While Bitcoin is a pseudonymous technology, giving its users a chance to hide behind a string of characters called an address, the asset isn’t entirely private or anonymous.
Due to the nature of the technology and the industry as a whole, Bitcoin addresses can be easily linked to identities, giving third parties and governments a chance to track users.
Due to this inherent traceability, an industry has sprung up around Bitcoin privacy tools. “Mixers” are the most well-known tools in this stack, giving users a chance to obfuscate the origin of coins. Exchanges, unsurprisingly, aren’t the biggest fans of mixers.
Binance Blocks Bitcoin Withdrawal
On Thursday, a Twitter user going by “Catxolotl” reported that Binance’s Singapore subsidiary exchange, Binance Singapore blocked one of their Bitcoin withdrawals due to “risk management” concerns.
The exact reason, the user in question was using Wasabi Wallet, a mixing-like solution that allows users to hide their coins. The message from Binance Singapore’s team purportedly read:
“We performed a periodic review on your account and have a few questions with regards to your account activities that may help us enhance the security and maintenance of your account. We noticed x amount of cryptocurrency withdrawals to Wasabi Wallet, which upon our review is a mixing/private wallet provider with a total of X BTC in total.”
Not surprised that my transactions are tracked, it's KYC after all
But I'm very concerned that Binance knew I was sending to wasabi, when all I input was a bc1 address, nothing more pic.twitter.com/T6ePjahESY
— Catxolotl (@bittlecat) December 19, 2019
The team noted that for the withdrawal to be released, the user would need to provide the purpose of withdrawal to a privacy-centric wallet service with supporting documents, the user’s current occupation, and their annual income range to corroborated the withdrawal size.
Are Binance’s Concerns Valid?
While Binance’s decision to screen users using privacy wallets may be disconcerting for those that heavily value anonymity, there is a valid concern that so-called mixers can be used by criminals.
Per previous reports from Blockonomi, Luxembourg-based crypto data firm Clain found earlier this month that around two-thirds of the 7,000 Bitcoin swiped in the May hack of Binance has been siphoned through mixers.
There’s also reports that the multi-billion-dollar PlusToken Wallet scam has been using mixing technologies to hide millions worth of cryptocurrencies — many of these attempts haven’t worked, though the point remains that mixer users aren’t entirely kosher, so to say.
Not Your Keys, Not Your Bitcoin
With the commonality of events like the aforementioned and hacks, it should come as no surprise that there are some pledging for users to remove their Bitcoin and other cryptocurrencies from exchanges. As the crypto adage goes, “not your keys, not your coins.”
For instance, long-time Bitcoin investor Trace Mayer, who purchased his first coins some seven or eight years ago when the asset was trading well under $10, has created the “Proof of Keys” event.
This tacit crypto holiday, which has taken place every January 3rd (this is the day in 2009 when Bitcoin’s Genesis Block was mined) for years now, advises HODLers to “take possession of all bitcoins held by trusted third parties on their behalf.” The premise of Proof of Keys is as follows:
“By demanding and taking possession of their assets, individuals will learn real fast with blockchain proof whether they are part of the elite HODLers or not. Proof of Keys is the annual HODLer initiation.”
The premise makes sense. Pseudonymous coder Satoshi Nakamoto created Bitcoin to be a peer-to-peer and decentralized electronic cash system. With reports indicating that millions of BTC are being held by third parties, like exchanges and custodians, it is understandable why there is a movement for users to reclaim their own coins.