It’s not for lack of warning – Don’t keep your funds on centralized exchanges. Jesse Powell, former Kraken bosswarned. Exchanges know everything about you, and they might have to collaborate with the Treasury or with governments.
An octopus can be very deceiving
In making such remarks, the former Kraken boss was keen to remind us of the basics. Using a centralized platform, as convenient as it may be, carries risks. These risks are of several types.
Firstly, you’re transmitting all your personal information to platforms that may not turn out to be very reliable. Who knows where all the customer data FTX took care to request is now circulating… Transmitting sensitive information that potentially exposes you to social engineering attacks or, worse, to a real risk of your identity being stolen, is an act that should never be taken lightly.
Secondly, by leaving your funds on centralized platforms, you expose yourself to the risk that your assets may be blocked or seized. The platform has no choice but to apply the law in the event of legal proceedings or seizures by a bailiff. In France, the seizure of digital assets has been facilitated by the LOPMI law, on which yours truly wrote at length in this article.
Thirdly, even without blocking your funds, the history of your transactions could be transmitted by the exchange to the Treasury. And it’s this painful experience that Kraken’s American customers are about to face.
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Life has two imponderables: death, and taxes
In a decision handed down on June 30, 2023 an American court has just ordered Kraken to hand over its customers’ data. The main targets are users who have, between 2016 and 2020 (note the length of the period) carried out transactions totaling more than $20,000. The aim is to track down any smart alecks who fail to declare their capital gains.
The motion filed by the IRS was only partially accepted by the judge. The judge refused to allow information relating to the jobs held by the users or the declaration of their total assets to be transmitted to the US Treasury. The request was deemed acceptable, but disproportionate to the goal pursued.
That said, the IRS will have access to users’ addresses, both those made available to them by the platform and those from which they may have withdrawn funds. The same applies to the hash of transactions linked to these addresses. So finding a loophole may not prove easy.
This case reaffirms the importance of using decentralized platforms. As does the importance of holding your digital assets in a non-custodial portfolio. While you’re looking at the alternatives available to you, why not take the temperature of the market by reading the excellent paper by our friend Kolepi ?
In crypto, don’t cut corners! So, to keep your crypto assets safe, the best solution is still a personal hardware wallet. At Ledgerthere’s something for every profile and every crypto. Don’t wait to secure your capital (commercial link)!