Recently all of Bitcoin twitter has been up in arms about an email that was sent from Swan Bitcoin to all of their users regarding the pending FinCEN attack on bitcoin privacy services. Since Swan uses a third-party custodian for their user funds, they are subject to the will of the banking system and all of the fiat nonsense that comes with it. The email outlines that their banking partner may shut down your account if you send to a mixer or receive funds from a mixer such as Wasabi, Whirlpool, or other mixers.
While many are not at all alarmed by the email, it shows what is coming for the entire bitcoin industry if we don’t push back. This is the first of many companies to be forced to succumb to regulations, but this also serves as a sort of canary or “swan in the coal mine”.
The Canary In The Coal Mine
A canary in a coal mine is an old practice used by mineral miners to detect deadly gases in a mine. While workers were busy working deep underground, a canary was often kept in a cage where the mining was taking place. Apparently, canaries are more sensitive to gases like carbon monoxide and methane and would die or react to these gases and warn the miners to get out before the miners suffered the same fate.
The term is still often used today especially in relation to some bitcoin and privacy services such as VPNs. You can find a warrant canary page on some sites with a digital signature or message that is updated every so often that states that they have not been served a subpoena or compromised. As long as the warrant canary is updated often, then the owner of the website or service has likely not be compromised or served a subpoena. In the event that the operator of a website is taken into custody, the warrant canary would not be updated and users would be warned that something is wrong and avoid using the site.
I think we are witnessing something similar with Swan. They are the “Swan in the coal mine” and they are being subject to scrutiny from FinCEN cracking down on the use of bitcoin mixers.
The Swan In The Coal Mine
In relation to the email sent out by Swan bitcoin, they disclosed as much as they legally could tell us without breaching legal compliance. In this sense, they are providing us all with a warning sign of what’s to come. FinCEN is killing the Swan in the coal mine.
If you don’t care about privacy or KYC bitcoin doesn’t bother you or you need a clearly auditable trail of all of your bitcoin (such as an IRA account), then FinCENs attack on bitcoin privacy isn’t anything for you to be concerned about because you obviously won’t be using CoinJoin to attempt to obfuscate where your bitcoin comes from or where it goes to.
For bitcoiners who are trying to use bitcoin privately, this is probably the push you needed to move closer toward bitcoin privacy tools and away from the expanding regulations that are choking the bitcoin industry.
Let’s look at all of the information provided in the email from Swan and break it all down.
Swan’s Banking Partner
Our banking and custodial partners have made an update that could affect your account.
In light of the recent proposed ruling from FinCEN regarding Bitcoin mixing, they will no longer service clients who directly interact with Bitcoin mixing services such as Wasabi, Samourai, and similar services.
Swan is openly stating that they use a banking and custodial partner but none of this is new. After their old custodian and banking partner, Prime Trust, recently went bust, Swan started using a new custodian started by the same founder as Prime Trust. This new custodian is named Fortress and is subject to all of the same banking regulations as Prime Trust and probably just as shady as any other tradfi bank.
Avoid CoinJoin To Or From Swan
Please be advised that depositing directly from, or withdrawing directly to, a mixing wallet may result in the termination of your account with our banking and custodial partners.
To prevent any potential issues going forward, you can update your withdrawal address from your Swan dashboard.
They advise that depositing directly FROM or withdrawing directly TO a mixing wallet MAY result in the termination of your account with their banking partners. This is to be expected because if banks can’t verify the source of funds, they are somehow liable and face hefty fines because the government requires banks to enforce government policy. It’s also important to note that they won’t necessarily close your account if they think that the data your transactions provide are useful for conducting chain analysis. I have witnessed this myself.
Swan then goes on to tell their users how they can avoid having their accounts shut down by changing their withdrawal address. Not sure how many people are withdrawing directly to CoinJoin but Samourai wallet already offers a service called Ricochet that enables their users to send transactions spaced out over time and multiple addresses to make it seem as though an address balance has changed ownership multiple times before being deposited to a CEX or a CoinJoin.
On top of all of that, you can send bitcoin though lightning or even swap a UTXO to get an entirely different one. All of these regulations are superfluous noise that will ultimately solve nothing. The users who are concerned with protecting their privacy online will just move further towards privacy tools like decentralized exchanges. Users who don’t care about KYC or need KYC bitcoin in their IRAs are not affected by this in any way. They can just keep on stacking fully KYC sats.
If you really want to use CoinJoin, then it’s best to accept, CoinJoin, and then spend so you don’t have to deal with any of this KYC nonsense in the first place. Receive it privately, use CoinJoin to make it impossible to follow the flow of funds either forward or backward, and then spend it amongst your fellow plebs at your local bitcoin meetup.
Swan’s Legal Push Back
We are actively lobbying against government regulations that require regulated financial institutions to report mixing activity. Unfortunately, the government is on a misguided mission to monitor and restrict mixing.
We will continue to fight against government and banking system overreach, and we hope you will join us in that fight. Click here for a quick way to voice your disagreement to FinCEN.
As always, we encourage you to send future Bitcoin purchases directly to a self-custody wallet that you control.
Swan finishes off the email stating that they are actively pushing back via lobbying and then ask for your help by contacting FinCEN for commenting before the law is finally forced into play. As always, they suggest that you send future bitcoin purchases directly to your own wallet to avoid any sort of seizure of your bitcoin in the event that they are subpoenaed by FinCEN to do so.
While it’s great that they are lobbying and doing what they can to push back against all of this in court, the best thing you can do to avoid having to deal with any of this headache is to buy bitcoin without KYC and use bitcoin as privately as you can.
Swan’s Public Response
Several members of the Swan team have made public responses on Twitter. If you’re interested in reading their statements, here are some links to a number of them. If you are newer to Bitcoin and trying to fully understand all of this, these responses from members of the Swan leadership might be helpful for you as you navigate what all of this means for bitcoin, privacy, self-custody, KYC, and your own personal stack.
– Response from CEO, Cory Klippsten
– Response from CTO, Yan Pritzker
– Response from Swan cofounder, Brady Swenson
– Response from Managing, Steven Lubka
Final Thoughts
Regardless of what you think of all of the noise surrounding Swan right now, they are showing us all what is to come by taking the fall like a Swan in the coal mine. Unfortunately, this is just a taste of what the entire industry will continue to be faced with as the fiat powers ramp up the war on bitcoin. If you need an auditable paper trail for all of your bitcoin because you only view it as a means of generating more fiat, then you don’t need to worry about any of this. You can keep buying bitcoin with Swan.
If you are focused on using bitcoin privately as a tool of individual sovereignty, then you should avoid any KYC platforms to begin with and just stick to stacking P2P sats.
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