I'd like to believe that as well, but I guess only future will be able to tell.

Right, right, makes sense. I'll make sure to find the old private keys for the majority of my funds, for sure and try to spread awareness about this issue then! People need to know they need to basically keep the wallets on which they first receive their Bitcoin purchases (even if later moving funds to e.g. hardware wallet) until they sell for cash or use it to buy stuff.

Damn, I just now realized how important this will be in the future. I feel, it should be as popular as "not your keys, not your bitcoin"! For sure it should be second after that phrase! And plastered over all decentralized exchanges and p2p marketplaces: "Please store the private keys on which you receive your BTC - even after sweeping!"

Then they should boldly state "Keep this receipt until caching out for fiat!" as well.

I'm wondering (iirc in NL) how do you 'declare' your holdings? When filling out tax stuff, you put in the BTC amount that you hold? Or public keys? Or the EUR amount?

It's the other way around: If you buy the private key from an address that held 100 Bitcoin in 2010, you can sign a message that proves you already owned 100 Bitcoin when it was very cheap. In other words: you earned from legal capital gains, and not from selling drugs on the dark web. So you'll pay taxes, but stay out of jail.


Any decent mixer gives you a signed receipt. If the mixer is credible, it can act as a paper trail.

"LoyceV" doesn't have a passport and didn't get Bitcoin through KYC. But I as a person I am not hiding them from taxes. So I'd say I'm a bit in between.

If you are unable to prove the time (and therefore the price) which you acquired an amount of bitcoin, then the most likely outcome is the IRS assumes your cost basis is zero, therefore charging you capital gains tax on the full price you sell/trade/spend it for.

There has never been a time in history where people were freely giving away millions of dollars in bills, or could freely earn millions of dollars with a few hours of computing time. If you were in bitcoin early enough, you could earn 100 BTC from mining two blocks on your home computer, or claiming from a couple of faucets (which used to give out 5 BTC), or doing an odd job for someone, or even just asking nicely for someone to send you some. Or maybe win 600 BTC from playing a few hands of poker. I don't think simply having 100 BTC of unjustifiable origin is enough to land you in jail. I think you'd have to commit actual tax evasion first.

Alright, then I'll better try to find those pk's Just to be on the safe side..

From the thread you mentioned, though I found this interesting, since it corresponds with what I'd assume would happen when asked about the origin of non-KYC coin:

You write when you bought it, write that you got it in the past from a private person or anonymous exchange and pay the taxes on the gains (if you live in one of the countries that I listed in my OP which only cares about the sale of Bitcoins (income tax vs property tax)).

By the way; what if someone bought Bitcoin in 2012, mixed it, etc. and now has an equivalent amount of coin, but in another wallet; since the amounts are comparable, if they still got the keys to the 2012 wallet, they can prove they bought it a long time ago, right? Even though there is no clear paper-trail to their current wallet?

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This convo went pretty much to this topic's boundaries and even a bit off it. I think for more discussion on taxes etc. this thread might be better suited, but I added tax info in my OP as well, please don't hesitate to comment if you know more about one of the exemplary places I listed and its laws and if something's wrong. Or if you want to have a place added.

I'd suggest to continue on the topic of going from KYC coin ==> non-KYC coin since that was the original idea, so any new suggestions except Options 1 & 2 are welcome! Option 3, I came to realise, is considered a sale of Bitcoin in most places, unlike my initial assumption that it would be handled as a trade of goods.

The larger the amount, the more risk you have of encountering a serious problem. Just think that Al Capone, with all the crimes he committed, was eventually convicted of Tax Evasion.

If you can sign a message as LoyceV says, it would be one thing, but showing up with 100 BTC with an origin you can't justify to the authorities is like showing up with $5M in bills you can't justify, you will most likely end up in jail.

This is what I was talking about in another thread.