How do you deal with situations where you need to prove the source of your funds (POSOF) if your bitcoin comes from privacy tools? I’m talking about tools like Tornado Cash and Samourai Wallet, to name a few.
If you've used these privacy tools, it's nearly impossible to provide POSOF later on. Even if the bitcoin is clean, if you can’t show that it’s yours, it doesn’t matter. And if you somehow can prove it, you essentially lose your privacy and undermine the reason for using those privacy tools in the first place.
I think most of us here want to use BTC like actual currency, to pay for rent, groceries, cars, and so on. The only example that stands out to me in terms of real progress is El Salvador. There, you can use your BTC with privacy in the decentralized way it was meant to be. But getting residency in El Salvador? You need to show POSOF for the funds you'll be living on. So if you’ve ever used a privacy tool, that could be a problem. It’s pretty wild to think you might have 100 BTC but can’t prove its source because you used Tornado Cash before it got sanctioned and then switched to other mixers. Your funds are clean, but you can’t back that up. It’s like you’re guilty until you prove otherwise, which is just wrong. So, even with 100 BTC, you may end up needing to get a job paying $5 an hour for 5 years to qualify for residency.
The problem with paying taxes for bitcoin capital gains if you have privacy.
AML and KYC laws are getting worse and worse and more enforced and enforced. The operation Choke point 2 is getting more chokey. DEFI is almost completely banned in EU.
If you use any kind of privacy tool for crypto such as mixer, coinjoin, tornado cash, zk network, whatever it is, it will lead to your bitcoin becoming useless because laws enforce anyone who you send the crypto to must do a KYC check on you and AML proof of source of funds. But because you used a privacy tool you will fail the proof of source of funds check. Then your bitcoin will either be returned to you or confiscated. The bitcoin is useless.
But you still have to pay taxes on this useless bitcoin? The bitcoin you can't do anything with, can't buy anything with? can't withdraw to fiat? You have to pay taxes on it or you will go to prison. Is that right?
This means you have to just go ahead and send all the bitcoin to an exchange and let them confiscate it. Now you have no more bitcoin, you are broke and all savings are gone and now you don't need to pay taxes because you have nothing.
Is this how the system works?
Also just in case someone will reply and say they have used a coinjoin but didn't get problems withdrawing to fiat. This only means you send a small amount of money or it means you don't have privacy because you don't know the basics of bitcoin. You probably use a light SPV wallet and use public nodes who track you and see your IP and all the addresses you have in your private key. Mixing your UTXO together and so on which you shouldn't. Bitcoin is very very trackable and there is much you need to do to get some privacy. You need to use whonix, bitcoin core full node and then your wallet need to use your own full node, not someone else full node. If you do everything right to get your privacy, and you send larger amount of money then you will have it all confiscated and become useless.
What is your solution to this problem? are you revolutionary and hodling uselss bitcoin which government want to confiscate from you? are you evading paying taxes on your useless bitcoin? Or are you using bitcoin without any privacy? you have 90% of all your wealth without privacy, easily tracked by everyone who wants to know? And then you only use coinjoin on small amounts of spending money? That is barely any privacy and not satoshis vision for bitcoin.
As long as you did not more out of the mixer as you sent into it before, you might be able to prove (that part of) where the funds came from by providing the input and output transaction(s).
Of course, if everyone did this and these records would be collected centrally, this would at some point defeat the purpose of mixers.
Are you sure administration ask you to explain precisely how you've acquired those specific Bitcoins? Because what happens if you've just bought them with other cryptocurrencies? After having asked you how and when you've bought your BTCs, they ask you how and when you've bought the cryptos you've used to buy your BTCs? So where does it end? If you're a crypto user since several years and you are using them regularly, you can't know or retrieve all the transaction paths of each satoshi you own, that's not possible it's like asking the historic of the banknotes and coins you've in your wallet IRL. You make transactions with your BTCs, you exchange them against other cryptos, you deposit them and withdraw them on platforms(exchanges, casinos, staking or lending services, liquidity pools...) etc.
Buy a collection of NFTs on Ethereum or any L2 blockchain.
Then put that collection up for 100 times its value. Change your bitcoin to etherium on no KYC exchanger and buy your collection.
WOW, you are a successful NFT crypto trader. Declare your profits, pay your taxes
It doesn't make sense. It is better to find an analogue of cryptopunks or any other project from https://www.cryptoslam.io/.
Then the tax authorities will not be able to accuse you of having made an NFT token on your own.
And the fact that someone bought your 10 dollar token for 10000 dollars is a very common practice on the NFT token market
First of all, creating tokens and placing them on NFT trading platforms has a commission, and in most cases it is easier to buy someone else's token for $10 than to make your own tokens.
Selling new tokens is always suspicious, because your tokens will have nothing (ecosystem, project and so on). If you are a famous artist or designer, I agree with you, but in other cases I would use ready-made NFT projects.
There are many rules to follow when selling tokens. On the other hand, if you have your own resources, you can generate and use a NET token yourself by following the correct rules. Again you can use someone else's NET token instead of using your own NET token. Hope you use NET projects all the time.
Isnt it self explanatory? If they ask kyc amc posof or whatever the fuck they call it nowadays, you just dont do business with them. I think it is still possible to spend crypto anonymously but the govs are taking them businesses one by one.
When/if all go down, well have to do p2p purchases only. Just like how it was in 2012 and before.
Crypto wont die but the businesses that take crypto without doing kyc checks will die certainly.
And what difference does it make if you choose to use crypto or credit card then? It wont. Thats how the govs will try to kill crypto.
For expensive token sales most of the associates costs are the platform fees. For OpenSea it is pretty much the sales fee which starts from 2.5%, regardless of whether it is a new token or an existing one. For an existing token there is also the gas fee, but it is negligible compared to the sales fee, especially if the token is placed on a cheap network.
An existing NFT already has a market price which in this case should be low (e.g. $10). So there is a sudden jump in the price that will look suspicious. It would be even more suspicious if it is a cheap token that is mass-produced (and cheap tokens are mass-produced quite often), because in this case there is an established low market price for this token.
A new NFT on the other hand does not have a price, so there is no need to explain any big price change.
Then again, in most cases the government would just take the taxes and not bother to ask for too many questions. As long as it is money earned through legal means (not from drugs, arms traffic, or any other crimes) and the person just wants to pay the taxes and put the money in his bank account, it would probably be OK, regardless of the NFT type.
That's not enough, you have to read on other thread where EU are asking to provide the full name with someone you trade your coins, Binance changes terms of service
Using no KYC exchange is pretty sure illegal in EU.
Trade with yourself and declare it you bought from other people is obviously broke their regulations.
Sad to say, but I think people will choose to lost their privacy over their money.
The only way to protect privacy is by trade face to face, but I'm sure people are discouraged to do it because it's not secure.
Trump and his wife's tokens are traded on centralised exchanges as well as decentralised exchanges without KYC. Laws are becoming more complex and it is difficult to find universal solutions for all countries, but in many countries this method is still relevant.
I said the same thing to myself; unless I'm mistaken, even if you trade face to face or OTC, there's no guarantee that the bitcoins you buy don't come from coinjoin or other tools. On the other hand, even in OTC, someone has to acquire them first, and I think that most of the bitcoins traded in recent years have come from CEX.
Basically, if bitcoins are transferred from an exchange wallet, they are already legal. The exchange does a great job as a mixer If the bitcoins have an AML tag, they are first blocked on a third-party wallet and then transferred to the exchange's shared wallet. The exchange explains this by the complexity of storage on different wallets.
Even it is legal, someone can trace you because it comes from CEX.
I was speaking about privacy because zazad@ said "The only way to protect privacy is by trade face to face," .
We live in different countries. If you promise confidentiality of exchange in Russia, provided that the coins are not criminal, but then transfer the information to third parties, then you will have to be afraid of suspicious people near your home, shady noises, etc. for the rest of your life. In my country, no one likes people who do not keep agreements regarding finances.