Bitcoin Forum

See my question on stackexchange regarding a viral 'tainted-coin tagging system'
http://bitcoin.stackexchange.com/questions/2119/is-there-any-way-the-bitcoin-network-could-resist-a-viral-tainted-coin-tagging-s

Basically the issue is that due to the public blockchain, regulators could publicize coin-address blacklists which affect the spendability of your coins with audited exchanges and merchants.

Such blacklists would eventually allow governments to instantly create and remove sanctions on businesses, other countries etc.
The sanctions could be applied gradually e.g starting out as a 1% tax - or be a complete ban and penalties for anyone accepting coins with a bad transaction in it's history.

Don't want to risk accepting pedocoins or terrorcoins in your wallet?  Better use software which subscribes to our list so that your coins are clean!

As there would be multiple regulators around the world with constantly updating databases of 'tainted' coins - the wallet software would need to be smart enough to subscribe to them and let you know where you can and can't spend certain coins, or what premium you would have to pay for someone to accept them etc.

In a world where bitcoins are somewhat mainstream - I presume 'clean' coins would be in high demand and exchange at a significant premium to coins which are tainted and thus less spendable.

I don't see any way of stopping this sort of thing happening - and although it'll give many people the horrors, I suspect that ultimately it's the possibility of this kind of regulation which might make governments see bitcoin as better to embrace and regulate than try to outlaw.

>blacklists

Nobody, no server is adopting this bullshit. When and if mass adoption of this garbage occurs, me and every other man with principles is out and we're going to adopt a blockchain that isn't regulated by parasites. You can keep your parasites; I will remain accountable only to myself and an objective blockchain.

Actually, go start your own StatistCoin with blacklists and sell it to the Treasury Department and the central banks: that's what should be done.

In all seriousness, it's not in the best interest of a node to blacklist things. It would find itself quickly alienated from the network over more open and preferable nodes. There are more amoral men than prudes.

Look.. I'm bringing this up not because I want it, but because I recognize it as an inevitability *if* bitcoin gets a certain level of success.
You can jump overboard and try some other chain at that point if you want - but good luck on getting merchants using it. 

However - you may as well just only trade in bitcoins which are marked tainted with other people who agree to use tainted coins.  Dirty bitcoins will work just as well as a separate chain if you only want to do blackmarket stuff - you just won't be able to spend them with a large percentage of others on the network.

I agree to an extent, but perhaps only in the current environment.   (but did you really mean amoral ??)

If bitcoin was in use at supermarkets - they would have no choice but to comply with the regulators system.
I bet the majority of people would rather switch their wallet to 'clean' mode than get gradually increasing penalties at the checkout because they accept marked coins.  Sad but true.

anyway.. I know it's a difficult pill to swallow - but just like a security flaw, it's surely best to discuss the ramifications of this early on?

For example - would such a blacklist system stop an organisation such as wikileaks getting funding via bitcoin?
Not really.  They wouldn't be able to use any published address - but with a private address per transaction they could still get donations and still spend their bitcoins. They may have trouble getting an account on an Exchange in their own name - but in a world where bitcoin is more widespread that mightn't be a big deal anyway.

I kind of like the idea of a block lever blacklist.  Or more accurately, a built in mechanism for the user to optionally choose to honor a blacklist set of their choice in a straightforward manner.

The main goal would be discourage anyone from attempting to contaminate the blockchain in some manner.  I could imagine that when the 'internet kill switch' is well entrenched, there could be some sort of an 'internet 9/11' event which would require connectivity to be severally disrupted for a significant period of time.  My concern is that Bitcoin may not be robust against such a situation, particularly if dedicated efforts were made to damage it in such an event.  A usable blacklist framework, if it were pre-installed and available to be democratically selected might make it so that such damage were unlikely to succeed (and thus unlikely to be attempted.)

Of course the problem then is, who decides who goes on the blacklist, and who watches the ones who make the decisions?

Obama.

Obama Lawyers : "...only the executive branch, not the courts, are equipped to make decisions about who qualifies as an enemy." (http://hosted.ap.org/dynamic/stories/U/US_TARGETED_KILLING?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-12-01-10-42-54)

Just technically speaking how is someone going to not accept coins going to one of their addresses? Can't someone just spew terror satoshis to every address?

You are probably not questioning my 'block level' idea, but I'll answer that anyway (as it is formed in my mind.)

The most obvious people to trust would be the development team of Bitcoin itself since they already require a fair amount of:
 - trust
 - watching
 - adopting bits from
by virtue of working on the code.

But generally, I would suggest that anyone can put up any list they like.  If a majority of people choose to honor it, it becomes a close to 'the law' as things get in an open-source world.  That's basically what happens with the code base itself.

And again, I would suggest that just having such a thing which could be credibly deployed would avoid any need to actually deploy it.  That would be the point.

You can bet that if we had such a system implemented in bitcoin a few months ago -a fair slice of the users would have opted into a blacklist listing missing mybitcoin coins, bitomat.pl coins or allinvain coins etc.  

Especially if for example a few players such as mtgox said they would freeze and donate any such tainted deposit to a predetermined charity/faucet (after submitting a request to the blacklist operator for re-marking just that portion of tainted coins 'cleaned').

Receiving such bad coins would be no big deal *if you subscribe to the blacklist*.
(hence why I referred to it as 'viral' in the stackexchange question)

Just don't give anything of value in return - and make sure you're using wallet software that is subscribed, so it won't use them as input on another transaction.
(or the software may allow you to select and spend those specific poison coins back to the sender so you can ask them to resend 'clean' coins or abort the deal)

The software might also be able to spend them over to a quarantine wallet I guess.

I doubt it.  Honoring such a black list would be effectively halting Bitcoin and all the transactions at a certain point in time and starting it back up again when it is safe to do so.  It would not be a practical solution to anything but a terminal attack on Bitcoin.  At least that is the way I would design and implement it.

You may be right that people wouldn't honour the list for fear that they'd already inadvertently received the taint.
Perhaps it would only work if there was only a small percentage fee on taint - which was cranked up every now and then.

Even a zero-penalty taint blacklist might be useful - the community could more easily see where the stolen coins were coming from.

Ah, okay.  Might actually be popular with people who want to take coins and not deliver.

Those 'tainted' coins aren't going to just sit there either.  People are going to take them to the clean/taint exchange.

The government is going to tell people to freeze/take coins, it's already starting, just not particular coins yet.

Don't worry about goverments/nation states. Eventually bitcoin and similar projects will spark globally distributed decentralized tribal groups which will replace them.

I think the schedule is about several decades but I think we will see the actual "First distributed republic" by the end of this one. Watch how various groups, web-communities and movements interact online to etimate the probability of a distributed war.

If you think I'm crazy and that can nevar happen say so, I will give you tons of reasons...  ;)

mm.. yes.
Bitcoin seems like it may be far from the anonymous libertarian dream many saw it as - but I still think it levels the playing field somewhat.

Besides, there are too many jurisdictions to let you implement this globally. I'd just send them to my colleague in Nigeria and he'd send me clean ones. I guess if they take it seriously and push it long enough (decades even), this could put some pressure on owners of tainted coins. In ideal conditions, these coins would only be used in the black market. They would exchange for less than clean coins, but would still be exchanged. Bob would buy some to sell later to Alice who's looking to make an illegal purchase. They could try to destroy this market totally by making it illegal to relay black coin transactions, but I'm guessing a parallel network would be created to verify those transactions anyway.

I didn't think of them trying to stop mere relaying of tainted-coin transactions..  I don't really see how they'd know if your node just relayed.

They could however penalize the miners for including tainted transactions in a block by tainting the reward - so yes, you'd probably end up with miners specializing in those transactions and willing to accept their block reward as tainted because they charge higher fees for tx inclusion. That would make black market transactions much slower though - as you'd have to wait for a black market miner to hit a block. 

I an not fully understanding what you are saying I think.  Here's the situation which concerns me:

Say that at a certain point in time, some threat requiring activation of an 'internet kill switch' pops up.  Suddenly, for all intents and purposes, all networks are off-line.  Fairly soon critical infrastructure would be wired back in, but that would be large corporations, and there would be significant packet level filtering.  Consumer grade connectivity may be out for a long time.  Months.  And as it came back on-line it would also probably be carefully analyzed and regulated.  I could even imagine a situation where encryption was only allowed between authorized endpoints (like people and their banks.)

Obviously such a scenario would spur interest in mesh networks and the like, but the technologies are extremely immature and untested, and anyone deploying them would likely be labeled a 'terrorist' which would complicate development.

Bitcoin seems to be developed under the assumption that peer-to-peer communications are available in a wide-spread and relatively reliable manner.  I fear that Bitcoin could fail if that happens to not be the case, particularly if it were actively exploited by competent attackers during such a time of limited connectivity.

So, I would envision the 'block level blacklist' capability of Bitcoin being useful for a situation where there was a very obvious and very clear need to simply black out the entire economy for as long as needed in order to save it.  Actually, in such dire (and probably far-fetched) circumstances, it might be fairly tenable and make the most sense to simple upgrade the client software in order to get going again.

I think that's also an interesting hypothetical to evaluate - but I'm not sure it relates to the tainted-coin blacklists I'm talking about here. (perhaps I'm not understanding you either!)
Maybe another thread for this 'block level blacklist' idea?

I made reference to it as a 'different' form of blacklisting early in this thread.  Different than blocking certain transactions or addresses.

I have mentioned the idea of having 'block level blacklisting' ready to go in the client once or twice on other threads.

I'm actually mostly interested in 'alternate currencies' which derive their value from being backed by 'real' Bitcoin.  This would reduce the strain and need for complexity in the 'real' Bitcoin and let it scale without the load of supporting the entire 'vertical' from central bank type operations down to 1,000,000,000 people buying skittles.  One of the main reasons this is of significant interest to me is that I fear a future where bitcoind needs to run on specialized hardware or networks.

As importantly, this could provide a variety of sub-currencies which are 'tuned' to different kinds of use-cases and could provide a better end-user experience for them.  One thing (of thousands) which could be designed in would be a value-level black/white listing.  If it gave people something they wanted, it would prosper.  If not, it would die.

I think one of the places I mentioned 'block level' blacklisting (meaning ignoring a block or set of blocks which would otherwise be considered valid) was on a thread where I rambled on about 'BTC backed alternate currencies.'

The original discussion thread about this problem in this forum: https://bitcointalk.org/index.php?topic=20979.0 

It only hurts if lots of people join and there aren't that many tainted coins. If all coins are tainted it's just another way of gov saying don't use bitcoin.

Plus all of this first requires gov to explicitly endorse and approve the non-tainted coins.

If this were to happen, I hope that once started up, all coins as of now being considered clean. The only exception I could think of would be unspent stolen coins, where there is documentation of the stolen/illegally acquired coins going to an address and being held as of the time the blacklist goes up.

Of course what is considered tainted would be decided by the person making the list. It could be focused on laundered coins, drug related coins, terror related coins, etc. Sadly, the most accepted lists would be ones that comply with the government (the ones meatspace merchants would be required to use).

Thanks for the pointer - I hadn't seen that one.
I don't think that thread explored the ramifications or the possibilities though.

Sure - they couldn't just use this blacklist to stop silk road in it's tracks, because they don't know their addresses,
but they could make it risky to do deals with various 'shady' outfits - because your coins could be tainted and thus taxed.

Stolen coins would be the obvious addresses to add to the list.

Also, a seized wallet from one criminal could provide a bunch of other addresses they could apply taint to.
Honeypot systems could also taint your change.

Governments are more concerned about collecting taxes than fighting crime. I think Bitcoin itself will reduce most common crimes. Whitelisting is preferable to blacklisting when it comes to tracking transactions for taxation purposes. By only allowing merchants to accept whitelisted addresses, then law enforcement will have a better trail to detect wrongful transactions. Eventually, everyone will only accept whitelisted (or original block) addresses. It won't reduce your privacy, except to law enforcement.

A sends dirty coin to B. Upon noticing it is dirty, B returns dirty coin to A (different address).

=

A sends dirty coin to B. Upon noticing it is dirty, B sends dirty coin to B (different address)

---

There may become two markets. One legitimizing the other. If at any point all coins are dirty, then they are all clean, and we'll better understand the true nature of money.

I'm not sure everybody understands the nature of money-laundering or other shady businesses. It's not the same as blood-money because it's mixed (sometimes heavily) with "clean" money. You can't penalize someone that does legitimate business with someone that also secretly does illegal business. That's the job of law enforcement to determine.

If I remember it well I wrote that post while thinking about the coins extracted from the MtGox hack.  SilkRoad seemed as the most vivid example of what government would like to do so I used it instead, unfortunately  that failed example because of my confusion of some technicalities of running a site like SilkRoad - this dampened the discussion.

The nice thing about Bitcoin is that it doesn't need a whole lot of infrastructure to stay dormant for a few months and weather out the storm.

No kill switch is 100% effective. Even in the most repressive regimes, people somehow manage to connect to each other.  Even in countries where encryption is banned, people manage to use it.

Also, it is almost impossible to hermetically seal a local internet from the outside.  For bitcoin to continue working locally, all it needs is a few leaks to the main chain in free countries, perhaps via shortwave radio. 

A kill switch could seriously slow down the bitcoin economy and hurt the price of bitcoin, but there will always be a core of diehard supporters who will keep the block chain alive, and enable access to those who  think it's worth taking the risk.

In that way, bitcoin is similar to gold, only better. There were times in history when government banned the private possession of gold, which made it almost impossible to spend and practically worthless short-term, but people held on to it anyhow because they knew that normal economic activity would resume sooner or later.

The only way to completely destroy a cryptocurrency is to ban computers outright, North Korea style.

Every individual who supports blacklisting of any money totally misses the point of money i think.
I for one would stop using it and switch to an alternative currency.

Agreed. We use serial numbers to track money and anti-counterfeiting to ensure it is genuine. These are to help law enforcement, not to stop its use.

Scary, I had the exact same thinking and idea...

I was going to post this on my new blog.

But have not had the time to finish it.

The biggest obstacle with Bitcoins for mass adoptation is the anonymity.

Yes cash is also anonymous, but unlike cash, Bitcoins can be transfered
from an anonymous source to another anonymous source.

With physical cash you have to transfer it in the real world.
An analogy to this would be that its almost the same as if you could teleport real cash to anywhere in the world.

But only the person recieving the cash knows where.



This means that bitcoins are perfect for certain types of crime.
Especially kidnapping comes to my mind, since it solves an old problem with kidnapping.

How will you get the ransom without anyone following you.

With physical cash a kidnapper needs to pick them up at a physical location
which makes it almost impossible for the kidnapper to know that its safe to pickup
the ransom.

Because a bank transfer would be traceable.

So for the first time in history a kidnapper can now kidnapp someone and get the ransome
and get away with it.

Unless you are really naive, its obvious that its going to start a new crime trends such as kidnapping and extortion as we are getting more and more poor and desperate people.




But.


What will happen the day that someone kidnaps a cute kid and ask for the ransom to be paid in Bitcoins?

This becomes something HUGE in the NEWS. The Bitcoin kidnapper, and its going to be reported all over the world.

There will be heated debates and a majority of the opinion will turn against Bitcoins and similar anonymous cryptocurrencies and rightfully blame them for making it possible to ask for anonymous ransomes.

The day this happens, Bitcoins will be abandoned and boycotted by many normal investors, business and normal persons.
No "serious" business will want to be associated with this currency.

If/when it happens its also likely that soon after, just like US blocks pokersites, they will block bitcoin sites and make it illegal to trade with Bitcoins.

European and Asian countries will follow

This would have a huge impact on the price of Bitcoins and nearly destroy them as people panic sell as the value drops, only very few wanting to buy.

I can even see how the people working on Bitcoin will be grilled and held responsible in TV shows.
Recieve hatemails from angry mothers and have to go out and say they were naive and Bitcoin was not meant for these things to happen and that they have stopped working on it or are working on a solution.

Unless there allready is a hidden solution. If there is and the kidnapper is caught, than Bitcoin will be the hero.

Otherwise there will be made a new non anonymous cryptocurrency, if possible will step up and take Bitcoins place to become the world online currency or Bitcoins will be illegal or regulated in most countries in the world.

Bitcoins will still have a place in black markets etc but it will never get legal in US and EU unless there is a way to blacklist adresses.

Even if its possible to trace Bitcoins its enough that a single crazy person think its impossible to trace them and kidnap a kid and ask for Ransome to get the public opinion to hate the coins.


Maybe there acctually needs to be some way in the client or in a cryptocurrency to mark the money legit or illegal.

All there needs to be is a way for clients to check if an adress that money comes from has a message
on a site. Saying that the adress is a illegal adress.

The question than would be by who? Governments/police or exchange services or all of them?

The public and the forum people cannot do this and especially not the software coders.
Since this could open up to blackmailing, mob behaviour etc, unless you pay us, we will taint your adress etc.

And how will this work in a world?

I think that governments will simply cooperate.
The US will have one list, russia another but most exchanges will have to demand that all lists are clean.
There might be exchanges that dont demand clean lists, but you will probably get less money for your coins at those.

Whitelisted coins will allways be in a higher demand since you will be able to spend them anywhere in the world.

I would imagine it working like this.

The person will see the warning message associated with the adress.
The message could even be of different kinds depending on in which countries they are blacklisted.
If they are proved to be illegal or suspected to be illegal and what type of crime.

"Warning the coins in that adress are from a serious crime. Accepting them is a crime in US, EU etc list of countries."
Please send those coins back and report to us.

Or in another case.

"Warning the coins in that adress might be stolen, accepting them could be a crime in your country"


It will smear onto your adress unless you send them back.
This smearing would make it impossible to make a new adress that cleans the coins.


Would it even be possible? It probably would.

Most people dont know it, but there is something similar in the poker world.
Accounts and even persons do get fraud scores and these are traded among all the bigger poker sites since they collaborate by sharing info on this with services such as this.

http://www.volusion.com/merchant-account/credit-card-fraud-protection/

But the question remains.

Will the government bother with such trouble?

I dont think they will unless bitcoins are really big.
It will probably just be easier for them to outlaw Bitcoins.

They could "force" well somewhat force, by making it illegal to not do a check against their database to se if a bitcoin adress has some message or not.

Sites that does take money from blacklisted adresses will be taken down or shut out.

This will force people to use a client that can see those messages unless they dont care but that would mean that
they will not be able to use their coins on other than black markets.

If it would be possible, it could make stealing Bitcoins by hacking less interesting and especially kidnapping and asking for ransom.

What if the stolen Allinvains coins adress was marked as illegal?

It would have meant that when they tried to cash them out a MTGox they would not had been able to do so. MtGox would probably not have accepted those coins.

Saving Bitcoin from atleast one crash.

Their only option would have been to cash them out in the black market.
But at that market they would be worth much less.

I think that even most black markets would check the list.
They would be to curious to see why the coins are blacklisted, some would not accept certain types of coins.

This would also make it less attractive to acctually try and steal Bitcoins since their value would increase.

In the longterm it would probably also mean that you will have to whitelist you adress if you want to use the coins at any bigger company.

Question is if there will be greyzones.

Coins that are not whitelisted or blacklisted.

Thinking of it, it will probably end up with the governments blacklisting all the coins and adresses that are not whitelisted?
Go to the IRS and whitelist them.

I can only see that or all Bitcoins getting illegal in the longterm, but I´m taking longterm 10-20 years.


But the question is why should a government bother with having Bitcoins legal unless there are advantages.

I can only see this happen if the people demand Bitcoins, because they dont trust the government printing the money
and because it means banks cannot charge whatever fee they want.

If Bitcoins grow bigger the governments will deal with Bitcoins one way or the other.

The first thing they will do is ofcourse try to regulate the exchanges.
And after that there will more steps that follow.

What would Bitcoins getting legal mean?

Bitcoins getting legal will also mean that their value will increase, since
it would mean that they are here to stay and can be adapted by everyone.

It might still be possible to have anonymous adresses in some countries as long as they pay taxes
and there will probably be higher taxes on them.

I really like the concept of Bitcoin, with less power to the banks, and no government printing etc.

But the anonymity is going to be a huge obstacle for it no matter if we like it or not.

I hate when people respond with the anti-intellectual TL;DR, but in this case.... it was a bit on the side of long. But my skim caught:

"kidnaps a cute kid and ask for the ransom to be paid in Bitcoins? ... cryptocurrencies and rightfully blame... anonymous ransomes... boycotted... make it illegal to trade with Bitcoins."

This would certainly put bitcoin in the lime light. I suspect malice of this type would be more common after greater bitcoin acceptance. A kidnapper hopes that the case does not go public, that the desperate parents will just pay and shut up. That's more likely only after the parents can be expected to have at least heard of bitcoin. I think extorting a company is more likely... someone breaks into a Coca-cola, and starts releasing one line from its secret recipe each day until funds are transfer... or the like.

Whitelisting solves all the problems of anonymity while securing privacy. This is how its done:

For sure.
Regulators will want to unsolve that problem for the criminals one way or another.
Ordinary cash is barely tolerable in that regard - bitcoin won't be.



I admit I hadn't really thought through the public perception and PR ramifications of this. You're right - it could be devastating.
(Devastating to any mainstream or even semi-mainstream bitcoin aspirations that is. It would still have it's place as a niche underground thing)

I think most people assume the solution would be to track when the coins move in the blockchain, and combined with a few subpoenas and cooperations with major exchanges - do some tracing to try to get closer to the source of the funds.
I don't think this will be good enough.



That's right - by adding a 'taint' system with a very public face, the regulators have the advantage that now even the fairly stupid crazies should realize they're going to get caught.  The disincentive to even engage in the crime is an important aspect.





These taint lists will be run by governments primarily I think.   Any brick and mortar business must comply with authorities.
Once people find their bitcoins are being taxed at the checkout depending on how much 'taint' they have - they'll upgrade to wallet software which saves them money.
Once a certain number of their peers upgrade - they'll find their coins less acceptable even in personal exchange, so the system is viral in that regard.

Many governments will run blacklists - and perhaps there will be aggregated subscriptions available.




I suspect that rather than just a flat out ban on accepting the coins - they'll be taxed heavily upon entry into an audited exchange or merchant.
They would be 'cleaned' at those entry points once the fee is paid.



I think they will bother, if it has a reasonable chance of deterring the crime and/or catching the perpetrators, and if the alternative of banning or doing nothing wouldn't alleviate the problem.
I suspect both these things are true.

Outlawing bitcoins ultimately wouldn't keep the market small enough to prevent this sort of thing. Geeks and others who appreciate bitcoin would still use it for certain things, and it would (after a long slow growth) thrive as an underground currency.

It would be a balancing act.

By publishing taint lists mainly for the worst crimes, the tainted-coin pool is small, and even the average rebellious streaked person is inclined to prefer untainted coins.

If the governments go overboard on the taint list - they provide more liquidity in tainted coins, because those coins still have some value in purely black market exchange.

So.. their best bet in discouraging bitcoin-ransom crimes is not to go overboard with the lists. Keep the tainted coin pool small. Not much of an incentive to kidnap if you can only spend your loot with kidnappers and terrorists.  If however.. governments taint for a large number of drug related crimes - then they massively increase the market for and use of tainted coins.
Taints applied to anything and everything would have less stigma than taints applied judiciously.






I agree this is a longterm thing.  I'm not sure about the 'whitelist' concept. That doesn't really make sense to me at this stage.
I see them 'tainting' certain addresses (with various public and private labels) - and marking certain coins which have a taint further back in their history as 'fee paid - now clean' once they pass through certain audited merchants/exchanges.

I don't think 'Go to the IRS and whitelist them' is a practical solution for the government. Just like being overzealous on the taint-lists - that would simply keep the bitcoin blackmarket liquidity larger - and wouldn't work well on an international basis.



Governments could outlaw bitcoin, or tax it heavily at regulated merchants to discourage its uptake - but that would make bitcoin an underground thing that still has enough interest and liquidity to be used for some crimes such as kidnapping, without giving the government a lot of ways to prevent or punish those crimes.

By applying taint lists, but not going so far as to alienate the average rebellious-streaked geek, they may be able to keep the marked coins with a generally high stigma, and low spendability, as well as encourage some users to cooperate in reporting on sight.

If they taint like crazy for run of the mill drug/prostitution/politics etc etc - then they'll reduce their own effectiveness at fighting the serious issues such as terrorism/kidnap/assassination markets.

I guess some governments will get this wrong - some will eventually get it right.

The government could indeed penalize them - and in a fairly automated way.
Sorry - you should have used software which checks our public lists - 10% tax at the supermarket checkout for you! 
(or go spend your tainted coins on the blackmarket - maybe you'll only lose 5% there)

Welcome to Bitcoin's brave new world of 'programmable money'.

Whether you like it or think it sucks is immaterial.  If you're lucky, your government may hit a legal wall in trying to implement it.
Some governments will push such things through anyway.

As I mentioned in my previous long post - I think governments will have to be judicious in their application of these lists, or it'll backfire by just increasing the blackmarket coin liquidity.

Why not just have government automatically "launder" the money for you when you receive it? The onus will be on the one sending you tainted money in the first place.

[edit] I don't actually think we are in disagreement here.

The worst aspect of this sort of tagging is the possibility of silent tags.

You innocently spend some coins at the supermarket, and before you know it, the facial-recognition camera at the checkout has worked out who you are and the police come knocking to ask where you got a specific payment from.

While that has some legitimate law-enforcement use - it's also a pretty horrifying invasion of privacy and open to abuse.

I suspect there isn't a technical fix for this.  Bitcoin won't remove the need to fight for legal principles and rights.

edit: Although some ordinary cash is tracked by serial number, the average person just isn't going to remember where they got a particular note from - so it's hardly likely police will come knocking. With a bitcoin wallet though, there's a record and timestamps so it's more of a possibility.

I think you are over reaching with this problem. Bitcoin will eliminate most crimes.

Ok.. I'll bite. Are you being sarcastic?
If not..  How? Do you classify governments and bankers as the commiters of 'most crimes' and think bitcoin will bring them down?
And *I* am over-reaching??

By most crimes, I mean those that fill our prisons. I wrote about this in this thread: https://bitcointalk.org/index.php?topic=50114.msg597113#msg597113 (https://bitcointalk.org/index.php?topic=50114.msg597113#msg597113)

But as for white collar crimes, well those for the most part aren't really crimes. They are legal forms of theft that sometimes go too far. Laws need better enforcement and Bitcoin can help provide tools for law enforcement while still maintaining privacy.

What's the use case? Pervert Bert buys smut from Sleazy Steve's website. A week later, the website's accounts get opened by law enforcement. Sleazy Steve goes to jail, now the cops are after all of its customers. In the meantime, Pervert Bert sent coins to Innocent Irene from the previous sleazy transaction's change address. Innocent Irene buys an apple from Merchant Mike. Merchant Mike nabs Innocent Irene and calls the cops. The cops go through Innocent Irene's transaction history and question her about a particular purchase weeks earlier.

How many hops before the trail is futile? How much time? A simple solution is to send random denominations with few inputs and random number of outputs at random intervals to new addresses, perhaps a new wallet. Doesn't everyone create a new wallet with each client release and never use labels?

OK so far.


Why would the cops care about where Bert spent his money? They already have him involved with a crime. Are you assuming all criminal activity is committed by evil masterminds?

The cops are tracing back to coins that popped up at Merchant Mike's.  They know they came from Sleazy Steve's website, but they don't yet know all the links in the chain.  If they follow the coins back they will find Bert.  They don't have him yet.

Bingo! Thank you Notme...




Unless the cops (evil repressive regime - certainly not the country in which you pay taxes) set up a honey trap, I think there is (or should be) enough plausible deniability that this concern is moot. The current behavior of the Satoshi client - to send change to a new address - is a pathetic anonymizer. It needs to be random, multiple, and continual.

I'm glad I don't live in a banana republic with "guilty by association" laws.

Nihil novi sub sole. Actually, this thread is more original:

https://bitcointalk.org/index.php?topic=5979.0 (https://bitcointalk.org/index.php?topic=5979.0)

Check out what Mike Hearn, theymos and Vladimir have said.

And finally, pay attention to the last post, by Anonymous Guest (https://bitcointalk.org/index.php?topic=5979.msg243765#msg243765) (I did not know that such 'anonymous' commenting was possible - maybe this guy is Satoshi?  ;))

a warning is fine. but you will not be able ton enforce anything on bitcoins - luckily.

Not only this…but criminals would likely move coins through an exchange or mixing service of some kind long before law enforcement could identify and blacklist an address.

The city is filled with stories like this. Some are even true.
Sally is paid by her boss in Bitcoins. Her employer automatically takes out taxes from her registered Bitcoin address. After paying her bills to registered business Bitcoin addresses she decides to take her remaining salary and go out. Sally calls an escort service and pays their public address. She then meets Lance for a night of frolic. While she is in the shower the pizza arrives at the motel room. She tells Lance to pay the pizza guy Bill with her card. Her card is designed to only accept registered addresses. Lance is disappointed because he was hoping he could buy drugs from Bill with her card too, but ended up payiing for them with a physical Bitcoin and was unable to get change. Bill pocketed his profit thinking "stupid junkie."

Bill is caught by police buying more drugs to sell. They ask him where he got a whole Bitcoin. Bill tells him that it was a tip from a nice lady. Police check his employer records and find his last delivery. They investigate and find Sally barely alive. They rush her to the hospital. Meanwhile Lance was trying to pawn her jewelry. The first pawn shop wouldn't take his items because Lance refused to give them his registered Bitcoin address. They learned their lesson when an undercover cop pawned jewelry and offered to take half the money if they would use an unregistered address. The next pawn shop would register an address for him if he would wait 10 minutes for the transaction to verify. Lance was desperate for another fix so he agreed to wait. Police picked up the unregistered transaction by the pawn shop IP address and intercepted the perp. The escort was then investigated, but the police chief cleared them of any wrongdoing. Sally later went on Oprah with a book she wrote about how Bitcoin saved her life.

 :o  Amazing!  ;D

But: this all makes the bold assumption you can absolutely tie an address and specific Bitcoins with an individual or entity.
It won't happen, I can assure you. (Some hints: connecting through Tor; building OpenTransaction overlay upon bitcoin > exchanging blind tokens, etc)

You dont allways have to tie them to a person or entity, its enought to tie them to a crime to taint the adress they are at and maybe any adresses they go to.

One problem though is speed, it has to go quite quick? What happens when it goes to slow...Before an adress is tainted, the coins are allready moved into an exchange and ends up spread to other users.

Should those user be asked to send the coins back otherwise their adresses will be tainted? Thinking about it, its not reasonable...

So this tainting system should perhaps only be there to prevent crimes such as extortion and kidnapping from being based on Bitcoins, because in both cases you will be able to know in advance that a certain adress will contain tainted money.

Ofcourse a kidnapper could allways threaten that the adress should not be tainted or else.
But in these case I see governments cooperating with exchanges and warning them of the adress without tainting it.
Though thinking further would not be possible since he could send the coins to a new adress, exchange them at an exchange and claim that he bought the coins from someone unknown etc.


Thinking about the speed...

Thats where whitelisted adresses comes in, or known adresses.

Exchanges will have to only accept coins with zero day delay from whitelisted adresses. 
Any unknown adress will have to be in quarantine waiting to be aknowledged for say 3 weeks depending on country, so that its not money from a serious crime.

Some poker networks have these kinds of quarantine when withdrawing funds.

This will also force real users to rather use and keep their coins at whitelisted adresses.
An adress will probably be "whitelisted" just by doing a verification at any of the exchanges.

 

I'm not so jaded as some here. I really think most people are honest. Tor, darknets, black markets, etc. are only a tiny portion of financial transactions. When robbers, muggers, and lunch money bullies no longer have cash to steal, people will become more trusting. There will always be some criminality, but Bitcoin brings financial control back to the people rather than arcane derivative sorcerers.

Okay, spent some time to read this through. [Hello, ‘bitcoin kidnapper’ poster – sorry, skipped through yours] Conclusion – any regulative restriction is legally and even financially [for totalitarian regimes] impossible to implement. Propaganda restriction is already in place and unlikely being cost-effective if the goal is to destroy, not regulate. I can, however, imagine a time when regulating bitcoin would be a real goal, but still cannot see a legal way to do it in a manner described here. To think further: all bank notes in circulation are traceable, therefore can be traced to a degree [when it is worth it], so are bitcoins [maybe, questionably, at much lower costs]. But no more. Never more. Freedom is always a given, such is the difference between any law and enforcing it. Majority of human population at risk/unsustainable – discuss then.