Bitcoin Forum

Hey people.

Use UTXO s allows us to trace a bitcoin from the tx that generated it (coinbase) to its last owner.
Although this is great it brings up a fungibility problem, where 1 btc != 1 btc.
A coin that was used for "illicit" activities is not worth as a newly minted coin.

Is there an ongoing discussion about this?

There are definitely some people that prefer buying newly minted a.k.a. "clean" coins. But in the end, just like your physical cash, bitcoins would be traded and passed over to dozens and hundreds of hands(addresses) that every single active coin(those that aren't just solely sitting on cold storage) will end up being "tainted" anyway. Hopefully also sped up by mass usage of coinjoins/mixers.

Apart from this, it is difficult to know that certain bitcoins have been used for illicit activities, and when that is known with certainty, years will have passed. And the bitcoins will probably have gone through many subsequent transactions.

As of today, as far as I remember, certain exchanges have blacklisted coins from mixers and casinos, but that does not mean that they come from illicit activities.


As of today, what you say is false, and I doubt very much that it will become true in the future.

I would suggest that any service which tracks the history of your bitcoin to make some completely arbitrary claim that some coins are "tainted" should be completely avoided by everyone. First of all, why would you use a service which is actively spying on you, monitoring your behavior, and almost certainly sharing that information with third parties and your government? Secondly, why would you use a service which is trying to undermine bitcoin itself by creating two different categories of bitcoin?

Still, if you look back far enough, then almost every coin in active circulation has been "tainted" in some way, via thefts, scam exchanges, scam ICOs, dark net markets, illegal activities, whatever, or by simply being consolidated or otherwise combined with other tainted coins. So any decision as to what is now "tainted" and what isn't is completely arbitrary. What about a coin which was tainted 10 transactions ago? What about 100 transactions ago? What about 10,000 transactions ago? What about a coin which was consolidated with 99 other "clean" coins? Are all 100 now tainted? What about if the coin has provably changed hands multiple times? What about if it has passed through a centralized exchanges? What about if it has been bought by the likes of Tesla or MicroStrategy? What about if it has been seized by a government and sold on? Are such coins permanently tainted for the rest of time? The whole thing is completely meaningless.

Money should not be classified as "clean" & "dirty," but rather the activities from which the money comes and then it is confiscated to the government and returned to the citizen again, meaning that the dollars you spend may have been traded to buy drugs or porn.

Therefore, the classification of currencies per se as being clean or dirty is not accurate, but rather the classification of services.
As for the high-transparency cryptocoins (Bitcoin)  because you don't need KYC to use it, UTXO is good and then mixing services must be enhanced so that it becomes impossible to trace those coins.

We have also seen some cryptocurrencies that focus on privacy, such as Monero, or add privacy features, such as Litecoin^[1]. Creating a decentralized exchange may solve this problem.

[1] Litecoin Completes MimbleWimble Code for LTC Scaling (https://beincrypto.com/litecoin-completes-mimblewimble-code-ltc-scaling-privacy/)

If you take an UTXO and start tracing it back, you will go through hundreds if not thousands of transactions and will find lots of coinbase transactions. Most coins will have some links to criminals transactions of their history, just like most cash notes do. Chainanalysis companies aren't going to mark some coins as dirty just because they are linked to criminal transactions, it will be done when the link is strong and/or very recent.

To some extend there is, it's part of the argument for more widespread integration of privacy improvements such as coinjoins. At the extreme ends of the privacy discussion you have two positions: (a) privacy should be as deeply ingrained as possible, as to make sure that mixed coins are not discriminated against by association with illicit activities and (b) privacy should be kept away, for fear of regulators taking a stricter stance against Bitcoin if tracking becomes completely unfeasible. At the end of the day Bitcoin will probably end up somewhere in the middle, though probably more towards the privacy end of the spectrum, if only due to increased adoption of Lightning Network.

Generally speaking, while using "tainted" coins might place you under deeper scrutiny by centralized exchanges, in practice it will likely always be a matter of plausibility, ie. if you can prove that you bought n Bitcoin at one point, you should be able to sell n Bitcoin at another. So unless you yourself were involved in illicit activities using those coins it's unlikely anything would happen.

Now if you did gain the coins in question in an illicit way you're likely willing to pay a premium to exchange them for clean coins, or at least ones that are not directly associated with your own activities. That would arguably make for a case where 1 BTC != 1 BTC. However that's presumably more of an edge case and assuming significant amounts of money are involved you'd still need an "official source" for plausibility. For everyone else it's unlikely that they'll be affected by "taint" because the coins they bought on Coinbase where used to buy weed at one point in time.

Even if you know where it came from, it's no use since you're probably going to only see the address but not the person behind it, it's also going to take some effort for you to be able to identify who's behind that said address so it's not worth it. Also, why would you worry about where your coins come from if you know that you're doing nothing wrong?

Like the roman emperor Vespasian once said "Money does not stink".
Bitcoin is a form of money,so this applies to Bitcoin as well.
There's aren't "clean" or "dirty" Bitcoins.Some money/BTC are acquired via illegal activities,but that doesn't change their value.If the government confiscates all the BTC acquired via illicit activities,will those BTC remain "dirty"?
NO,because the government will most likely list those BTC at an auction and sell them to the highest bidder(this has been done before) and those "dirty" BTC will go back into circulation without any problems.

There may have been very few, but it was nothing big, because this information of you is incorrect:


There are far too few who care whether some of their coins can be tracked back to illicit use.
There's a saying like "if the (river's) water has passed over 7 stones, you can consider it clean". Obviously it's false, but something similar goes on with Bitcoin too. If you buy and sell and transfer in all directions, sooner or later your coins will get partly tainted. But if the related illicit transactions are "way behind", nobody really cares.

And that's why such discussion doesn't pick much traction: people are not interested in paying a premium for fresh coins, since the partly tainted coins are not "punished".

---
Of course, the coins directly liked to illicit action or poorly laundered are a different story.

But that's the issue. Some blockchain analysis companies will link only very recent transactions, some will look back further, and others further still. Some will only consider proven illegal trades, some will consider anything coming from a wallet even loosely associated with the dark net. Some will consider coins involved in scams, and some won't. They will all have different database of "tainted" addresses they refer to. And so on. When one blockchain analysis company can decide that some coins are tainted while another decides the same coins are clean, then it just proves that the whole thing is completely arbitrary, completely meaningless, and just another way for centralized services and governments to force regulation and control.

I think for exchanges that want to do some tracking incase there is an issue either between customers, then it can be nice to confirm wallet where it is originating from or actual  destination but if not for verification purpose I don't think the identity of the person behind it address can be revealed because bitcoin is still anonymous system .

Only because bitcoin is to some extent traceable and has a completely transparent ledger where all transactions stay forever can someone argue that some coins are better than others because their history is less associated with criminal activity. Yeah, from the protocol standpoint, all coins are equal, but from a subjective standpoint, some coins are more equal than others. That is the problem of all transparent and permissionless systems - everyone will have their subjective view on what is going on and everyone will behave and interact with the system in accordance with their views. But. Due to some interesting aspects of how bitcoin mining works, it is always possible to "launder" all the bitcoins in circulation and make them clean once again so that no one can argue that some coins were involved in criminal activities in the past. Every criminal on the planet that uses dirty bitcoin for their dirty business can send all their bitcoin as a donation to miners thereby making dirty bitcoin a part of coinbase transactions. Coinbase transaction doesn't have inputs, transaction fees don't have inputs, and outputs, in short, leave no trace whatsoever. It's a perfect crime that makes bitcoin less criminal.

Thank you guys for your answers.
I do kinda agree that a "tainted" coin returns "clean" after it moved from hand to hand, therefore the definition of "tainted" is completely arbitrary.
As someone here already said, some exchanges might refused certain coins (coming from coinjoin services etc..), and that could be an issue in the future..
Maybe you live in El Salvador and pay taxes with "tainted" coins that you got from a dude that bought a coconut in your shop.
How cool would be to enable coinjoin for all wallets?

The best way to combat this is to simply stop using exchanges or other services which refuse "tainted" coins. Why would you want to use an exchange which will arbitrarily lock your account and seize your coins without even telling you why, simply because you unknowingly triggered some secret algorithm?

I have bought, sold, traded, and spent bitcoin for years across a number of platforms. I have done so with coins which have been mixed, coinjoined, whirlpooled, swapped, and traded P2P. As with everyone who has used bitcoin for a while, then I am certain I have handled coins which have been involved in scams, thefts, and dark net markets, just as everyone will have handled cash which has been involved in scams, thefts, and illegal markets. I have never once ran in to problems with a "tainted" coin being refused, because I don't use scammy centralized exchanges which believe in such made up nonsense. If everyone did the same as me, then the whole idea of "tainted" coins would cease to exist, as anyone perpetrating such nonsense would go out of business.

Bitcoins are no more traceable than water as it is poured from bucket to bucket and mixed with water from other buckets. You could say that a specific fraction comes from a certain original bucket, but you still can't identify any particular portion of the water as being from that original bucket.

But more accurately, bitcoins are fungible because there are no bitcoins -- there are just numbers. You can say 7 - 2 = 5 and 4 - 1 = 3, and 2 + 1 = 3, but to say that it follows that a portion of 3 comes from 7 is absurd.

People might say that bitcoins are not fungible because a payment can be rejected because of a transaction chain. But, then dollars are not fungible because a payment can be rejected based on the bank it is sent from, or because a payment can be rejected because a bill's serial number contains 666.