The Satoshi Test Explained

A Satoshi Test is a method used to verify ownership of a self-hosted wallet address. To verify ownership, the wallet owner is required to transfer a small, predetermined amount of cryptocurrency from their address to their VASP within a specified timeframe. Successfully completing the transaction proves that the wallet owner controls the address.

Once the transfer is successful, the wallet owner is reimbursed for the amount sent. If the transaction fails, the wallet owner can attempt the test again, with the VASP issuing a new address and timeframe.

Why Would a VASP Request Verification of a Self-hosted Wallet?

For compliance purposes, VASPs must adhere to country-specific rules when transacting with self-hosted wallets as part of their AML efforts.

The Travel Rule stipulates that VASPs must identify the owner of the self-hosted wallet if at least one obliged entity is involved in the transaction. Depending on local regulations, collecting this information may be sufficient, while in other cases like Switzerland and Singapore, VASPs must verify the ownership of the self-hosted wallet.

21 Travel Rule & the Satoshi Test Portal: How It Works

This process can be 100% automated for the VASP. The prompts below are if the process were to be done manually.

From a VASP’s Perspective

1. In the 21 Travel Rule software, the Satoshi Test Link is to be selected. 

   A pop-up will open requesting the following information:

   • the Customer ID,
   • the VASP’s deposit address,
   • the customer’s wallet address,
   • the digital asset type.

   This information is to be completed; thereafter, Get Satoshi Test Link is to be selected.

2. Next, a pop-up will appear containing the status of the Satoshi Test, along with the data provided previously (as seen above). 

   Additionally, this pop-up will include a URL to be shared with the customer to perform their Satoshi Test.

3. The URL will be shared with the customer via their preselected communication channel (email, iframe etc.).

   The customer will open the link, complete the Satoshi Test and submit their transaction ID via the Satoshi Test Portal. Once this process has been completed, the proof will automatically appear in the Compliance Dashboard. 

From a VASP Customer’s Perspective 

1. The customer (wallet owner) initiates a transaction with their VASP.

2. The customer will open the received Satoshi Test Portal link.
   Using this link, the customer will find the amount to transfer, which address to transfer from and to, and a time limit to complete the transaction. 

3. The customer will complete the Satoshi Test using the data received in the link (transaction amount, address, etc.).
   After completing the transaction, they submit their transaction ID via the Satoshi Test Portal link.

   After submitting, the customer will receive a message confirming that their address has been successfully registered meaning they are now able to transact. 

What Are the Pros?

• The process can be automated on the VASP’s side,
• It is safer than the screenshot option, as anyone with basic computer or cellphone knowledge can easily manipulate screenshots per the Screenshot Method.

What Are the Cons?

• It’s not free. While the transferred amount can be returned, the transaction fees usually are not, and some VASPs will charge wallet users for that process since staff time is needed for review,
• This encourages the owner to reuse addresses to save money,
• Sending from a specific address is a non-trivial task with UTXO-based cryptocurrencies, such as Bitcoin, and often not possible with a wallet,
• It is cumbersome, adds friction and offers a poor experience for the end customer, who usually requests VASP support to perform it,
• This, too, can encourage address reuse as the VASP’s customer does not want to repeat this burdensome process,
• The process can be slow if it is not fully automated on the VASP’s side, as the VASP’s compliance team needs to review and respond to the proof.