DEXs, Cold Wallets, and Privacy Coins: Tools for the Post-KYC Era
Crypto in 2025: What UK Users Need to Know About Privacy and Control
The crypto world has changed. In 2025, using a major exchange like Coinbase, Binance, or Kraken means your activity is no longer private. If your account is linked to your identity (known as KYC – Know Your Customer), then everything you do on that platform can now be seen by HMRC, the UK’s tax authority.
This includes every:
Buy or sell order
Deposit or withdrawal
Transfer to or from other wallets
Crypto-to-crypto trade
If you use a KYC-verified account, HMRC can access your transaction history and compare it to your tax return. This is part of new international reporting rules, such as the OECD’s Crypto-Asset Reporting Framework (CARF), which the UK is adopting.
Why This Matters
You don’t have to be hiding anything to care about financial privacy. But these new rules mean:
Your crypto activity may be automatically shared with HMRC
Minor mistakes on your tax return could trigger reviews
You may lose control over when and how your financial data is accessed
This isn’t a warning — it’s already happening. But there are still tools you can use to stay in control of your digital assets while remaining fully legal.
The Risk of Staying on Centralised Platforms
Using big-name exchanges is convenient — but there are risks:
1. Identity Is Always Linked
Everything you do is tied to your name and sometimes your bank account. That data is now being passed to HMRC.
2. You Don’t Fully Own Your Assets
If your crypto is stored on an exchange, you don’t control it. If the platform is hacked, frozen, or goes under, your funds could be at risk.
3. Higher Tax Exposure
When your trading history is automatically shared with HMRC, undeclared gains — even accidental ones — could lead to audits or fines.
How to Take Back Control
These tools can help you stay in charge of your assets and privacy — without breaking any laws:
1. Cold Wallets (Offline Storage)
A cold wallet is a physical device (like a USB stick) that stores your crypto offline. It means:
You control your own crypto
You’re protected from exchange hacks
There’s no automatic data sharing unless you’ve linked it to a KYC account
Popular brands: Ledger, Trezor, Keystone
2. Decentralised Exchanges (DEXs)
DEXs let you swap crypto without a central company holding your funds or collecting your ID.
No sign-up or identity checks
You keep control of your wallet throughout
Transactions are public on the blockchain but not tied to your real name
Examples: Uniswap, Thorchain, Osmosis
Important: You still need to report any profits to HMRC. DEX use is not a tax loophole.
3. Privacy Coins
Cryptocurrencies like Monero or Zcash are designed to keep your transactions private.
Details of your transfers and balances are hidden from public view
These coins are legal, but some exchanges have stopped listing them
They are best used responsibly — not to hide income, but to manage privacy
Steps to Transition Safely and Legally
If you want to shift away from centralised platforms without causing tax or compliance issues:
Withdraw to a Personal Wallet
Move your crypto into your own cold wallet. Record all transactions for tax purposes.
Create Fresh Wallet Addresses
Start with a clean wallet to avoid linking past KYC activity to your future trades.
Try Small Trades on DEXs First
Get familiar with how they work using small amounts of crypto.
Track Your Taxes
Use tools like Koinly, Recap, or Accointing to keep your records in order.
Stay Up to Date
Follow HMRC guidance and legal updates around crypto use, especially regarding wallet ownership and reporting rules.
Final Thought: Privacy Is Not the Same as Evasion
Crypto users in the UK now operate in a regulated environment. You are still responsible for paying tax on any profits — but you can choose how much information you give, when you give it, and to whom.
Platforms that once offered privacy now behave like traditional banks. If you care about keeping control of your finances, learning about decentralised tools and self-custody is no longer optional — it's essential.
Disclaimer
This article is for general information only and does not constitute financial, tax, or legal advice. Crypto tax rules can change and vary depending on individual circumstances. Please consult a qualified professional before making financial decisions involving digital assets.
