Bitcoin Forum

Hey !

Just out of curiosity I know there are a lot of bitcoins on exchanges (Binance, Coinbase, Bitfinex and so on).
Where do they come from ?

Is it:
- Miners selling bitcoins on exchanges
- Retail people exchanging bitcoins
- Drug dealers swapping bitcoins versus cash
- Other ?

How can I know if the bitcoin I buy on the exchange is "legit" or "dirty" ? Is it important ?

Firstly, it doesn't matter because any Bitcoin you acquire should be ok. It is the exchanges' duty to block or freeze funds from illicit transactions before you can actually acquire and withdraw them.

Secondly, a lot of the coins come from fractional reserve, meaning they only exist in the books of the exchanges. Since not everybody at once is going to withdraw, you'll get some of the "real" ones when you withdraw from an exchange into your wallet.

Thirdly, if you are concerned that your Bitcoin has ever been used for illegal things, are you also concerned that your fiat money has ever been used for illegal things? It most likely has. Now what?

OP, the bitcoins you see on exchanges come from various sources such as retail traders and others send in BTC to exchanges, and it is the responsibility of exchanges to detect which bitcoin is dirty or not. On your own, you can't figure it out, and you have not committed any crime by buying such bitcoins; that's because you are not aware. I believe you are advised not to store your bitcoin in CEXs? After purchasing your bitcoin, move it to a self-custodial wallet to which you have sole access. One of the consequences you will face if an exchange discovers a dirty or fraudulent Bitcoin transaction, or any other coin transaction, is that they will have to freeze withdrawals from their exchange, and if you were so unlucky as to keep your coins in that exchange, you might not be able to withdraw them until their investigation is complete.

 After moving your bitcoin to your private wallet, if you want to attain more privacy, you can use any of the Bitcoin mixers to mix your bitcoin.

It's not your duty to think about whether Bitcoin is legit, clean, or not; it's the duty of the exchange, if there is even a need for that. When Bitcoin is deposited into a centralized system, I guess the system checks if the address has been flagged for scams before or not. If they pass those processes and it's successfully deposited into the exchange account and an order is being created, then those coins have been mixed with other coins.

That's to say you can't buy an illegal coin from an exchange, even if they are illegal. If something were to come up in the future, the exchange and its authority would be held responsible for it.

It's mostly sell orders coming from miners and traders. There were some analytics done on this by companies like Coin Metrics and all that you've listed is correct.
Some of the coins will come from crime, just like when you get cash from an ATM, some of it will have traces of drugs on it. Bitcoin is like digital cash, a small percentage of it will come from illegal proceedings.

https://blog.chainalysis.com/wp-content/uploads/2022/01/chart-3-category-change-1024x419.png
I borrowed the picture from here. (https://blog.chainalysis.com/reports/2022-crypto-crime-report-introduction/)


The largest suppliers of fresh bitcoins are of course miners, but some come from old addresses. There are auctions where you can pay premium for clean bitcoin that has never been transacted before.
It really doesn't matter if you buy bitcoin on exchange or straight from a miner. Governments sell bitcoin that is seized from drug marketplaces, so it would be ridiculous for them to go after the people they sold to.

Ideally, the Bitcoins on Exchanges are first and fore most REAL, in a state of EXISTENCE.  I really do however wonder how many of them truly do have enough Bitcoin in their Wallets to cover every single Satoshi of their users.

If this is the case.  Then the Bitcoins can come from multiple sources.  But they most likely come from a combination of Bitcoins invested in by the Exchange and Bitcoins deposited by the users.  Most Exchanges have to start with a set capital of Coins whenever they open a new Coin listing.  If they want to list Ethereum, they have to first invest a couple hundred thousand in it and create orders or they just rely on demand and offer.

There is NO such thing as dirty or clean Bitcoin.  The Bitcoin you get is as dirty as the bank notes in your physical Fiat Wallet, or as dirty as the Fiat you have in the Bank Account.  How do you know the owner before you of the bank notes you own was not a drug dealer?  You do not, and this is why you do not care.  Bitcoin offers Transparency, something Fiat does not offer, and this is not a reason to classify Bitcoins as dirty or clean.  There is no taint in Bitcoin.  In fact, considering the amount of transactions bank notes are used in, it is very likely you own EXTREMELY 'dirty' Fiat bank notes that have gone through drug deals, tax evasions, robberies and worse.

You have asked a very nice question. The bitcoins on those exchanges mostly come from miners and some of those coins come from traders. Many of the miners sell their bitcoin in bulk, and for them the best place is an exchange. Their mined bitcoin get sold very soon on those exchanges, drug dealers or criminals will never use those exchanges to deposit their coins.

They won't use the exchanges mainly because most of those exchanges, and almost every centralized exchange cooperate with governmental bodies. They will stop the withdrawals of those bitcoins and share the details with the governmental authorities. Those drug dealers will most likely use tor and they might use other services to exchange their bitcoin into something else.

I assure you that any bitcoin you buy through a reputed exchange like Binance is completely legit and no one will ever take legal action against you. The coins that you buy from those exchanges come from legit and legal sources so chance of them being dirty is 0.00001%, that's why you can buy without any worries.

Two out of the three options available are valid means of building the balance sheet of an exchange in bitcoin and other cryptocurrencies. There are exchanges who are also into bitcoin mining and they get profits from transaction fees and service fees.

There are no dirty bitcoins, just those that are reported to have been used for illegal activities. It is difficult to determine what transaction a UTXO has been involved in since it was mined, you can only try to use blockchain data and run that over different searches to know if it turns up for any illegal activity.
It could be important further years down the line. Today there are only restrictions by exchanges for mixed coins.

- Jay -

^ bad advice above ^

exchanges treat mixed coins as suspicious which can trigger the very said investigations.
dont use mixers. you are more likely to not just be flagged for using a mixer,(real world regulations actually state using a mixers is a suspicious activity flag)  but also, end up giving into the mixer your clean coins and getting out dirty coins. so get hit twice by exchange monitoring triggers

..
anyways
coins coming out of a regulated exchange are deemed 'clean' as the regulators trust that the exchanges have vetted and established their customers as honourable to then treat coins coming out as clean

but coins coming from unregulated services come with some suspicious rating attached. the highest of which are known darkmarket sites/scams/thefts (blacklisted coins) and mixers/tumblers and services that swap anonymity enhanced coins for standard pseudonymity coins

Lemme take Binance for example, there are lots of people who trades with it, since they have spot trading and future trading, margin.
There are lots of institution that have deposited lots of funds into these exchangers for the purpose of trading, I also believe that those exchange have people who trades for them as well. It's a combination of buyers and sellers that sum up the total bitcoin in those exchanges you are seeing while trading or trying to convert anyone coin to which you preferred.

I think as long as an exchange is legitimate and trustworthy like binance and it has a large holding of bitcoins it can be said if it is safe to buy and store bitcoin on an exchange anyway.

       Then most people here already know where Bitcoin comes from, maybe there won't be an exchange here in this industry if they don't know where bitcoin comes from so that it can be sold and bought by their traders.

You don't need to worry about whether the bitcoin you buy on an exchange is "legit" or "dirty." In fact, the whole concept of "dirty" bitcoin is overblown and largely a myth perpetuated by those looking to create fear and uncertainty around cryptocurrency.

First of all, while there have been some instances of bitcoin being used for illegal activities, such as money laundering or drug trafficking, this is no different from any other currency. The reality is that the vast majority of criminal activities still use cash, not bitcoin.

Second, the vast majority of CEXs have strict regulatory requirements that they must follow to prevent illegal activities. This includes performing KYC checks on their customers and monitoring transactions for suspicious activity. If a CEX is found guilty of money laundering, they can be fined and shut down by the financial authorities. In fact, the requirements for CEXs to prevent money laundering and other illegal activities are often stricter than those of many banks.

OP, there is no such thing as "dirty" bitcoin. All bitcoin is the same, all satoshis on the blockchain. And the bitcoin on exchanges comes from anyone who wants to sell their bitcoin on the exchange.

I agree, maybe the OP's concern is that he might used a fake exchange that are quite impossible since there's a lot of known exchanges that are not scam. Exchanges are the one who checks every addresses if there's something fishy happening in your account, for them to ban,freeze and your ip address. Of course if their any transactions succeed then it means that circulating of coins already happened. Just like in the fist money, which circulates in the market as long users use it.

If you are hesitant to buy Bitcoin just because it is of unknown origin then I don't think you are familiar with the concept of buying and selling on a centralized exchange. I mean no matter where it comes from, whether it's manufactured by drug dealers, miners, or even thieves, once it's available on a centralized exchange, Bitcoins for sale can't be tagged or labeled and it's no longer your job to ask about it. Unless you request the exchange yourself. If your question goes that far then it is no different than the money you use to buy a piece of cake and when the cake seller asks: where do you get the money to buy the cake?

They come from the fees that are accumulated from all trading volume, and the purchases of BTC supply that the exchanges make with those fees. Most of the exchanges listed were launched some time ago, their liquidity is based on coins accumulated at extremely cheap prices which enables them to cater for very high volumes and thus, increase their holdings consistently via fees.


Why wouldn't this just fit under "other"? Do you really think that drug dealers are using centralized exchanges to conduct their business or that they are a top 3 category of exchange volume? We're in 2023, not 2013 ::)


There's no such thing. Dirty and clean coins are a part of an agenda to make some coins less valuable than others. That's not how it works. If you buy coins from an exchange, you don't have anything to worry about.

It has become a thought that someone is holding a dirty coin, well, there's no way to know that it's become a dirty coin. What do you want? Take it directly freshly from the miners? They're ready to be sold if that's the case because I've seen people thinking of having the freshly mined bitcoins but that doesn't make sense. It's like just having the feeling of sensation that you've got it freshly mined than the one that has been in circulation since years ago, they're just both bitcoins no matter where it came from but it just so happens that these exchanges don't want them and are there really some ways of determining that based on their approach? I have no idea. Are they going to mind tracking all of the addresses where that "dirty" bitcoins came from if it's got like a thousand addresses being passed on? Bitcoin is bitcoin regardless of where it came from.

The answer to your question should pretty much be "All of the above" based on the options you provided..
But for option number three, must it be drug dealers swapping bitcoin for cash and cash for bitcoin?
Are you saying that each time I buy or sell bitcoin on the exchange, I become or I'm seen as a drug dealer? Na, I don't think so..

Hmm, I don't know about other users, but for me, this is pretty much not important, I mean most exchanges use some mixing services, after buying and withdrawing bitcoin from an exchange, I don't think it's possible to tell which bitcoin was or is dirty and which was or is not.

The kind of question the OP asked comes up with a little thought. Where do so many bitcoins come from? So many bitcoin exchanges are from small and large merchants and various mediums. For example when I send bitcoins to an exchange and those bitcoins are deposited in the exchange. Then any other person sending bitcoins will also be credited to the exchange. Here the exchange will only act as a third party to hold your bitcoins. And this bitcoin will be bought by someone like you like us. And the exchange authority will identify whether my bitcoin is valid or not. Here you can't detect if your bitcoin is valid or not.

Buying OTC from huge existing exchange and institutional investors, this is included the miners. No need to included criminals, they only have a mere of them.


By the exchange definition, dirty bitcoins are only considered if it has from hacked funds especially from hacked exchange, or simply if the bitcoin coin from mixing, and in other case from gambling platforms.

When you receive money from the bank or any with someone, can you know if it's dirty?

The same on Bitcoin, you didn't know if that's come from a dirty or from a clean source, but if this is your concern it is very simple, use a centralized exchange which surely they're fully regulated.

If you obsess about this, you can use a mixing service to enhance your anonymity before sending your coin into your wallet.

Bitcoin on exchanges come from anywhere!

I don't understand what's make it important to know the original source of the coins when you're not doing anything wrong. There's no such dirty or clean coin, coin is a coin, as long as it's not run in centralized network e.g. BSC chain.

You make a good point here, it's stupid to use Bitcoin mixer if he's want to trade using a centralized exchange.

But I will not say don't use mixer because if he want to trade his coins using a decentralized exchange or direct P2P, he will not have any problem about the centralized regulation. It depends on each person reference to use Bitcoin.

As long as you can provide proof that you received legitimate coins directly from the exchange, then you do not have to worry about the origin of those coins. The Blockchain will show that you received those coins from a legitimate exchange and not from the source where they received it from.

Just to be fair..... if you get change at a shop and the change was previous payment from a drug dealer... would they charge you for drug dealing, if they traced it back to you?  (It is easier to show proof that you received coins from an exchange, than showing proof that you received cash as change from a retail store, because you have the Blockchain)  ;)

This is true, there is no such thing as dirty bitcoin, if criminals use bitcoins, it is behavior evil, dirty human behavior is not bitcoin's fault. After all, bitcoin is just a tool, a means for us to use, and everyone's purpose is not the same. Breaking the law or being legal is human behavior.

Exchanges act as intermediaries that create an environment for people to exchange with each other, and they are government-licensed organizations. So their job is to track and prevent criminals, so I think buying bitcoins at exchanges is safe for us.

I think most of the things you said don't really matter, just pick a legitimate exchange where you could buy a bitcoin unless you bought it on some suspicious exchange website put your money there that's the only way maybe you could buy a fake bitcoin. You don't need to know this kind of thing when buying Bitcoin, I mean I don't know if the Bitcoin I bought on an exchange or any market was used for any illegal activities. Does it come from a miner? Does it come from other people? involve in some illegal activities or drugs? I don't really know.

It's still just an exchange platform that we use so most of the Bitcoin just came from people as well so there could be a lot of transactions happening before it goes to an exchange, But it wouldn't really matter at some point if you put your bitcoin on the exchange address, and have a transaction all of the other transactions will not matter.

That is very difficult, fiat money (large amount) can be distributed in a couple of people registered n and exchange, but controlled by a central person.
That person exchanges dirty fiat money through multiple accounts to Bitcoin (via exchange) and then pools them on the same exchange. Then sell the BTC by p2p market of the same exchange.

many people sponsored to promote mixers are LIARS(greedy immoral people that want to use and abuse customers)
they only care about abusing their new recruits for profit and taking their clean coin and handing them dirty coin

yes coins can be classified as dirty.. sorry truth hurts

here is the thing if fungibility was a boolean answer yes/no. or if there was no taint analysis and no such thing as 'dirty' then there would be NO POINT in mixers. but the idiots pretending innocent people should use mixers while saying not to worry about what they receive.. are lying because they want to cheat those innocent people

if coins were all clean no one would need a mixer.. but ironically because these idiots are advertising them they know they need their coins cleaned because there is risk attached to their coins..

the other thing is that the sponsored schemers want innocent people to use mixers because if innocent people did not. then the only pool of coins being used by mixers would be the criminals dirty mixed with dirty still results i dirty

so in short dont trust the words of criminals asking you to hand them your honest earned coins and being handed their illicitly gotten gains..
if their illicit gotten gains were so legit then they would have no need to palm them off to someone else

so just avoid that crap


getting coins from legit services are deemed clean. especially from CEX as they have been vetted as part of regulation. and so exchanges dont put red flags on coins coming from regulated exchanges. but do red flag coins coming from mixers or services that swap AEC coins for regular pseudonymous coins

its worth reading regulators guidance to exchanges to know how exchanges treat coin analysis then you know what to do and not do

OP are you going to give away your bitcoin because you discovered that it has been used for illegal deals/transacts sometime ago before you got to purchase it! Nah I don't think so ;D.  Cause if we are to go by that then many fiat money in our possession wasn't supposed to be as they must have been used for illicit deals moving from one hand to another before it got to yours. The concern shouldn't be wether the fiat or bitcoin I own has been used for illegal activities or not before getting to my hand but it should rather be on making a better usage of that which is
now in our possession as against any illegality that might have been associated with it.