Disclaimer: Note that I have no financial relationship with Pocket Bitcoin besides being a happy customer of theirs.
Know Your Customer(KYC) laws claim to make the world a safer place because it hinders criminals' ability to transact with cryptocurrencies or traditional banks anonymously. That would be true for only the most inept criminals. Any slightly more advanced criminal has already figured out how to stay anonymous and are generally several steps ahead of regulators. The only people actually suffering from the obstacles of KYC are ordinary people like you and me.
Exchanges demand our sensitive data like IDs and tax numbers and store it in perpetuity in the service of KYC compliance. Their databases with this information are the perfect honeypot for criminals to hack into and steal our identities to be used for identity theft. Thus, criminals can continue to use financial platforms requiring KYC by impersonating you and me until the identity is burnt and they move onto the next victim. We pay the price while legislators get to campaign on cracking down on money launderers and criminals get off free. If you're interested in understanding the threats of KYC more, see this Bitcoin Magazine article.
So what do we do about this problem? Well, we must use no-KYC or KYC-light platforms instead. No-KYC is the most anonymous and generally means peer-to-peer trading by buying Bitcoin through a person you know already or meet through an online platform like Bisq or Hodl Hodl. The buyers and sellers negotiate among themselves how much personal information they want to reveal. Buyers pay sellers directly through payment channels unconnected to the platform that introduced them.
The other category is KYC-light which is the model Pocket Bitcoin uses. In this model, you give them a Bitcoin address, your IBAN number, and an email address(you can spin up an anonymous one). You buy Bitcoin by creating an order with an open-ended amount and then you send funds to their bank account with a reference number tied to your order. Funds can be sent on a one-off or recurring basis with the same reference number. When you pay their bank account, the wire transfer will reveal your name in their records.
You obviously reveal some personal information in this model so if you need perfect privacy, this isn't the best option for you. For most people, this model is a great option for revealing minimal sensitive data and only information that can't be used for identity theft.
Additionally, their model is entirely non-custodial meaning the Bitcoin you buy gets sent directly to whatever Bitcoin address(es) you want. It eliminates the extra step of having to withdraw Bitcoin from an exchange because Pocket sends your coins directly to your own wallet.
How to Buy on Pocket
- A Bitcoin wallet(hardware or software)
- An email address(ideally an anonymous one tied to no other platforms)
- A bank account in one of the following countries: Andorra, Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Moldova, Montenegro, Netherlands, North Macedonia, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom
- Euro or Swiss Franc fiat money
Assuming you have all of the above, you're ready to make your first purchase. Let's go.
Head over to Pocket Bitcoin and click 'Set up now'.
The next page will briefly summarize the steps at a high-level. We'll go through each in detail.
Your first action is to select how you want to receive your Bitcoin. Pocket Bitcoin sells hardware wallets like Nano Ledgers and BitBoxes. They also offer Opendimes which are a simple device that stores small amounts of Bitcoin. For this guide, we're only interested in using an existing wallet so select that.
Here you'll choose which wallet you're using.
In reality, you're less picking where your Bitcoin will be sent, but rather how you want to provide Pocket a receive address and sign a message confirming that you own that address. If you use your hardware wallet with software like Sparrow or any other wallet that allows signing messages, you can choose 'Other'. Otherwise, select your device.
I'll be walking through the steps with a hardware wallet like the Ledger and then showing you the steps for the 'Other' option.
Connecting Pocket to a Hardware Wallet
I'll be using a Ledger, but the steps for BitBox, Trezor, and Coldcard should be the same. Once you select your device, you'll be presented with the following screen. Connect your wallet to your computer at this point and make sure it is unlocked and you're using the appropriate Bitcoin app, if applicable. Then click 'Determine address'.
Your browser will ask permission to let pocketbitcoin.com connect to your wallet. Go ahead and hit 'Connect'.
Once it connects, your wallet will walk you through sharing a Bitcoin address with Pocket and signing a message confirming you own that address. Simply follow the steps on the device until you see the following screen.
Connecting with 'Other'
Here we'll walk through the same steps but through the 'Other' path. This can also be done with a hardware wallet connected to wallet software like Sparrow. The main prerequisite here is you need a way to sign a message with your wallet. Ledger Live won't do the trick unfortunately. Check out my guide on signing messages with Sparrow if you're stuck.
Pocket will prompt you to paste in a Bitcoin address you own. Get this through the Receive function of whatever wallet software you use.
Next you will confirm your Bitcoin address by signing a message. I go through the full steps of that in the article linked above.
The message you need to sign will be given to you by Pocket. Simply copy that into your signing tool and then copy the resulting signature back here under 'Message Signature'.
You'll be presented with this success message if you did everything right.
A Note on xpubs
In the steps above, we shared only one address with Pocket. All future purchases through Pocket will be sent to that address unless you repeat the setup process from zero. This is convenient, but it's generally bad practice from a privacy perspective to reuse Bitcoin addresses.
Pocket gives you the option to share your extended public key(xpub) which Pocket can use to send each purchase to a new Bitcoin address. This solves the reuse problem and is very convenient, but introduces a different privacy problem. Giving your xpub to someone allows that entity to see all your addresses associated with that wallet. This means that even if you stopped using Pocket, they could monitor transactions on addresses you never used to receive Bitcoin from them.
You have to decide for yourself what trade offs you can live with. Here are two options if you're keen to optimize for privacy over convenience.
- Repeat the setup process with a new address every time you buy Bitcoin with Pocket.
- Use a separate wallet only for Pocket buys, share the xpub with Pocket, and then periodically transfer coins to your cold storage. Pocket could track those subsequent transactions if they wanted, but they wouldn't have access to all your addresses in your cold storage.
If you decide to share your xpub, you can do so once you reach the success page after confirming one address. Click the link to 'share your entire wallet'.
If you use Sparrow, you can get your xpub from the 'Settings' tab of your wallet. If you use any other wallet, look up the steps in this article or do an Internet search for "how to find xpub for your_wallet_name".
We're on the home stretch now. Next you need to provide an email address to Pocket. This is only used to send you updates on your status of your orders. There is no account creation in Pocket. I would encourage you to use an anonymous email here if you want to optimize for privacy. Or at least use a unique address so if there was a data leak, it would be harder to match the email provided to any of your accounts elsewhere.
Here you'll enter the IBAN of your EUR or CHF account and select what currency you want to pay in. Your IBAN will be available through your bank and is outside of the scope of this article to walk you through. Be sure to choose the appropriate currency because this will change where you send payment to.
Success! You're now ready to buy. Pocket will display a bunch of information you'll need to complete payment. All this information will also be emailed to you.
Add Pocket's bank details as a payee in your bank account using the details from the personal Pocket invoice. Then create a transfer for any amount you want. Make sure you put your payment reference(listed in the Pocket invoice) in the transfer description field before you send the payment. This is crucial to ensure your payment is appropriately assigned for pay out to your Bitcoin address.
Depending on how much you send, Pocket will use Kraken's API's to pull the latest price and calculate the amount of Bitcoin they owe you. The price you get is what the price was when your money hits Pocket's account. Use instant SEPA payments if you're anxious about future price movements.
Note that Pocket takes a 1.5% cut. Compared to the premiums one pays on decentralized marketplaces like Hodl Hodl and Bisq, Pocket's 1.5% cut is a bargain.
For very large one-time orders, they advise contacting them first.
Receive Your Coins
Once your bank transfer lands in Pocket's account, you'll receive a confirmation of your purchase via email.
Pocket pays out once a day at about 10pm Central European time. This allows them to batch all their pay outs into fewer transactions and reduce transaction fees for everyone involved. Use the 'Track your payout' link in the confirmation email to check the status of your pay out.
If you managed to follow all that, you're now the proud owner of some KYC-light Bitcoin. Don't spend it all on place. In fact, don't spend it at all. Just hodl.