Disclaimer: This is not tax or financial advice. Always check your local laws before ignoring them.

Understanding the threats…

“You will own nothing, and be happy,” is the now familiar slogan for proponents of "The Great Reset.” The World Economic Forum's crusade against private property is well publicized. Regular tweets from the likes of Senator Elizabeth Warren remind the world that wealthy people are evil. Their calls to confiscate private property are well received by the government-schooled masses. In a recent Tweet (https://twitter.com/senwarren/status/1402268837500833799), she proclaimed “The evidence is abundantly clear: it is time for a #WealthTax in America to make the ultra-rich finally pay their fair share.” Proposals for taxing imagined “unrealized gains” are being proposed by the ruling party (https://www.rollcall.com/2021/10/27/wyden-details-proposed-tax-on-billionaires-unrealized-gains/).

As their insatiable hunger swells, the use cases for Bitcoin are becoming more life-saving, particularly as a non-confiscatable store of value. Virtually any other asset class can be seized instantly at the whim of politicians or bureaucrats. Bank accounts, stocks portfolios, and real estate can all be appropriated with a few pen strokes. Even precious metals are vulnerable to seizure, as we learned when the Liberty Dollar (https://en.wikipedia.org/wiki/Liberty_dollar_(private_currency) dared to challenge the hegemony of the Federal Reserve.

In contrast, Bitcoin, as the most secure asset ever, poses a unique problem to robbers of all scales. With no CEO to threaten or headquarters to raid, Bitcoin has no central point to attack.

It’s not just our wealth that they crave. They require the power to punish enemies and reward allies, both domestically and internationally. In a recent review (https://hometreasury.gov/system/files/136/Treasury-2021-sanctions-review.pdf) of the nation’s sanctions program, the U.S. Treasury Department lamented that Bitcoin can "reduce the efficacy of American sanctions” and provides opportunities "to hold and transfer funds outside the traditional dollar-based financial system.” Bitcoin has been recognized as a threat to US foreign bullying.

Bitcoin was designed to threaten powerful interests, and some oligarchs are worried. Even Hillary Clinton is sounding the alarm. In a recent Bloomberg panel discussion (https://www.bloomberg.com/news/articles/2021-11-19/cryptocurrencies-can-destabilize-nations-hillary-clinton-warns) she bemoaned Bitcoin's potential "for undermining the role of the dollar as the reserve currency, for destabilizing nations.” She and her kind should be worried. How will the imperialists pay for their endless wars if their ability to inflate is curtailed? As central banks race to inflate their fiat currencies, Bitcoin is providing an escape to their debasement.

While censoring Bitcoin is impossible, they can make life difficult for those they think are holding wealth beyond their grasp. The proposed “Build Back Better” legislation (https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/28/president-biden-announces-the-build-back-better-framework/) creates new classes of Bitcoin criminals, doubles the size of the IRS, increases the agency's spending by $80 billion, and adds 87,000 new agents.

How can the Bitcoin community respond to these threats? How can we protect our assets from the most powerful interests?

It’s important to understand that Bitcoin is pseudonymous. Anonymity is possible only to the extent that users remain disassociated from their bitcoin addresses. Even as a moderately experienced Bitcoin user, I’m still discovering ways to inadvertently break that anonymity.

Below are a few tips to help maintain anonymity. This is certainly not comprehensive. It is not for highly advanced users or the fresh noobies. These are merely some tips I can share with fellow pirates.

1) Understand UTXOs. This is something I should have learned years ago. A UTXO is an "unspent transaction output.” It’s basically the change you get back after a Bitcoin transaction that becomes available for a new transaction. What we consider our “bitcoin balance” is basically a collection of UTXOs, not unlike the collection of bills in our fiat wallet. Bitcoin wallet software handles this automatically for us, so it’s easy to remain oblivious to what is happening under the hood.

There are currently companies that track the movement of UTXOs and compile them for other data sources. When UTXO tracking is combined with Know Your Customer (KYC) and Anti-Money Laundering (AML) reporting, anonymity may be lost. Matthew Kratter, of Trader University does a great job of explaining "How Bitcoin UTXOs Can Ruin Your Life” (https://www.youtube.com/watch?v=AUJ9QtK2RxQ).

2) Avoid KYC/AML compliant exchanges. This will be difficult for many, but compliant exchanges put customer privacy at risk. Even if you assume that the government is demanding sensitive financial information for totally benevolent purposes, the mere collection and storage of this information creates a target for malicious actors. Hacks and data breaches at exchanges are common (https://www.hedgewithcrypto.com/cryptocurrency-exchange-hacks/). While most hacks focus on stealing funds, customer records have also been exposed.

Last year, Australian exchange BTC Markets inadvertently exposed the names and email address of thousands of users. Imagine what criminals could do with a list of bitcoin HODLers to blackmail. (HODL - Hold On for Dear Life)

Currently in the US, Bitcoin exchanges are required to collect detailed records on every customer. Companies like Coinbase, and CashApp are basically banks that are required to snitch on their customers. Assume that anything done through these exchanges will be documented for the IRS, and sold to private marketing firms.

2) Segregate your Bitcoin. Some Bitcoin HODLers have accumulated their savings through a wide range of sources, over many years. Some of these sources may be KYC compliant. Others may be confidential. A potential privacy pitfall would be to combine UTXOs from non-KYC sources with UTXOs from confidential sources into a single transaction.

Something I should have done years ago was to keep Bitcoin purchased on KYC compliant exchanges segregated from Bitcoin acquired through non-KYC sources. Maintaining separate wallets reduces the chance of a privacy slip.

How big is this threat? In 2019, Coinbase acquired the blockchain analysis company, Neutrino. The popular Bitcoin exchange has indicated a desire to sell "Coinbase Analytics” services to the U.S. government, and the DEA and IRS have expressed interest in awarding them contracts. According to Coinbase, "Coinbase also offers this product to financial institutions and law enforcement agencies to support compliance and investigation use cases" (https://www.theblockcrypto.com/post/67551/coinbase-irs-dea-analytics-neutrino).

For most users today, this probably isn’t a concern. Standard IRS reporting by exchanges will include your profits, but blockchain analysis will be reserved for specific targets.

3) Never use a Bitcoin address more than one time. In the early days, we would share our bitcoin address like an email address. Anyone could look up the address and see every associated transaction. Now we have the benefit of Hierarchical Deterministic (HD) wallets that generate a new address each time we receive bitcoin, all linked back to a single recovery seed. Most modern wallets have this capability. Make sure you use it.

4) Run your own bitcoin node (https://bitcoin.org/en/full-node). A full Bitcoin node is software used to validate transactions on the blockchain. This requires computing resources to maintain a copy of the blockchain and creates some additional privacy concerns. Advanced users can forgo reliance on third-party wallet services that may leak user information including device IDs and IP addresses.

5) Use privacy coins. Cryptocurrencies such as Monero (https://www.getmonero.org/community/merchants/) and Pirate Chain (https://pirate.black/exchanges/) have interesting privacy features that make blockchain analysis more difficult. Although I enjoy transacting with vendors and clients in Bitcoin, my goal is to conduct more daily transactions in privacy coins.

6) STFU! Even if they can’t get to your Bitcoin, if they think you have some, they will terrorize you to get it. Do not discuss your holdings on-line. Don’t give them a reason to dig deeper.

7) What about coin-mixing services? Services like Coin Join (https://coinjoin.io/en/home) seek to restore anonymity by shuffling Bitcoins between users to frustrate analysis. This may be a useful service, or it may be considered money laundering in some jurisdictions. Sending Bitcoin to known mixing services may itself be a flag. Last year, (https://www.fincen.gov/news/news-releases/first-bitcoin-mixer-penalized-fincen-violating-anti-money-laundering-laws) the Financial Crimes Enforcement Network (FinCEN) assessed a $60,000,000 civil penalty against Larry Dean Harmon, the founder of Helix and Coin Ninja mixing services, for violations of the Bank Secrecy Act (BSA).

Private property has always been the enemy of those claiming a right to rule. Poor, dependent subjects are unlikely to rebel as long as their basic needs are met. When complaints about conditions surface, they simply deflect any angst toward the productive class. Landlords, factory owners, and employers are the go-to scapegoats whenever their central plans fail to deliver the promised results. This playbook has served them well.

As one of the greatest safeguards for private property ever conceived, Bitcoin has attracted the ire of the ruling class. Desperate attacks on Bitcoin from the flailing empire are sure to continue. This is exactly what Bitcoin was invented to do, but it’s not a panacea. It’s up to us to be smart. The immutable ledger is a powerful tool for pirates, but it’s also a permanent record, so proceed with all due caution.

James Babb is a freedom and FIJA (Fully Informed Jury Association) activist