"Dammkewl" has written an impassioned blog post defending the founders of bitcoin mixing service Samourai Wallet, who were arrested by U.S. authorities in April and charged with conspiracy to commit money laundering. Below is a salient excerpt, lightly edited for space and clarity, describing the invasive norms of crypto compliance. — M.H.
Suppose you're done using your bicycle and you want to sell it to some other individual for, let's say, a bank transfer.
In that scenario, this money-for-bike transaction has no further history related to it. Nothing about any "previous activity" from the bike purchaser is tied to this transaction. Your bank won't apply any "history-related scrutiny/research" to these funds. Nor will your bank investigate what future recipients of your funds will do with that money. It is of no concern to the bank what the supermarket does with your payment when you buy groceries.
Some crypto exchanges, however, believe they need to perform invasive research on the history (and future use!) of your bitcoin. They dive sometimes as far as four, maybe five, transactions further down the line of the chain of transactions.
If the bike purchaser paid you in bitcoin, you have no control of how he used his BTC before sending some to you. It may be he "reused addresses." That means any previous transaction he has ever made may be considered tied together by the exchange. The same could be the case for anyone who gave some bitcoin to the bike purchaser, and the same before that, and so forth.
Before the exchange allows you to access the bitcoin you've just deposited, it may end up first looking at thousands of people's transaction histories, if not more, just so it can feel "safe" handling your bitcoin. And that's regardless of how large or small an amount of bitcoin you sent to the exchange.
Remember that with any bank transfer to an exchange, that number is nowhere near thousands, it's zero! Exchanges may look at thousands of random people's transactions when investigating your bitcoin, while a huge bank transfer isn't even researched for one. They apply these rules only to crypto but not the traditional fiat system. This privacy detriment makes no sense because they judge how to handle your bitcoin based on how others (outside of your control) have handled their bitcoin before you.
It is worse than that, given that an "address reuser" may very well do "something stupid" at a future point in time with their bitcoin, well after he's given you some bitcoin. The exchange would then look at the reused address from which your bitcoin came, and label that address as a "risk" and thus retroactively impact your bitcoin by denying you access to it.
Read Dammkewl's full "Free Samourai" blog post here.
