Bitcoin Violates Principle of Fungibility

[Paleus]

In light of recent events within the bitcoin industry, namely the Evolution Marketplace going up in a burst of flames with customer money, it has become clear that cryptocurrency deviates from traditional money in more ways than initially meet the eye. Bitcoin, among a slate of other cryptocurrencies, violates the principle of fungibility within money – that is, each coin’s transaction history differentiates them from every other bitcoin in circulation. With the collapse of the hidden Evolution Marketplace, these coins have now been tainted, and services are willfully denying their deposit into wallets held by exchange businesses.

Bitcoin fungibility has been called into question, and it is becoming glaringly obvious that this poses a threat to the stability and long-term usage of such currency. Exchanges want nothing to do with these stolen funds, and therefore, lessen their value in relation to otherwise identical cryptocurrency units.

Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. That is, it is the property of essences or goods which are “capable of being substituted in place of one another.”

– Merriam-Webster


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[inBitweTrust]

I don't follow...The same could be said about the lack of fungibility with fiat money associated with crimes. Some of the same problems and solutions with laundering fiat exist with bitcoin. Additionally, Fiat has a bigger problem because it is tainted at inception when it is created or minted to those who understand the inherent fraud that is occurring.

[inBitweTrust]

Where have you ever seen a coin blacklisted? I haven't heard of a thing yet.

There have been a few cases where exchanges or businesses have refused some of the currency, and certainly virgin coins fetch a premium above regular coins. This isn't much different than fiat however as accepting money from a drug dealer may be dangerous and have certain risks. Fiat uses distributed ledgers as well and tracks both digital and physical currency.

[ebliever]

I have to disagree, more or less. Suppose a bank robber runs off with a haul of cash, which the bank has the serial # records for. The robber subsequently tries to deposit the cash elsewhere but his efforts fail because the receiving banks check the serial numbers and catch that they are from a crime.

So bitcoin shows itself to be similar to fiat in this case, not different. And just as the thief could use the cash at institutions that don't check the serial #'s, the Evolution thieves could spend the bitcoin at less wary outlets. Bitcoin is fungible in the way that matters, while enabling individuals and institutions to make their own decisions regarding particular coins. Which is a principle of liberty we should applaud.

[inBitweTrust]

Don't virgin coins only fetch the premium due to paranoia or overly safety methods. Coinmixing has proven that tainted coins can spend just fine.

Yes, additionally one can easily mix coins buy going from btc - alt - btc (and repeat with another exchange if paranoid) to even further clean your coins and produce fungibility just like with fiat.

Tracking the funds can be done but is just more difficult to accomplish either way ... exactly like with fiat.

Coinmixing with a centralized service isn't as good as some of the other methods of cleaning taint because of low volume, honeypots, and the fact that you are mixing your coins primarily with other tainted coins and high risk targets.

[Meuh6879]

and services are willfully denying their deposit into wallets held by exchange businesses.

yeah ... trust this ... 

[RodeoX]

I dunno. I would consider it less fungible if the price were lower for some listed coins. However there is always someone who will buy them at full market value. Any blacklist would be a voluntary system and such systems never work broadly because everyone has to agree to leave money on the table.

There is also the problem of washing such coins. Its easy and makes "coloring" coins or assigning "taint" a pointless exercise.

[GigaBit]

Fiat violates the principle of the Gold standard!!
Yeah, they always try to divert you from the facts...
Gold ain't fungible, neither are cryptos, both aren't money or violate fungibility rules.
I rather have money that breaks the rules and remains out of one entity's control.

[Ron~Popeil]

I have not heard of any coins refused by anyone due to "taint." If you had a coin that had at some point been through a wallet belonging to silk road et al you can still buy stuff at overstock or reserve travel at expedia and you could still buy things with it in the market place here.

[HI-TEC99]

I have not heard of any coins refused by anyone due to "taint." If you had a coin that had at some point been through a wallet belonging to silk road et al you can still buy stuff at overstock or reserve travel at expedia and you could still buy things with it in the market place here.

Btc-e refused to deal with some coins from evolution.

Coinfire had a story about it.

In a surprise move, BTC-e has suspended withdrawals from the cryptocurrency exchange in an effort to stop coins from the Evolution theft being exchanged and withdrawn.

http://coinfire.io/2015/03/21/btc-e-suspends-withdraws-to-stop-stolen-coin-dump/

They updated it to say btc-e had no further comments to make.

Update: BTC-e admins have reached out to Coin Fire to state that withdrawals have been re-enabled and that they have no further comments regarding the situation moving forward regarding this or any other security issue. The staff member originally speaking with Coin Fire has informed our team to speak with the administrators only moving forward and reiterated that the exchange has no comment.

[GTO911]

Diginomics is a pay for article shit site

A short time back, they had a same article about fungibility. In that article they had talked about currencies with higher fungibility. In this paid article they just have Darkcoin/Dash being shown as a competitor to Bitcoin

Lets create a biased paid media blacklist

[chmod755]

If you suspect that a customer is paying with stolen money or trying to launder money you have to request further information about the source of the money regardless of the payment type. In this case it was known that the money was involved in crimes - of course the Bitcoins are worth the same, but the client should've been refused for being a criminal. AFAIR BTC-e allowed them to trade the coins tho.

Bitcoin is just more convenient to track for law enforcement and businesses.

[coinpr0n]

I appreciate the article and ideas being raised. But I think those companies that do implement black- or red-listing of addresses should be boycotted. I would also (probably) encourage boycotting of services that deny their customers freedom to use Bitcoin for particular services like gambling in Coinbase's case. Or in the very least make it very clear to those signing up to use their service.

[calchuchesta]

Thats why im paranoid about using bitcoin before running coins throught a mixer, but then again how can u be sure that the mixer coins are legit??

[medUSA]

Bitcoin fungibility has been called into question, and it is becoming glaringly obvious that this poses a threat to the stability and long-term usage of such currency. Exchanges want nothing to do with these stolen funds, and therefore, lessen their value in relation to otherwise identical cryptocurrency units.

The ledger on the blockchain just makes it easy to trace the source of the coins, and it is just as easy to sever the link too with mixers. Fungibility is not violated on a massive scale. Even when some people prefer virgin coins or untainted coins, it will not make bitcoin less stable, because the cost of making them "usable" again is low and fast.

[Cruxer]

Bitcoin fungibility has been called into question, and it is becoming glaringly obvious that this poses a threat to the stability and long-term usage of such currency. Exchanges want nothing to do with these stolen funds, and therefore, lessen their value in relation to otherwise identical cryptocurrency units.

I hope this will not be the case. People have common sense, and they shouldn't ever agree to treat each bitcoin diffirently

[neoneros]

Thats why im paranoid about using bitcoin before running coins throught a mixer, but then again how can u be sure that the mixer coins are legit??

You cannot be sure. That is why you mix, it does not clean the coins, it just obfuscates the transactions, the coin does not change. it is like sharing the tab with your friends, one of them has tainted money, you all put it in a big pile on the table, but because you have put too big a bill in it, you take the tainted money back as change for your share in the pile.

[Furio]

I don't follow...The same could be said about the lack of fungibility with fiat money associated with crimes. Some of the same problems and solutions with laundering fiat exist with bitcoin. Additionally, Fiat has a bigger problem because it is tainted at inception when it is created or minted to those who understand the inherent fraud that is occurring.

My thoughts exactly, the fact that it's tainted isn't recognisble by an exchange, so I don't follow your story, If I use "tainted" bitcoin, I never get a warning from Bittrex

[SebastianJu]

Which exchange holds back tainted coins? I didnt hear from any.

It was discussed but im not aware of anyone losing coins because of that.

Though it might be a good idea when exchanges keep an eye on coins that are from criminal cases though that only would work if a scammer would use such exchange to wash them. So i wonder if anybody would be found that way.

If coins would be withheld then everybody would be at risk getting tainted coins someday.

[ensurance982]

Well that's only partly true. First, you can still decide whether to accept certain coins. Also, the same is true for regular FIAT money, money used in illegal activities may be denied, also you could perform a chemical analysis on regular bills or coins!