NoKYC-Bitcoin VS KYC-Bitcoin
- oliverplass-accoun
- Oct 15
- 8 min read
We at Innova Cluster Solution want to introduce this topic on our Innova blog. KYC-free Bitcoin are without state ID. They protect your data, unlike KYC exchanges that store it and could use it against you.
What is "KYC-free Bitcoin"?
KYC-free Bitcoin are Bitcoin that are bought, mined, or earned without presenting a government-issued ID that ties you to your Bitcoin purchase. KYC exchanges store your information indefinitely and under regulations that could one day be used against you. Buying KYC-free Bitcoin allows you to selectively share your information with the selling party instead of being forced to give everything to anyone with access.
Why should I buy Bitcoin without providing KYC information?
Because KYC data is stored by exchanges forever, there is a risk that the data could leak one day, as seen with exchange breaches at Gemini, Swan, Unchained Capital, NYDIG, Swan (again) and BlockFi, Coinmama. These can be correlated with other leaks like the Ledger customer data leak and the Celsius customer database to reveal your potential holdings and your physical location — a dangerous combination. Governments can target Bitcoin buyers and would have access to a list of who bought how often and how much. Buying without providing KYC information reduces these risks.
What information must I disclose when I buy KYC-free?
This can depend on the payment method chosen. Some payment methods only share your name and phone number with the counterparty, while others like a bank transfer would disclose your name, account number, and routing number. Cash is best for full anonymity, either in person or by mail. Check the list of payment methods on Bisq to learn more about the individual payment methods. This is useful even if you do not use Bisq to buy.
How can I DCA for KYC-free Bitcoin?
The equivalent of the most automated form of DCA for KYC-free Bitcoin would be to mine it at home. The Antminer S9 is very affordable (< €200, usually comes with a power supply) and there are many resources on how to get started with that specific miner. It is also possible to place buy orders on popular KYC-free markets like Bisq and HodlHodl, which help buy at certain times but in a less automated way.
Do I need a new wallet for KYC-free Bitcoin?
In the long run it is safest to completely separate your KYC-bought bitcoins from your non-KYC bitcoins. You can easily do that without buying a new hardware wallet. With Sparrow Wallet (software wallet), for example, you could create multiple wallets that use different derivation paths or accounts (nodes) with the same hardware wallet. Using a different passphrase is also useful to separate funds with the same physical signing device, as it uses a completely separate set of addresses. Best of all are two separate wallets (2x BitBox02).
What if there is no P2P liquidity?
This is an unfortunate reality in some places and is only solved by higher demand for P2P trades. You can post buy orders above market price and wait, but that does not guarantee someone will take your order. What helps is more people doing this and signalling demand for a serious market. With a service like Revolut you can also get access to the global market. Revolut, however, also requires a tax ID.
What is a "premium" for buying KYC-free Bitcoin?
When buying at ATMs or with vouchers, the seller may charge a fee (premium) on the Bitcoin price you buy. The size of the "premium" can depend on the individual provider. However, when you buy Bitcoin directly from another peer, that is the true market price of what someone is willing to accept to part with their Bitcoin. Keep in mind that, alternatively, you accept that KYC exchanges give you a discount in exchange for selling you Bitcoin for your personal data.
If I already have KYCed Bitcoin from before, what difference does it make?
It matters because you could stop increasing the amount that the government or future potential bad actors (who get the data) know about. Even better would be to swap your Bitcoin back into USD/EUR (fiat) — i.e., sell it — and then use that to buy Bitcoin without providing your KYC information. That way you'd be at least 0 Bitcoin KYCed.
What if I use a stablecoin or Strike to "pay myself" "KYC-free"?
You should avoid doing KYC for a service that is Bitcoin- or crypto-related. Using those services, even if you are not buying Bitcoin directly, signals interest in Bitcoin and places you in a smaller pool of users.
Do I already have to do KYC for my bank?
Doing a KYC process for your bank or a similar general financial service account (not Bitcoin/crypto-related) does not signal your interest or intention to buy and hold Bitcoin. You are in the same customer pool as everyone else using that service, which means: if you apply your tactic, you hide in a crowd. If you want to avoid all forms of KYC, cash is the best option to buy Bitcoin.
If I buy Bitcoin that someone else KYCed for, is it still KYCed?
KYC applies to the customer, not to the coins/sats/Bitcoin. If you buy Bitcoin without providing your own KYC information to the seller, that Bitcoin is KYC-free for you, because the purchase is not tied to your ID. It does not matter if the seller underwent KYC to buy it in the first place. It could also be a miner who, for example, resells it on a P2P platform.
What if I buy Bitcoin from a Fed?
At the moment, buying Bitcoin without KYC is legal. If you want maximum caution, use a payment method that allows you to remain anonymous and not meet in person — namely cash by mail. The danger grows from creating a pattern that enables a single entity to determine how much Bitcoin you hold.
If Bitcoin possession is ever made illegal, could a seller tell me?
Payment methods that only share a minimal amount of information like a name and phone number help, but it could still be used to identify you if you face a focused adversary. The best payment method to preserve the highest level of privacy is cash by mail.
How can I spend Bitcoin without KYC?
If you want to avoid others knowing about your Bitcoin holdings, use a privacy-friendly wallet like Samourai Wallet, which besides the best coinjoin implementation (Whirlpool) also offers post-mix spending tools to preserve privacy. If you use the Lightning Network, which has good privacy properties, be careful when opening and closing channels with your on-chain UTXOs.
What if the recipient blocks UTXOs that contain P2P-bought or coinjoin Bitcoin?
The only entities known to block such transactions are exchanges that primarily require KYC. If more entities begin doing so, there are still tools like Ricochet to circumvent such blocks. This is also a good case for the Lightning Network, but be cautious about chain-level privacy and never host it on your node.
If I withdraw from a KYC exchange, I own the Bitcoin. What can they do about it?
Withdrawing does not undo the KYC. The KYC is stored for you, the customer, not on the Bitcoin/satoshis. Your data is still in the database and acts as a honeypot for hackers to steal or for your government to one day use against you, similar to an EO6102-style seizure.
What is an EO6102-style attack?
In an EO6102-style attack, ownership or self-custody of Bitcoin is made illegal. The government would likely buy KYCed Bitcoin at a discount, similar to EO6102 with gold. The main difference today is the amount of information available about all KYCed Bitcoin owners compared to individual gold owners in 1933.
Would the government really come and try to take my Bitcoin?
They will likely not need to go to everyone's home. It is more likely they would require individuals to voluntarily surrender their Bitcoin and then notify those who did not comply. Because you know exactly how much each KYC buyer purchased, you know if someone underreports, and a sale receipt would be required.
Is it not just as easy to confiscate KYC-free Bitcoin?
It is not, because to find out whether someone bought Bitcoin without KYC you would need to approach individuals individually. Even then it remains difficult to determine how much Bitcoin a person has, since there are various ways to obtain KYC-free Bitcoin. All KYC buyers have their ownership and amounts known, making them the easiest targets for a confiscation plan.
Why couldn't I just KYC-buy and then leave the country?
You could, but you'd need (a) familiarity with laws about relinquishing your citizenship, and (b) to exit before any raids begin. The U.S., for example, has an "Expatriation Tax" when renouncing citizenship and such rules could apply to you.
What if I say I "lost it in a boating accident"?
If you claim your Bitcoin was lost and an EO6102-style attack occurs against Bitcoin owners, a "boating accident" claim is likely to be treated as contempt of court. Permanent imprisonment could follow. (See Tommy Thompson, who as of 2015 remains incarcerated). If you claim it was stolen, you are usually expected to file a police report documenting the theft at the time of the theft.
Can't I just withdraw and send to another, non-KYC address?
All KYC exchanges work with chain-analysis firms to monitor your on-chain transactions. The two main problems are: (1) do you report that transfer as a sale, and (2) if you later make a mistake with those UTXOs (e.g., when consolidating), the reported or unreported sale (1) becomes implausible or may be treated as fraud.
Can't I just withdraw and then do a coinjoin?
Whatever you do on-chain, coinjoin is a great way to regain forward privacy, but the KYC record still exists. That record binds your information to a certain amount of Bitcoin ownership. Nothing can undo the KYC because it is a record about you, not about the Bitcoin/sats.
What if the government never does anything bad to KYC buyers?
Then you still avoided having your name, address, ID, biometric data, and other information added to a database linked to your Bitcoin purchases. Such databases can be hacked or compromised at any time. Even if you do not feel threatened by state raids, KYC exchanges are "honeypots" of data.
Bitcoin is language and mathematics and cannot be banned — why bother?
If the thesis of Bitcoin's "separation of money and state" is true, governments will likely make drastic and sometimes disproportionate efforts to keep the current system running. There have already been discussion points in the EU Parliament regarding "non-hosted wallets" in relation to self-custody. Rethink this point.
Can I buy something big with KYC-free Bitcoin?
You can, especially if you find a seller willing to accept payment directly in Bitcoin, even a house. This way you do not rely on an intermediary or trusted third party to complete the payment. You can also always report your Bitcoin sale to your tax authority if you wish, even if you bought P2P — the cost basis is yours.
What you make of it is up to you.
Satoshi Nakamoto did not include this in his white paper for nothing:
Bitcoin: A Peer-to-Peer Electronic Cash System Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but also proves that it came from the largest pool of CPU power. As long as the majority of CPU power is controlled by nodes that do not cooperate in an attack on the network, they will produce the longest chain and reject the attackers. The network itself requires minimal structure. Messages are transmitted on a best-effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
At the end of the day the question is — do you see Bitcoin as more than an investment? If it becomes more than an investment, you should at least have engaged with the subject a little. You have done that now — via this article.
NoKYC or P2P buying is not hard!
It is easier than a KYC process and especially easier than an exchange platform.
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DISCLAIMER
This is not a purchase recommendation, tax advice, or investment advice. It is intended only to show my personal opinion.
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