Bitcoin runs on a technology called blockchain. You can think of it as a public ledger where all Bitcoin transactions are recorded.
Thanks to this, it is possible to trace where Bitcoin came from, which addresses it passed through, and where it continued afterward.
This is why some Bitcoin addresses may receive an increased risk label. It does not automatically mean that the wallet owner did anything wrong. Often, it simply means that the address was somehow connected in the past to a flow of funds that analytical tools evaluated as risky.
Why can a wallet be marked as risky?
A wallet may receive a higher risk score, for example, if funds connected to risky activity passed through it in the past.
This may include funds connected to:
- theft,
- fraud,
- a sanctioned address,
- money laundering,
- or another source with regulatory risk.
It is important to understand that a risk label does not automatically mean the wallet owner is at fault. Sometimes it is enough that the address appeared in a transaction history that analytical tools evaluated as risky.
Can this happen to a regular wallet too?
Yes, it can.
A higher risk score can sometimes also appear on large pooled wallets used by, for example:
- exchanges,
- crypto brokers,
- payment apps,
- fintech services.
These wallets process a very large number of transactions for many users at once. If a risky flow of funds appears among them, the risk label may also affect an address that otherwise serves regular users.
This does not mean that all users of such a service did anything wrong. It may simply be the result of a large number of different transactions passing through that wallet, some of which may be evaluated as risky even retroactively.
Can a risk label appear retroactively? What does that mean?
Yes.
A risk label can appear later. An address may be evaluated as normal at the time of the transaction, but later it may become clear that its transaction history had a connection to a risky source or recipient.
This means that an address may start being considered risky only after some time.
You can imagine it like this:
- person A uses their Bitcoin address and, at that moment, the address is not marked as risky,
- person B checks before the transaction that person A’s address does not appear risky,
- later, however, it turns out that person A’s address was indirectly connected in the past to person C’s address,
- person C’s address is then linked to risky activity, for example to funds from an illegal online marketplace.
In such a situation, analytical tools may evaluate person A’s address as riskier, even though no issue was visible during the original check.
If person A or person B later provides us with such an address for a withdrawal, the withdrawal may be suspended or rejected. In some cases, we may ask you to enter a different wallet.
Why does Littlebit check this?
Littlebit is a regulated service and must comply with anti-money laundering rules (AML), security rules, and other obligations under Czech and European regulation.
For this reason, when processing a withdrawal, we check whether the destination wallet represents an increased risk.
If analytical tools evaluate an address as risky, this may lead to:
- the withdrawal being suspended,
- the withdrawal being rejected,
- or the need for additional verification.
This step does not mean that we automatically suspect you of anything. It mainly serves to protect your funds, the Littlebit app, and the entire system in which Bitcoin transactions take place.
Why can’t I withdraw to hosted wallets?
In addition to the risk score, there is one more important reason.
Withdrawals from Littlebit are currently possible only to your own unhosted wallet.
An unhosted wallet is a wallet that you control yourself. Typically, this may be a hardware wallet, such as Trezor, or your own software Bitcoin wallet that you can access yourself and where you control its recovery phrase, often called a seed phrase.
A hosted wallet, on the other hand, is a wallet held by a third party. This may include, for example:
- an exchange,
- a crypto broker,
- a payment app,
- a fintech service.
In this case, the wallet is technically managed by that company, not directly by you.
What is the Travel Rule and why does it prevent some withdrawals?
Because of rules known as the Travel Rule, Littlebit must verify where the Bitcoin is being sent and who the wallet belongs to.
For your own unhosted wallets, we can verify that the wallet belongs to you.
For hosted wallets, for example wallets at an exchange or another third-party service, we are currently unable to verify this in the way required by regulation.
This is why we do not support withdrawals to these wallets, even if the address itself does not have an increased risk score.
Which wallet should I use?
To withdraw from the Littlebit app, we recommend using your own Bitcoin wallet that you control yourself.
Suitable options may include:
- a hardware wallet, for example Trezor,
- your own software wallet that supports Bitcoin, for example Trust Wallet or MetaMask,
- another unhosted Bitcoin wallet where you confirm that the address belongs to you.
On the other hand, we do not recommend entering an address from an exchange, crypto broker, payment app, or another service that manages the wallet for you, such as Revolut, Binance, MEXC, and similar services.
What should I check before confirming a withdrawal?
Before confirming a withdrawal, always carefully check that:
- the address belongs to your own Bitcoin wallet,
- you really have the wallet under your control,
- the wallet supports bitcoin,
- you are not entering an address from an exchange, crypto broker, or another hosted service.
If you enter an address that is not supported, the withdrawal may not be processed.