Getting services and paying with cryptocurrencies comes with some risks that every user must understand. However, there are some simple steps you can take to reduce them.
The risks
Transactions are Irreversible
Cryptocurrency transactions are final and irreversible. Once you hit send, there's no chargeback option, no bank to call, and no dispute resolution (unless the recipient voluntarily returns your funds). This creates opportunities for bad actors to exploit.
Shotgun KYC
One of the most predatory practices in the crypto space is Shotgun KYC (classified as level 3 on KYCnot.me). Here's how it typically unfolds:
- You send your cryptocurrency to a service
- After receiving your funds, they suddenly claim your coins are "dirty" or flagged
- They hold your funds hostage, demanding extensive documentation
- Even after compliance, they may continue requesting more information indefinitely until you can't no longer provide what they are requesting
- Your funds remain frozen with no guarantee of release
Transaction Scanning
Most crypto services use blockchain analysis to scan your coins' transaction history, assigning risk scores based on past associations. A low score doesn't mean you did anything wrong, you could have unknowingly received "tainted" coins from a simple P2P trade, inheriting a history that wasn't your fault.
Other Concerns
- Limited Support: Many services operate with very small teams or even just a single person, offering minimal customer service. Even established services may ignore customer complaints or disputes.
- Exit Scams: A service that was apparently trustworthy and processing orders can disappear overnight, taking users' funds with them.
- No Regulatory Recourse: Very limited legal protections compared to traditional financial services
The rules
Rule #1: Batch Your Amounts
Avoid sending a large amount in a single transaction, instead, divide your trades into smaller batches. If something goes wrong with one batch, you haven't lost everything. Always remember that crypto transactions are final and irreversible.
Some services scam users selectively: they process smaller transactions normally to build trust, then freeze larger amounts when they detect high-value transfers.
Yes, batching means paying more fees, but it's almost always worth paying the extra rather than losing your entire amount to a scam or frozen trade.
A surprising number of people report losing significant funds in a single, large transaction. Start small, build confidence through successful transactions, and always maintain reasonable batch sizes even with "trusted" services.
Rule #2: Record Everything
When problems arise, services tend to mysteriously "lose" records, delete order pages, or even deny entire conversations. Keeping good records become very valuable against fraud and negligence.
Take screenshots and save them until you are satisfied with the service:
- Ensure timestamps are visible when possible
- Capture full pages, not just portions
- Make sure the URL is always visible
You can also use websites like archive.is to take snapshots of each step of the process, or use the Single File browser extension to snapshot the entire site in a single html file. This extension will preserve exact page appearance, includes all embedded content and is easy to share and store. For email conversations, exporting the raw .eml file is best, as it retains all the original headers and metadata.
Make sure to keep all the blockchain evidence, such as transaction IDs and wallet addresses.
Remember: If it's not documented, it didn't happen in the eyes of dispute resolution. Make documentation a habit. This will grant you evidence for contacting support if there was an issue, and in the event of being scammed, effectively reporting the scam to the community.
Rule #3: Do Your Own Research
A quick investigation before operating with a service can save you from costly mistakes and frozen funds.
For service reviews, a starting point can be KYCnot.me. It's also wise to check popular forums like BitcoinTalk, TrustPilot, or Reddit. To search on specific sites, you can use site keyword on any search engine, for example, this shows all mentions of "Bisq" on BitcoinTalk.
If you are about to use a service without existing reviews, you're taking a risk, but you could help others by documenting it. Write a detailed review and add supporting evidence to increase your credibility. Your feedback will help building a knowledge base that protects the community from bad actors and unreliable services. Leaving reviews on KYCnot.me is very easy and does not require any personal data.
Spend at least five minutes researching any new service before sending funds. This small time investment can reveal crucial information about reliability, processing times, and potential issues.
Rule #4: Ask for AML Checks
Most services will offer you a free AML score check before sending your funds, but they rarely advertise this. If you're dealing with a service known for freezing funds, requesting a pre-transaction AML check can save you from having your cryptocurrency held hostage.
Simply contact the service's support before sending any funds and explain your situation:
"I'd like to use your service but want to avoid KYC. Can you perform an AML check on my transaction before I send the funds?"
This check should always be free, if they ask for payment, consider it a red flag.
Never send funds to a third party to get an AML check. To prepare for the check, it's best to consolidate the funds into a single address in your own wallet. Then, you only need to share that public address for the analysis. Your funds should never leave your possession.
DIY AML Checking Options
You can also run these checks yourself using services like AMLBot (paid service) or the free AML scanners available in Blockchair's dApps section. These tools analyze your transaction history and provide risk scores based on various algorithms.
dApps section in Blockchair, showing two risk scores
However, different AML services use different algorithms and metrics, so you might get varying risk scores for the same transaction. As you see in the image above, one service would flag your coins as medium-risk while another considers them clean. So to be 100% sure, it is always better to ask the service you want to interact with for the pre-trade AML check rather than checking it yourself.
Taking a few minutes to request an AML check can prevent problems like the permanent loss of your funds. A service that respects your privacy will have no problem with this reasonable request.
Rule #5: Seek fungibility
To protect yourself from arbitrary fund freezing and "dirty coin" accusations, simply use privacy coins whenever possible. While transparent blockchains expose your entire transaction history to scrutiny, privacy coins make these predatory scanning practices completely useless.
Traditional cryptocurrencies like Bitcoin and Ethereum operate on transparent blockchains where every transaction is publicly visible forever. This means not all coins are treated equally. A Bitcoin you received might be worth less than another Bitcoin simply because of its transaction history, even when you had nothing to do with that history.
Even if you try to break the history with mixers or coinjoins, you are leaving patterns that will also taint the coins. Once they are marked as "tainted" by blockchain analysis, that reputation follows them indefinitely, you can even be penalized for transactions that occurred years before you owned the cryptocurrency, creating an unfair system of inherited blame.
Monero's privacy-by-default architecture makes transaction scanning impossible. Legitimate services that respect user privacy usually welcome privacy coins. Services that discriminate against privacy coins often have ulterior motives.
Using privacy coins is often simpler because you don't need to worry about coin history or risk scores. So, any chance you get to use a privacy coin such as Monero, just do it.
Conclusion
Even by following all these rules, you're still assuming a certain level of risk. However, by following these simple safety measures, you will dramatically reduce your exposure to scams, fund freezes, and predatory practices. And, if a problem occurs, having good evidence is your best defense. Records like screenshots and transaction histories are essential for resolving disputes and reporting scams to protect others.