For whatever reason, you may be wondering if the government can view your crypto transactions. The answer is yes and no.
During the “Freedom Convoy” when Prime Minister Trudeau evoked the Emergencies Act to freeze the funds of protestors, many of them turned to cryptocurrency.
Unfortunately for the protestors, some of the crypto funds were frozen too. The Ontario Supreme Court of Justice ordered nine crypto platforms to freeze 120 wallet addresses (mostly bitcoin addresses) associated with the protestors.
Afterwards, many people were confused about how the government was able to identify the wallets associated with some of the protestors, and others questioned the decentralization aspect of crypto.
In regards to decentralization, bitcoin is decentralized. The network is run by thousands of miners all over the world. No entity controls bitcoin. However, crypto exchanges are centralized companies. Exchanges can freeze your account at any time, which is what happened with the protestors.
So while bitcoin is a decentralized currency, the most common way to trade it is to go through a centralized crypto exchange.
Regarding the identity of the protestors’ wallets, it again comes down to centralized exchanges. When you sign up to a crypto exchange you will need to go through a KYC (Know Your Customer) process. You will need to upload a copy of your government-issued ID, a selfie, and proof of address in the process.
Furthermore, blockchains are public ledgers. Every transaction is recorded and cannot be erased or falsified and this is partly why blockchain technology is so secure. Trading digital currencies are much easier to trace than fiat which can be moved as untraceable cash.
The Canadian government was able to confirm the wallets of the protestors by following the transactions on the blockchain and linking them to their KYC’d accounts on centralized exchanges.
Not only that, but transactions of over $10,000 must be reported by crypto exchanges operating in Canada to FINTRAC. The crypto exchange will have the identity of the person whose account made the transaction and they are obligated to give this information to FINTRAC.
The government is continually finding ways to trace cryptocurrency transactions, but there are some ways you can buy crypto in Canada privately.
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Decentralized Exchanges
You can use a decentralized exchange like PancakeSwap or UniSwap to trade crypto. You can install a decentralized wallet such as Metamask to your browser and send funds to that wallet to trade crypto on decentralized exchanges. Metamask is compatible with many blockchains including Ethereum, Binance Smart Chain, Avalanche, and Polygon.
The downside to decentralized exchanges is that they are far riskier to use than a centralized exchange. Anybody can launch a coin on one and many turn out to be scam coins.
Another downside is if you get your crypto stolen from your decentralized wallet, there will be no way of retrieving it. Centralized exchanges will often have insurance but decentralized ones won’t.
You will also need to get your funds into your decentralized wallet somehow. If you use a centralized exchange to buy crypto with Canadian dollars and send that crypto to your decentralized wallet, then that crypto can still be traced back to you. The government just has to follow the transaction trail.
Peer-2-Peer Exchanges
Another popular way to trade crypto is by using a peer-to-peer exchange. The most popular among Canadians is LocalBitcoins. Here, you buy crypto directly from another person at the price they ask. You can also sell directly to other people. Of course, this doesn’t solve the problem of how to buy crypto with fiat in the first place, but at least you can trade it relatively anonymously. However, there is still a risk that the government would be able to trace your transactions.
Crypto ATMs
You could buy bitcoin or other crypto with an ATM by using cash, which is the most anonymous way to buy crypto, but the fees are extremely high (as much as 20%). You can check our experience on buying crypto via ATM here.
Privacy Coins
Another way to remain private in crypto is by buying privacy coins like Monero. Monero uses a private ledger so wallet addresses and amounts are not recorded in transactions. It’s impossible to trace Monero, but there is a danger that the government will ban all privacy coins. Monero cannot be stopped even with a ban, but there could be harsh penalties if you’re found to have it.
Bitcoin Mixers
You could send your bitcoin to a mixer before sending it to another wallet that you own. A mixer takes your bitcoin and mixes it together with other people’s bitcoin before sending it to your wallet. This way, it’s impossible to tell where that bitcoin came from. You could have bitcoin in a wallet that’s not linked to your identity in any way.
Similarly there are also anonymous bridges. Say you want to convert Ethereum to AVAX. You can use Blockblend to convert it. Send your Ethereum to Blockblend and Blockblend will mix up your crypto with other people’s before sending you the AVAX. That way, you can swap crypto across different chains without being able to trace where it came from.
All in all, it is becoming increasingly difficult to trade crypto privately. With regulations surely incoming, the government will find more ways to track crypto transactions. The good news is that crypto itself is decentralized. No matter what happens, if you have your private keys, no one can take your crypto.
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