Bitcoin: Third-Party vs. Peer-to-Peer

Bitcoin is a peer-to-peer electronic cash system. Anything inserted between peers is antithetical to Bitcoin.

By replacing trust with computation, Bitcoin is the separation of money and identity. Know Your Customer (KYC) regulations reattach identity to cash. And by functioning peer-to-peer without needing user identity and being comprised of digital computer bits, Bitcoin is permissionless and pseudonymous. However, Anti Money Laundering (AML) laws insert a third party, severing peers. KYC/AML Bitcoin isn’t Bitcoin.

Third-party services, such as Coinbase and SwanBitcoin, must comply with KYC, AML, and other State regulations. Thus corporations have the incentive to take Bitcoin away from routing around the State. In addition, third-party exchanges and services threaten Bitcoin’s sovereignty. The State uses third parties to surveil its users and report transactions to the IRS. When the IRS suspects you of not paying taxes, the IRS subpoenas third parties. President Biden recently proposed requiring banks [exchanges] to provide transaction data over $600 on individual bank accounts, among other dystopian measures.

Third-party exchanges and services comprise the majority of businesses in Bitcoin because most users prefer their convenience over peer-to-peer methods of obtaining Bitcoin. If you want to make money in Bitcoin, third parties present the most significant opportunity. Profit incentivizes third-party exchanges to ignore, if not suppress, methods of using an acquiring Bitcoin peer-to-peer. These companies hire social media “influencers” as employees or advisors to grow their market share. They also sponsor podcasts and conferences. These marketing efforts normalize third-party exchanges and services over peer-to-peer Bitcoin. Thus, you don’t hear about the dangers of third-party KYC/AML exchanges and services at conferences, on podcasts, and from influencers.

I’m sympathetic to these companies and individuals. They love Bitcoin and want to work in the Bitcoin industry. I believe most appreciate the importance of using Bitcoin peer-to-peer. But they’re human and make compromises to their beliefs. I’m not perfect either. I make mistakes. But I believe what’s best for Bitcoin is to wind down the usage of third parties.

If all the KYC/AML third-party services went out of business, peer-to-peer platforms such as BISQ and others would increase that volume. However, so long as third parties exist in Bitcoin, peer-to-peer Bitcoin remains a fraction of the network. Over time, you build up relationships from BISQ and start trading higher volumes outside of BISQ. Two other ways to get larger amounts of bitcoin are by earning it through commerce and mining.

All the third-party services that emphasize “saving” while mocking earning and spending suppresses Bitcoin commerce. The KYC/AML third-party services often engage in deceptive marketing, talking about ending the State and having a financial revolution. When they are, in fact funding the State and enabling surveillance. The compliance Trojan Horse meme is similar. Third-party Bitcoin is Statist Bitcoin.

I’ve often heard the counter to my argument that these companies are laudably “making more Bitcoiners.” And third-party services are a necessary evil to do so.

The goal of “making more Bitcoiners” is counterproductive if those Bitcoiners don’t use Bitcoin peer-to-peer. The significant number of normies adopting Bitcoin has diluted the cypherpunk ethos and the percentage of cypherpunks in Bitcoin.

I invite you to start using third parties less frequently. To get started, I recommend the No KYC Only guide by Bitcoin Q+A. Peer-to-peer enables us to accomplish the cypherpunk goals of Bitcoin.

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