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Doesn’t matter if it’s on a US exchange. If you’re a US person, and you move bitcoin from one wallet to another without cashing anything out, this is potentiall

Doesn’t matter if it’s on a US exchange. If you’re a US person, and you move bitcoin from one wallet to another without cashing anything out, this is potentially a reportable event now. And if you fail to do so, the public ledger has cryptographic proof of your crime.

noofen 5y ago
Here's a solution, though I don't know how the IRS views this: 1) Buy "dirty" ETH through a KYC exchange like Coinbase 2) Send to tornado.cash 3) Wait a few days, remove from tornado.cash 4) You now have "clean" ETH uncorrelated with your identity 5) Use one of the many DeFi non-KYC exchanges to get whatever crypto you want The blockchain trail would just show that you sent to tornado.cash, and nothing after. This could be an interesting problem for US regulatory pariahs. Whether tornado.cash survives will determine the future of ETH. Is it a free, global exchange network? Or will it cripple under regulatory pressure? As the US continues to debase its currency (and regulatory institutions), it will not go down without a fight.
- weeweww32 5y ago
  Or just convert to Monero and back
  - gruez 5y ago
    doesn't that require going through a centralized exchange, or at least going through the trouble of organizing an OTC trade?
    - weeweww32 5y ago
      There are decentralized exchanges like Bisq
  - Vespasian 5y ago
    Dear weeweww32, During a routine audit of registered exchanges we discovered that you transferred/received $30k of the crypto token Montero. Under penalty of perjury provide us with documentation as to the destination/source of this funds within 7 business day. Failing to do so is a felony under the Crypto act of 2022. Cheerio The Government
    - frockington1 5y ago
      "During a routine audit of registered exchanges". The obvious answer here seems to be "don't use a registered exchange". Might cost a few basis points but nothing to be alarmed about and likely cheaper than taxes.
      - munk-a 5y ago
        I might be missing something, but isn't part of the allure of it all being a blockchain the ledger that will, for ever after show that such and such wallet received 30k on a particular date & time - potentially requiring some stitching that would probably be trivial to do if the actual transfer was broken up into a series of smaller transfers? And if you're using a shared wallet that obscures internal money movements then the feds can still see any entry/exit point activity - they might just be uncertain about what happened to the money in the middle. I guess if you created a private coin for your nefarious dealings you could keep it really hidden (maybe one tied as a stable coin to a more major coin) - but only so long as you managed to keep the feds from getting a ledger view of the private coin - which would require limiting the spending power of that coin to only parties you strongly trusted which, again, would strongly devalue the coin. The real world equivalent might be deciding, as a criminal ring, to use gems as a currency to avoid handling USD directly too often - but those gems become worthless apart from their inherent value as soon as trust collapses.
        boring_twenties 5y ago
        With Monero, no one can see the sender, destination or amount of any transaction.
- rafale 5y ago
  Until the very act of using a mixer is considered money laundering. Which is ironic because you started with clean money.
- ISL 5y ago
  I suspect existing anti-money-laundering law will cover this somehow. Outfoxing governments through technical cleverness rarely (but sometimes!) works in perpetuity. An example: If any future >$10k transaction can be traced back to a wallet that you control (it wouldn't matter how you got the funds, only that you transferred them), then you'd be on the hook.
  - gruez 5y ago
    But why would you want to take (presumably) clean fiat on your coinbase account, exchange it for crypto, launder it, only to transfer back to your coinbase account? I'd presume anyone doing this is going to use the laundered money for illegal stuff, or at least transferring to some sort of offshore jurisdiction for tax evasion purposes. In both cases it won't be tied back to you.
    - ISL 5y ago
      When The Man gets a warrant to monitor your communications, arrests you, takes all of your electronic devices, and then chats with your friends and colleagues, there is a chance that they might uncover your "hidden" wallet. Or, in the case that The Man gets a copy of the overseas bank's records with your name on it and a long and credible-looking list of transfers from wallets that match the amounts put into the mixer, it is going to look real suspicious. Investigators are smart people with many tools at their disposal.
- deleted 5y ago
  [deleted]
- NicoJuicy 5y ago
  The general term for Tornado.cash is a Bitcoin mixer and it has come and gone through the existence of Bitcoin. Eg. Monero doesn't leave a trail by default.
  - noofen 5y ago
    Describing tornado.cash as a Bitcoin mixer is not accurate. Exchanging BTC/ETH for Monero leaves just as much of a trail as using Tornado.cash, unless you use a decentralized P2P exchange.
    - NicoJuicy 5y ago
      Oh, from reading the Google seo description i didn't see it was fully on eth and it matched perfectly the description of a Bitcoin/crypto mixer.
      - noofen 5y ago
        Furthermore, it doesn't "mix" by creating lots of transactions and trying to obfuscate the trail--it completely cuts off the trail.
        NicoJuicy 5y ago
        A Bitcoin mixer has no direct link fyi. Which is similar to their seo description.
- a4isms 5y ago
  As we speak, the Attorneys for Manhattan and the State of New York are investigating a high net-worth individual for allegedly engaging in clever ways to avoid taxes and other regulations using activities that are legal when engaged by themselves in good faith, but when used in conjunction with each other in bad faith, may be criminal. The problem with “gaming” any system involving state-level entities is that they always have the power to retroactively look at your behaviour and declare that there is a pattern that amounts to criminal behaviour, even if none of the actions taken in isolation would be considered criminal.
  - noofen 5y ago
    Give them no behavior to look back on.
    - Zqe 5y ago
      Losing your monero wallet in a boating accident is also increasingly common these days
      - therein 5y ago
        Is it all that different than a company claiming they are a victim of a ransomware attack and they paid the ransom? Oh no, the hackers got our accounting database encrypted. We can't process your thing for 2 weeks and we paid 80M in crypto for ransom. Can we please get a tax write-off for our embezzlement?
- deleted 5y ago
  [deleted]
yellowapple 5y ago
And if I'm moving between two wallets that I control (be it directly via some software/hardware wallet or indirectly via some exchange)? Does it work the same as it would if I was moving that much USD between two bank accounts under my name? What are the tax implications there? This is arguably a problem I've been far from rich enough to encounter, so it's a genuine question should that someday change :)
- munk-a 5y ago
  Depending on how the two accounts are linked - yes I believe you still need to report the transfer, however, since it isn't leaving your person (unless it's being transferred between separate representations like a business you wholly own and a personal account) then it isn't subject to taxation. This reporting primarily exists to make money laundering less efficient by forcing parties that want to keep things out of view of law enforcement to make many relatively small money movements - and 10k is high enough that it doesn't affect normal folks all that often. Honestly, when it comes to anything involving a bank these transfers are usually automatically reported by the institution.
  - djrogers 5y ago
    > Depending on how the two accounts are linked - yes I believe you still need to report the transfer Pedantic note here - "You" don't have to do anything here, your bank will do the reporting.
    - munk-a 5y ago
      That is precisely correct and I think it's a good mention. I made it more clear in other comments after people brought up the burden of having to filling out tax forms constantly. You won't often execute transactions that actually qualify you for this level of reporting and in almost all circumstances the financial institution backing the transaction will actually do the reporting (bank or credit card company). If the payment is cash (which is beyond rare for transactions of this scale) it'll still usually only be required for the vendor to report the transaction.
pwg 5y ago
The specific language in the 2020 US1040 instructions say otherwise: "A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control." (2020 1040 instructions, pg. 16) So as long as you "own or control" both wallets, your described transfer would not be a reportable event under the current tax instructions.
- cwkoss 5y ago
  Easy peasy. If you don't want to report a transaction, move from personal wallet to joint wallet. Then recipient moves from joint wallet to personal wallet. If both parties have shared ownership and control of the joint wallet, I think this would get around the reporting requirement.
  - amanaplanacanal 5y ago
    I doubt any court would agree with you on that.
  - ska 5y ago
    > Easy peasy. All these sort of regulations tend to have language disallowing actions made just to avoid the requirement (see, for example, "structuring")
    - Edman274 5y ago
      https://xkcd.com/1494/ https://xkcd.com/1494/ "Lifehack - you can just take all the luggage off the conveyor belt at the airport and leave with it. They don't check at the door!"

noofen 5y ago

Here's a solution, though I don't know how the IRS views this: 1) Buy "dirty" ETH through a KYC exchange like Coinbase 2) Send to tornado.cash 3) Wait a few days, remove from tornado.cash 4) You now have "clean" ETH uncorrelated with your identity 5) Use one of the many DeFi non-KYC exchanges to get whatever crypto you want The blockchain trail would just show that you sent to tornado.cash, and nothing after. This could be an interesting problem for US regulatory pariahs. Whether tornado.cash survives will determine the future of ETH. Is it a free, global exchange network? Or will it cripple under regulatory pressure? As the US continues to debase its currency (and regulatory institutions), it will not go down without a fight.

weeweww32 5y ago
Or just convert to Monero and back
- gruez 5y ago
  doesn't that require going through a centralized exchange, or at least going through the trouble of organizing an OTC trade?
  - weeweww32 5y ago
    There are decentralized exchanges like Bisq
- Vespasian 5y ago
  Dear weeweww32, During a routine audit of registered exchanges we discovered that you transferred/received $30k of the crypto token Montero. Under penalty of perjury provide us with documentation as to the destination/source of this funds within 7 business day. Failing to do so is a felony under the Crypto act of 2022. Cheerio The Government
  - frockington1 5y ago
    "During a routine audit of registered exchanges". The obvious answer here seems to be "don't use a registered exchange". Might cost a few basis points but nothing to be alarmed about and likely cheaper than taxes.
    - munk-a 5y ago
      I might be missing something, but isn't part of the allure of it all being a blockchain the ledger that will, for ever after show that such and such wallet received 30k on a particular date & time - potentially requiring some stitching that would probably be trivial to do if the actual transfer was broken up into a series of smaller transfers? And if you're using a shared wallet that obscures internal money movements then the feds can still see any entry/exit point activity - they might just be uncertain about what happened to the money in the middle. I guess if you created a private coin for your nefarious dealings you could keep it really hidden (maybe one tied as a stable coin to a more major coin) - but only so long as you managed to keep the feds from getting a ledger view of the private coin - which would require limiting the spending power of that coin to only parties you strongly trusted which, again, would strongly devalue the coin. The real world equivalent might be deciding, as a criminal ring, to use gems as a currency to avoid handling USD directly too often - but those gems become worthless apart from their inherent value as soon as trust collapses.
      - boring_twenties 5y ago
        With Monero, no one can see the sender, destination or amount of any transaction.
rafale 5y ago
Until the very act of using a mixer is considered money laundering. Which is ironic because you started with clean money.
ISL 5y ago
I suspect existing anti-money-laundering law will cover this somehow. Outfoxing governments through technical cleverness rarely (but sometimes!) works in perpetuity. An example: If any future >$10k transaction can be traced back to a wallet that you control (it wouldn't matter how you got the funds, only that you transferred them), then you'd be on the hook.
- gruez 5y ago
  But why would you want to take (presumably) clean fiat on your coinbase account, exchange it for crypto, launder it, only to transfer back to your coinbase account? I'd presume anyone doing this is going to use the laundered money for illegal stuff, or at least transferring to some sort of offshore jurisdiction for tax evasion purposes. In both cases it won't be tied back to you.
  - ISL 5y ago
    When The Man gets a warrant to monitor your communications, arrests you, takes all of your electronic devices, and then chats with your friends and colleagues, there is a chance that they might uncover your "hidden" wallet. Or, in the case that The Man gets a copy of the overseas bank's records with your name on it and a long and credible-looking list of transfers from wallets that match the amounts put into the mixer, it is going to look real suspicious. Investigators are smart people with many tools at their disposal.
deleted 5y ago
[deleted]
NicoJuicy 5y ago
The general term for Tornado.cash is a Bitcoin mixer and it has come and gone through the existence of Bitcoin. Eg. Monero doesn't leave a trail by default.
- noofen 5y ago
  Describing tornado.cash as a Bitcoin mixer is not accurate. Exchanging BTC/ETH for Monero leaves just as much of a trail as using Tornado.cash, unless you use a decentralized P2P exchange.
  - NicoJuicy 5y ago
    Oh, from reading the Google seo description i didn't see it was fully on eth and it matched perfectly the description of a Bitcoin/crypto mixer.
    - noofen 5y ago
      Furthermore, it doesn't "mix" by creating lots of transactions and trying to obfuscate the trail--it completely cuts off the trail.
      - NicoJuicy 5y ago
        A Bitcoin mixer has no direct link fyi. Which is similar to their seo description.
a4isms 5y ago
As we speak, the Attorneys for Manhattan and the State of New York are investigating a high net-worth individual for allegedly engaging in clever ways to avoid taxes and other regulations using activities that are legal when engaged by themselves in good faith, but when used in conjunction with each other in bad faith, may be criminal. The problem with “gaming” any system involving state-level entities is that they always have the power to retroactively look at your behaviour and declare that there is a pattern that amounts to criminal behaviour, even if none of the actions taken in isolation would be considered criminal.
- noofen 5y ago
  Give them no behavior to look back on.
  - Zqe 5y ago
    Losing your monero wallet in a boating accident is also increasingly common these days
    - therein 5y ago
      Is it all that different than a company claiming they are a victim of a ransomware attack and they paid the ransom? Oh no, the hackers got our accounting database encrypted. We can't process your thing for 2 weeks and we paid 80M in crypto for ransom. Can we please get a tax write-off for our embezzlement?
deleted 5y ago
[deleted]

yellowapple 5y ago

And if I'm moving between two wallets that I control (be it directly via some software/hardware wallet or indirectly via some exchange)? Does it work the same as it would if I was moving that much USD between two bank accounts under my name? What are the tax implications there? This is arguably a problem I've been far from rich enough to encounter, so it's a genuine question should that someday change :)

munk-a 5y ago
Depending on how the two accounts are linked - yes I believe you still need to report the transfer, however, since it isn't leaving your person (unless it's being transferred between separate representations like a business you wholly own and a personal account) then it isn't subject to taxation. This reporting primarily exists to make money laundering less efficient by forcing parties that want to keep things out of view of law enforcement to make many relatively small money movements - and 10k is high enough that it doesn't affect normal folks all that often. Honestly, when it comes to anything involving a bank these transfers are usually automatically reported by the institution.
- djrogers 5y ago
  > Depending on how the two accounts are linked - yes I believe you still need to report the transfer Pedantic note here - "You" don't have to do anything here, your bank will do the reporting.
  - munk-a 5y ago
    That is precisely correct and I think it's a good mention. I made it more clear in other comments after people brought up the burden of having to filling out tax forms constantly. You won't often execute transactions that actually qualify you for this level of reporting and in almost all circumstances the financial institution backing the transaction will actually do the reporting (bank or credit card company). If the payment is cash (which is beyond rare for transactions of this scale) it'll still usually only be required for the vendor to report the transaction.

pwg 5y ago

The specific language in the 2020 US1040 instructions say otherwise: "A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control." (2020 1040 instructions, pg. 16) So as long as you "own or control" both wallets, your described transfer would not be a reportable event under the current tax instructions.

cwkoss 5y ago
Easy peasy. If you don't want to report a transaction, move from personal wallet to joint wallet. Then recipient moves from joint wallet to personal wallet. If both parties have shared ownership and control of the joint wallet, I think this would get around the reporting requirement.
- amanaplanacanal 5y ago
  I doubt any court would agree with you on that.
- ska 5y ago
  > Easy peasy. All these sort of regulations tend to have language disallowing actions made just to avoid the requirement (see, for example, "structuring")
  - Edman274 5y ago
    https://xkcd.com/1494/ https://xkcd.com/1494/ "Lifehack - you can just take all the luggage off the conveyor belt at the airport and leave with it. They don't check at the door!"