Bitcoin Forum

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I have been wondering over the past few months about the fungibility of Bitcoin now that blockchain analysis tools from Chainalysis and others.  As an example, it might be hard to get FIAT$ from some exchanges with BTC with "taint" from mixers or traces back to use in dark markets.  

If the exchanges crack down on those who want to cash-out of BTC that is "dirty", then IMO that makes BTC not perfectly fungible.

Well, the gold market at the wholesale levels works somewhat similarly.  The LBMA (the world's largest physical gold custodian) carefully tracks the gold bars it holds, and even allows into the system.  It is very hard to get gold of uncertain provenance ("dirty" gold) into the LBMA system.

The below article explores this, and hints that we are almost there re a hierarchy of gold and BTC (dirty gold and dirty BTC are worth less):

https://www.coindesk.com/bitcoin-gold-staying-clean


EDIT:  The article suggests this is more of an issue at the wholesale levels (institutional investors, etc.)

How much of circulating bitcoin is "clean" anyway ?

"Dirtiness" only matters if most coins are clean.

Dirty BTC is worthless?
We don't even know which BTC is Dirty and what would the owners of those BTC feel if you would tell them that it is worthless?
How about if they are new in crypto and bought it on exchange would it still be consider as worthless ?
BTC would never be worthless even if it is dirty or not we couldn't filter and just burn those BTC that has been used in illegal activity,
The dirty BTC would circulate normally if they would sell it out however they want or spend it out on crypto space.

 By grading bitcoin under two categories of "dirty" and "clean" bitcoins then the so-called institutions are looking of away of taking control of most of the bitcoins especially in terms of circulation which I find stupid. It's more like, "Hey crypto folks, If you don't pass KYC and trade in these approved exchanges, then your bitcoins are dirty and of a much lower value than the bitcoins we have in here. If you move your bitcoins out of our exchanges they will also be considered dirty"

It's my opinion as well. The average user has no access to these chainanalysis tools and will not check if the coins he receives are clean so it's unfair to ban their coins from acceptance because they were mixed or stolen once.

What if by the time exchanges really stop accepting tainted coins at least half of all bitcoins in circulation will be tainted? Are we going to cut tradable supply in half?

Not that it's worthless, but it somehow links you to a possible scam/illegal scheme involving those bitcoins that you received. This puts the receiver of that coin into some kind of 'watchlist' that law enforcement updates every so often for potential criminals. It is not an ideal list to be in, trust me, and it might even go so far as to involving you in crimes you didn't commit.

Also, it's easier to trace which coins are dirty and which coins are clean. There are taint analysis tools dedicated for that kind of thing, though I believe it isn't as comprehensive as what law enforcement people use but you will, at least, get the idea on where the coins came from.


Law enforcement usually "un-tag" dirty coins once the case involving those were cleared, or if the seized coins are put into auction for sale. Those essentially burn the dirty status of the coins and can be received once more with confidence.

This is the supposed non-scammy reason that coinmixers exist right?

Mixers exist okay? Dirty Bitcoin in the end would only remain dirty on the hands of someone who doesn't know about how it works and how to avoid detection. Sure, in the future there may be a way for mixers to filter dirty coins from being mixed, but right now? No such precedent exists afaik. Plus, even if some coins were detected and obtained by a legal team, said coins would then be auctioned off in public to mark it as clean.

The article discusses a bit about checking the transaction history of Bitcoin whenever being traded to make sure it's clean, but what if they passed by the mixers as I said? Transactions would be cut off from there, and what would be the judgement for coins that came from mixers? Would they be labeled as dirty even though some of them may just have came there to mix their coins for other purposes?

There's nothing in the article saying that it's "worthless" if it's dirty, it would be "worth less." Less than the possible original value, not wholly no value. Readers here should be aware of that fact first.

I don't think it would be entirely applicable for apply the type of standard such as LBMA because all of the Bitcoin in the network are from the system itself, and you could never add to the supply that it has now. According to the wiki, the function of LBMA is quoted below.


There are factors like making Bitcoin more precious would be the ideal purpose of the "future standard" that's going to be applied to Bitcoin, but technically, it's going to take a lot of hard work, IMO. It doesn't make sense anymore, as long as you have Bitcoin in your wallet, you are good. If you are transparent where you got it from, it would be good. I don't think it's worth discussing.

It's the people who are Dirty, not Bitcoin.

Then that would make Fiat the same as well, with banks stealing value from other supply in circulation, and using that fresh money to buy assets and debts, making the poor, poorer and the rich even richer. Wouldn't that make the paper money and the whole financial system much worser?
Before talking about the bad side of Crypto, you should ask yourself. What are the corrupted banks are doing.

Shall we blame the bitcoin mixer platforms such as the long running and successful chipmixer? No of course! Why? Because they simply value your identity, your privacy per se. No matter what were the cause or where does your crypto came from, it would only be bitcoin - a digital fiat, a mode of payment. Justifying as either dirty or clean wouldn't change the fact that it reaches a lot of blocks and probably mixed with both clean and dirty as well. Gold is really sensitive with such labeling as it is an issue if they would have it by stolen and would soon be need to be taken legally if they were to accept it.

Bitcoin is a beautiful system with its own standards. We don't need to build another meta-system to control and regulate it. I don't like an idea of introducing Bitcoin as Gold 2.0 or creating Bitcoin's version of the LBMA.

One of the reasons why bitcoin was created was to prevent third parties from manipulating the money, in this case they speak highly of KYC as to show that it is a kind of London Bullion Market Association (LBMA) as they say in the article, but this technology is not handled like that, gold is something else, which is handled physically, and has many more controls and even its taxes are high, apart from that it is globally recognized for its history, in which case I think that for The nature of Bitcoin is not suitable for KYC, especially for those who love anonymity.

it is not an issue, or lets say it is being exaggerated a lot. and the more "chain analysis" companies that sprout like mushrooms, the more exaggerated this situation is going to get.

bitcoin is a currency and is fungible and like any other currency it is used for a lot of things that includes illegal activities. at some point in the future (mass adoption) we may even see any transaction to be linked to some illegal activity in its history when you go back long enough. that shouldn't change anything though because you should always compare it with other currencies. take US dollar for example. majority of the bills in your wallet right now are already linked to some illegal activity which is usually drug trafficking. there is even traces of drugs such as cocaine on them. but nobody raises these issues because USD is not new and is not currently under magnifying glass.

as for mixers and coinjoins transactions that may cause some issues for the users, it is like that because their number is still low. so the exchange can easily restrict those handful of them and cause issues but if there were more (like if 80% of their deposits came from coinjoin txs) they would never be able to put any kind of limitations for such transactions.

Anyone trying to peddle "dirty" bitcoins is a scammer or a LEO or both.

Avoid.  There are no dirty Bitcoins or metals or fiats, UNLESS, you knew they came from a crime.  

Dirty is a mindset and a stupid Bitcoin mixing service isn't going to help that... in fact, it's probably going to expose your shit to someone you'd really rather not fuck with.

It doesn't really matter in the long run, and the retail traders and users of bitcoin don't give a crap anyway.

At some point in the future, all or most of the circulating bitcoin would have circulated(and hopefully mixed/coinjoined) enough that every single one would be so called "dirty" or "tainted" anyway, that exchanges and centralized services won't have a choice but to allow them on their platform.

Bankers are starting spreading false narratives that your bitcoin needs to be controlled by them, because otherwise your coins will be considered dirty.

What that writer at large Canadian bank forgot to mention is that unlike gold, bitcoin is a decentralized code, it is a programmable money that exist beyond any borders and jurisdictions. What it means is that if some party starts thinking it is powerful enough to dictate the rules of how to use decentralized network, it will be immediately deprived of this power by other participants of distributed decentralized network. Since bitcoin is just a code that can be modified if majority of community agrees with that, it is always possible to remove any "dirtyness" from bitcoin by making it more private, untraceble. In this case, any fungibility discussions will not make sense anymore.

It's definitely not easy and that's why tools like chainanalysis found their way into the market - to track the origin and usage of a particular bitcoin by tracking down its entire transaction history from the blockchain. Definitely such kind of tools make certain bitcoin less fungible than others! That's why the community coined a new terminology called - Virgin bitcoin which are freshly mined and people are paying as much as 20% premium on the market price to get hold of such virgin bitcoins. It's a reality!

We already have seen few instances where exchanges banned user's account because the bitcoins they have withdrawn directly to a mixing service. Refer to the below discussion.

https://bitcointalk.org/index.php?topic=5221894.0

Chain Analysis is ruining the game!

Have you ever considered WHY governments wants to have 100% control over assets & commodities and also Crypto currencies? The answer can be found in the history of some government actions. Let's take one example from the USA in April the 5th, 1933... The US government signed, Executive Order 6102 .. forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States. - Source : https://en.wikipedia.org/wiki/Executive_Order_6102

So, governments needs to track all of these things in order to enable them to go directly to the citizens to seize aforementioned wealth, if they enact a new law or if there are some reason to protect their interest.

Yes, it is masked with excuses that it helps them to prevent money laundering and criminal actions, but the real reason is control and  power over people's wealth.  >:(

                            Most importantly, when they know how much wealth you have, they can get more TAX from you.

There's no such thing as "dirty money" or "clean money".Money is just money.The same thing applies to all cryptocurrencies.The roman emperor Vespasian told his son ages ago that "Money doesn't smell." and he was right.The governments want us to think that there are "dirty money" and "dirty coins",because the government officials are just too lazy and incompetent to catch the criminals,who are making the so called "dirty money".
I'm surprised that there's "dirty gold". What else is next?Dirty Amazon stocks? ;D

It's like the fiat argument as well, that every US dollar has traces of cocaine on it. So if people started to use any analysis on any taint, then we're all holding Bitcoin related to crime, or casinos, or exchanges. I think the problem of cracking down only exists with DIRECT linkage to criminal activities, for example withdrawing from known dark market wallets to an exchange.

The thing is when you receive Bitcoins you won't look at the whole history , geography and civics of that particular fella   ::) what you have is : Bitcoins
From where : For most of the people it doesn't matter.

_*_

Plus how would they know from where they came from until and unless the person who is holding them agrees to provide the wallet history and so on ... You would have to track a lot more before you get to know that it's very time consuming+ hard and nearly impossible. (There is a reason why we have FBI :P)

_*_

These KYC enabled wallets usually are connected with the bank accounts and which directly point towards the person in question , therefore this might have been easy to do for the companies but for a normal person it's as hard as a job as any.

_*_

At the same time the Virgin Bitcoins which have been mined and does not have any print of anyone , do sell for worth more in the markets. The miners charge more for them .

Therefore I do believe this might happen, the dark coins being sold for less , but who would want to end the inquiry of a CBI/FBI/police right at their door step ?
In terms of Physical cash we cannot always do anything regarding that , we sure have to numbers written which is different for everyone but at the same time you cannot do that , check each and every person in the city for a dollar they might be holding which dates back to a murder in 2000!!

That is why corruption will have a hard time with Bitcoins.

That's correct. And whatever people would say, the quantity of Bitcoins actually mixed is not that big.
But this is part of Bitcoin.

If you don't mind about this, you can use Bitcoin normally (I hope that this means at least multiple change addresses).
If you do care about this then you either use mixers more often, either switch to Monero.

no no no

Coinswap

Anyone trading whitelisted BTC would be quite crazy if they didn't use Coinswap to take advantage of the extra liquidity they can bring to the market (LBMA scheme is woefully illiquid, they claim 5% of the world's gold supply is in the system, and that's clearly their marketing figure, the real number is likely lower)


And so the system would really just become a huge swapping service between clean and dirty coins, all hidden behind the faux-virtue and Bitcoin transaction scripts :)

Bitcoin today is still nowhere near as regulated as the gold regulations that the article describes, all we have is some KYC and chainanalysis, but even that varies in its degree and may be absent on some smaller exchanges. If the government didn't bother to over-regulate it so far, I doubt it will radically change in the future. And unlike gold, Bitcoin is a more convenient payment method, which would make it less likely to be as tightly regulated as gold.

Agreed, this is just another scare tactic and a manoeuvre to take over the market, in the case of gold I can understand why they will need something like this as we know there have been many scandals of fake gold bars around the years and you do not want to buy something so expensive only to find out later it is fake.

But in the case of bitcoin it is impossible to create a fake, you either have bitcoins or you do not, what they are trying to do here is to limit the fungibility of bitcoin and take off one of the most important characteristics of money and try to force people to go through centralized exchanges and KYC, however just like all the attempts before this seems like an idea that it will fail.

"Dirty" Bitcoins likely would be worth more than "clean" Bitcoins.

That’s something else that I don’t really like that much, although I know for sure that they are doing this to keep the cryptocurrency community safe and also be able to track down all those hackers that steal from exchanges and traders. But, if you’re making use of decentralized exchanges where the Business is between you and the exchanger , you just send directly to them, you wouldn’t have any problem.

Even if you are making use of centralized exchanges and you try to sell coins that are tainted which you’re not aware of, they are not just going to lock down your account, they will ask you some questions to know how you got the coins and things like that. If you can prove how you got it, and prove that you didn’t commit any crime, then you wouldn’t have any problem.

Is this like what happened to fiat, namely the "money laundry"? Almost similar, but maybe different in the system and also the method. As for the Bitcoin mixer itself, we can't keep track of it. Moreover, Bitcoin is anonymous in a safe, someone doesn't want to be identified, so they can't. Unless they have put it on a centralized exchange. Maybe it can be traced. Or it can be checked from the initial Bitcoin wallet before going through the mixer.

Well blockchain technology as implemented in Bitcoin means we know everything that has happened to a coin from its mining. So it's not exactly like money laundering, that can really hide the origin of money. Coin mixers means you mix stuff so it becomes confusing, and you could defend yourself saying you don't have anything to do with what happened previously to the coin, but it's still visible to all.

Imagine how hard it'll be to have a "virgin" or "clean" Bitcoin in a matter of years/decades. It's hard enough now to have a clean one. But at one point, coins that do not come from "trusted third parties" will probably be considered tainted/suspect as they do not hold a recent history of known addresses it's been through.

Not sure how easy things go when it comes to BTC and statements. Those are Bitcoins that you own, which means there is a possibility that they may have been in fact yours 1, 5, 10 or 30 txs before as well. If there's something I'd want to avoid at all costs, it's having to deal with the state about my coins. I honestly have no clue about the history of my coins in the past two weeks, let alone the past few months or even farther behind.

The article in the OP is suggesting trusted entities could "revirginize" coins in the view of authorities, but of course that would be after you pay a tax, a fine, or maybe the coins are just confiscated. Depending on how that would work, I'm not sure many people would be interested in these coins, if that means enabling total government control. You could even imagine that at some point there would be agreement in the BTC community to burn such coins so that governments can't profit from doing this.

On the other hand, with a fiscal law like in Germany I believe, where you don't owe tax on BTC if you hold more than a year, then you have an incentive to put your coins in cold wallets and not touch them for one year, then declare them to authorities, making them "official".

Gold is a tangible commodity and there's a higher probability that the "dirty" gold is knowingly bought given it's relatively smaller market. I presume their way of laundering gold is by melting it down? With currencies, it's a much more complicated issue all together. I honestly doubt it would be possible to obtain coins that are completely clean without it being tainted at some point in time. As the new supply of Bitcoin becomes more and more scarce, it's pretty inevitable that the coins wouldn't be clean. At this point in time, it's just the services being more cautious about accepting these.

I would say dirty Gold is worst than dirty BTC, so let me explain what's dirty Gold for me.

There is a small town in Peru called 'La rinconada' where the lifestyle is terrible...


Is the highest tow in the world, which means the lvl of oxygen is really low, but since there is gold in the mountain people decide to sacrifice themselves to get that precious metal.


Most of them live under 40years... so, would the money worth getting this dirty Gold? the price to pay is human lives, and that's why i think gold is dirtier than Bitcoin.

Dirty BTC is when the said Bitcoins have a history of crimes. All cryptocurrencies have coins that have been tainted one way or another. The issue is that it's part of your coin's history, mostly. Think of randomly receiving the entire Mt Gox hacked balance into your BTC address as a move for them to get rid of those hunting the hackers down. You'd own coins that have been used in the largest Bitcoin hack in history. These would be tainted/dirty coins.

Confiscation seems very unlikely in that scenario since it would simply mean people would just hide their assets/coins. I think confiscation would only work in case if u were targeting the illegal entity directly or for someone who is directly involved in helping launder/hide tainted coins.

But for the average guy yea maybe a state could incentive people to voluntarily declare and legitimize their hidden coins( not necessarily tainted )  with a tax/fine. Again it would be pointless/expensive/impractical to target every wallet holder with a small amount of tainted coins with such a scheme. You would have to find some way to target larger holders.


How exactly would we as a community burn said coins. That would be impossible without a hard fork, making it very difficult to pull off. Also would you attempt to hard fork every time a government seizes coins in this manner. That would be impractical.


Holding coins for a year or longer doesn't remove the taint of a coin it just means that you would not have to pay long term capital gains on it.

Also i was wondering how the concept of tainted/untainted coins would work when privacy features like schnorr/taproot are implemented into Bitcoin.

Exactly my thoughts. What stop people from melting the gold and selling to other as clean gold? Or are people required to sell only "marked gold" or gold that the sources are known... while the unmarked ones go for much less at  blackmarkets?

Yes that's the problem, especially if you want to sell a significant quantity, gold bars of unknown origin are not really what people want to buy. For starters how would buyers know the purity of the gold ? All official producers of gold, and makers of coins/bars, must prove the origin of the gold.

I know that they are doing this to keep the market secure and make sure that people are not involving in dirty activities, but sometimes I think that this idea of dirty and clean bitcoins doesn’t make any sense to be sincere.

Sometimes I wonder what if someone who doesn’t engage his or herself in such activities that are regarded as dirty should in some way receive Bitcoin from people that are holding these dirty Bitcoin, what are they going to do? Just like me, although I have not been involved in such a problem before, but I work as a freelance and I work on projects for different strangers and they pay in Bitcoin, so if I receive such Bitcoin, I will have to the bear the consequences? Lol. They really need to find a way around this.