Eventually the FUNGIBILITY issue of bitcoin will make headlines ...

[smoothie]

Eventually the FUNGIBILITY issue of bitcoin will make headlines and will be in article titles in the press. <--------------- Smoothie Prediction    

Just a fun prediction I'm making before it happens on a much more apparent scale.

Right now the focus is "BLOCK SIZE"....that will change...



edit:

and hours later this shows up on reddit

https://www.reddit.com/r/Bitcoin/comments/3mea6b/bitpay_is_blacklisting_certain_bitcoins_rejecting


edit 2:


 https://www.reddit.com/r/Bitcoin/comments/374ss5/the_problem_with_bitcoin_that_everyone_seems_to/

My thesis is that the transparent nature of the Bitcoin Blockchain leads us to the path of (nasty) government regulation.

This won't be some long theoretical opinion about technical Bitcoin flaws, I will provide you with some clear practical examples. People who love to have extensive government regulation, please move on and ignore this post.

What is exactly problematic about a transparent blockchain? Well, every UTXO has a history. This means mainly 2 things:

1) people who receive a transaction can see this history

2) miners who put transactions into blocks can see this history

Let me be clear. The issue we are talking about here isn't anonymity, it's fungibility.

You can try to hide your coins as much as you want, if you tried to mix your coins using a mixer, coinjoin or another type of "anonymity enhancing feature", we will at least be able to detect that you did. We maybe won't know who you are, but those coins can be flagged as "possible suspicious activity on the blockchain".

So what's the big deal about that? Well, this gives governments the possibility to regulate BTC transactions. Let me explain: Basically it comes down to these 2 possible scenario's: blacklisting and whitelisting

Government could on one hand through “whitelisting” obligate bitcoin users to identify themselves when they purchase bitcoins (this is already happening: KYC and AML) and ask them to whom they are transferring these bitcoins (Coinbase is already asking this for some transactions).

In the future this could lead to a situation in which only “identified” bitcoins would be spendable at regulated payment processors. Every business that accepts bitcoin in a certain jurisdiction would need to use a certified payment processors that only accepts "whitelisted" coins.

As a result, your anonymous bitcoins would only be spendable if you match them to your identity through a regulated authority (exchange, wallet service or directly through government). If you try to spend other coins, the payment processor could send them back you you (best case) or send them to a government wallet (worst case) and maybe you can claim the coins after you identify yourself (at least you have your coins back...)

A more aggressive approach is “blacklisting”. This is a system whereby the government makes it illegal to process certain blacklisted UTXO's.

Of course you would say that no miner would comply... But think about it. Would a large mining farm operator risk going to jail for "money laundering" or will he comply? After all, he has electricity bills to pay. The profit will be more important than the ideology.

This kind of regulation leads to a loss of fungibility. Bitcoin isn't fungible anymore if one bitcoin is accepted for payment or isn't mined anymore and another isn't.

If you are thinking that i'm exaggerating because there are a lot of jurisdictions and there will always be places where there will not be this strict regulation, you are right.

But it gets worse...

Not only governments but even companies will start to apply regulation by themselves as a form of self-censorship, because they fear government crackdown on their business:

We already saw the "whitelisting version" with the deposit of the Evolution coins to BTC-e. Those coins weren't allowed by an exchange that is pretty anonymous themselves! The reason is that they don't want the CIA and Europol on their doorstep, so they decided not to accepts possible money laundering activity.

And what about the blacklisting by the miners? I'm sure there will be ideologically motivated miners that will keep processing blacklisted UTXO's.

But there are far less pools than there are individual miners. The regulation will slowly affect this. I see a 5 stage system:

A. there will be some pools that voluntarily adopt the regulations, because they fear government crackdown (same situation as BTC-e with the Evolution coins)

B. some miners fear the government, so they ask their pool operators if they will comply with the regulations. If not, they move to a "regulated pool". It will slowly become a disadvantage for pool operators to not comply. If one uses mixed bitcoins, the transactions will start to suffer from delays because of less miners processing them.

C. the regulation will become more harsh. Building on a block that contains blacklisted transactions will become illegal. This will lead to more pools censoring themselves because they fear they will loose the block reward if they don't comply

D. the "illigal block depth" will become larger (f.e. not building on a chain which 3 blocks "deep" had a blacklisted transaction; more pools start to comply

E. almost everybody now complies and blacklisted UTXO's won't be spendable unless they pass through a regulation authority.


In essence this could lead to three kinds of bitcoins:

1. White bitcoins: bitcoins that satisfy the identification regulation.

2. Grey bitcoins: bitcoins that are not yet identified, but which are not actively anonymized. transactions are allowed, but not spending them at a certified payment processor.

3. Black bitcoins: bitcoins that are banned by miners. Processiing them is illegal. Maybe even owning them...

The consequence?

Bitcoin will not be fungible anymore: you can’t just use a grey or black bitcoin to buy something from a webshop. If the government is able to discover that you possess black bitcoins or process blacklisted type transactions, you could even be seen as a someone committing a crime.
Eventually Bitcoin will become a fast payment system without counterparty risk but with full government control.
Is that what we really want?
And if you think these are all unlikely scenario's then well... we will talk again in 5 year's time.

Edit 3  - posted days later
http://www.coinfox.info/news/3205-mexican-government-places-bitcoin-and-cash-on-the-same-footing

[1713302653]

1713302653

[1713302653]

1713302653

[gentlemand]

The potential lack thereof?

There haven't been many or any legal precedents set so far. When they do it'll either be reassuring or there'll be some good old panic. The fact that each jurisdiction can't decide what it actually is isn't helping.

[smoothie]

The potential lack thereof?

There haven't been many or any legal precedents set so far. When they do it'll either be reassuring or there'll be some good old panic. The fact that each jurisdiction can't decide what it actually is isn't helping.

yes the lack of fungibility.

when one steals coins or scams bitcoins from users/customers and you can trace it, that does imply the possibility that merchants/exchanges/payment processors etc will not accept tainted bitcoins. Some will and some won't...

Some miners may not process transactions from certain addresses if they get enough pressure from their regulators (locally) to not do it, implying it is "illegal" to do so.

[brg444]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

[jonald_fyookball]

Eventually the FUNGIBILITY issue of bitcoin will make headlines and will be in article titles in the press. <--------------- Smoothie Prediction   

Just a fund prediction I'm making before it happens on a much more apparent scale.

Right now the focus is "BLOCK SIZE"....that will change...

I don't think its a road that regulators can make much headway into because of mixers.
Taint is going to happen.

[smoothie]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol


here is the definition of the economic concept of FUNGIBILITY:

definition: 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."

You sure you want to claim that it is "perfectly fungible"?

If someone decides not to accept some bitcoins vs other bitcoins ....then it is no longer "perfectly fungible".

[onemorexmr]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

we already had this discussion.
maybe bitcoin is technically fungible (because any coin can always be send an mixed) but practically you have problems when using coins which where stolen (eg bitstamp hack) or why do you think new minted coins are sold with a premium?

[fluffypony]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

Let's imagine I have some coins that I stole during Evolution's demise. Are you willing to swap all of your coins for mine?

Or put differently: if I borrow your car for a month, and at the end of that month I give you back the same make, same model, same year, same colour car, is that ok?

Bitcoin isn't fungible for the same reason that you won't appreciate me giving you some random car in exchange for yours, regardless of the properties of that car.

[smoothie]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

we already had this discussion.
maybe bitcoin is technically fungible (because any coin can always be send an mixed) but practically you have problems when using coins which where stolen (eg bitstamp hack) or why do you think new minted coins are sold with a premium?

My point exactly. You can mix them, but in the end someone is going to end up with coins from a theft (assuming they were stolen in some form or fashion).

[Sir Alpha_goy]

.

[smoothie]

Eventually the FUNGIBILITY issue of bitcoin will make headlines and will be in article titles in the press. <--------------- Smoothie Prediction    

Just a fun prediction I'm making before it happens on a much more apparent scale.

Right now the focus is "BLOCK SIZE"....that will change...

And don't forget what will happen afterwards...

what happens?

[mallard]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol


here is the definition of the economic concept of FUNGIBILITY:

definition: 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."

You sure you want to claim that it is "perfectly fungible"?

If someone decides not to accept some bitcoins vs other bitcoins ....then it is no longer "perfectly fungible".

I can draw and deface a bank note, does that make fiat not "perfectly fungible"?

[onemorexmr]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol


here is the definition of the economic concept of FUNGIBILITY:

definition: 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."

You sure you want to claim that it is "perfectly fungible"?

If someone decides not to accept some bitcoins vs other bitcoins ....then it is no longer "perfectly fungible".

I can draw and deface a bank note, does that make fiat not "perfectly fungible"?

imagine this:
 - you payed in a store with that dollar
 - the store get robbed and the owner got killed
 - one employee remebered this dollar was still there
 - news reports this with an image with that dollar

is this dollar still fungible or will the thief has problems paying with it?

[brg444]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol

Yes, I addressed it in another thread, here's the slightly modified version:

I'm sorry but it is increasingly apparent to me that you are making a tragic mistake of conflating very different economic concepts.

For one, individual perception of value is quite different from the market's perception of value.

Bitcoin's traceability might make it interesting for someone with a collector's mindset but it has no impact on its fungibility.

It would be one thing for the market to disagree on the value of individual satoshis but this is absolutely impossible as they are totally undistinguishable from one another. Let me use two different examples to show why your analysis fail:

- Certain gold artifacts are valued at way more important prices then the actual market worth of their weight in gold. Does that make gold a "collectible"?

- A lot of people enjoy collecting notes and coins from certain years. A bundle of cash stolen from a bank might be identified and refused in certain circumstances because of its serial number. Does that make cash a "collectible"?

These two examples, I believe, demonstrate that what you refer to as an absence of fungibility is simply a consequence of individual or authorities attaching subjective value to an item because of its history but this is not an indictment on the monetary system itself!

Imagine one individual in possession of one of these gold artifacts or a special 20$ note attempts, for some unknown reason, to either trade his gold item to a pawnshop or deposit the 20$ at the bank.

What do you guess happens? If we assume the guy running the pawnshop doesn't know or care about the "symbolic" value of the item and is only concerned with its weight in gold no amount of history is going to bring him to buy said item for more than its market worth. Same for his "special bill", the cashier at the bank could not careless if it was used by Al Capone to do lines of cocaine, to her it's worth 20$ and no more.

The same logic applies for Bitcoin. If I am in possession of one of Mt. Gox's stolen coin and send it to Bitstamp, the market is not going to offer me a premium or refuse to buy it. Sure some nerds might cry foul and alert the exchange. In that case I could still head to fucking China and sell the same coin for market price on whatever their equivalent of localbitcoin is and no one will ask me any question.

Let's pretend I have one of Satoshi's wallet address and decide to send him a bitcoin. How can you tell which one is mine from his stash?

In fact I do believe there is quite a lot of people that have sent him dust or coins over the years. If somehow he decides to move this lot of coins to an exchange are people somehow going to make a distinction between his original coins and whatever amount that was sent to him by these clowns? Of course no because they can't!

This effectively demonstrates that your logic does not hold. The market could careless whatever coin Satoshi decides to move, it is not the coins that matter because THEY ARE INDEED FUNGIBLE. It is their owner's decision that has a psychological impact on the market because they can identify ownership through the public ledger. Let's say we pretend that somehow someone is able to tie Satoshi's identity to a wallet/coins from...2013. Surely you would agree that the psychological impact on the market would be the same whether he decides to move these coins to BitStamp or the "original" ones.

All of this is to say you are confusing privacy and traceability and somehow making this aspect of Bitcoin an indictment on its fungibility. Again, this is a mistake.

[smoothie]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol


here is the definition of the economic concept of FUNGIBILITY:

definition: 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."

You sure you want to claim that it is "perfectly fungible"?

If someone decides not to accept some bitcoins vs other bitcoins ....then it is no longer "perfectly fungible".

I can draw and deface a bank note, does that make fiat not "perfectly fungible"?

Are we talking about fiat? No.

We are talking about bitcoin.

But to address your issue let's discuss it...

No one said fiat was perfectly fungible. I never said it for sure. But I do see that if you stole fiat from someone let's name them James. James loses money to a thief named Jamal.

Jamal now can do what he wants with the cash and no one really knows where the cash went (assuming there are no list of serial numbers that James claims he had on the bills).

But problem with that is not many of the public will go through the effort to look up the serial numbers of bills they are receiving as payment from Jamal. Too cumbersome.

Therefore fiat is more fungible than bitcoin in terms of functionality.

If you do the same thing with bitcoin with James having Jamal steal his bitcoin...well now you have the block chain that is public and accessible to anyone on the internet and you can track where those coins go.

See the problem?

[smoothie]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol


here is the definition of the economic concept of FUNGIBILITY:

definition: 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."

You sure you want to claim that it is "perfectly fungible"?

If someone decides not to accept some bitcoins vs other bitcoins ....then it is no longer "perfectly fungible".

I can draw and deface a bank note, does that make fiat not "perfectly fungible"?

imagine this:
 - you payed in a store with that dollar
 - the store get robbed and the owner got killed
 - one employee remebered this dollar was still there
 - news reports this with an image with that dollar

is this dollar still fungible or will the thief has problems paying with it?

Assuming the merchant that may accept it is paying attention to the bills coming in...yes they would have problems paying with it.

Most people aren't paying attention to the serial numbers on their bills.

It's not accessible for many to lookup which serial numbers of bills were tied to a specific crime/theft.

[onemorexmr]

I can draw and deface a bank note, does that make fiat not "perfectly fungible"?

imagine this:
 - you payed in a store with that dollar
 - the store get robbed and the owner got killed
 - one employee remebered this dollar was still there
 - news reports this with an image with that dollar

is this dollar still fungible or will the thief has problems paying with it?

Assuming the merchant that may accept it is paying attention to the bills coming in...yes they would have problems paying with it.

Most people aren't paying attention to the serial numbers on their bills.

It's not accessible for many to lookup which serial numbers of bills were tied to a specific crime/theft.

luckily in this example mallard made it easy by drawing an image on the dollar and made it unique and easy to remember

[smoothie]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol

Yes, I addressed it in another thread, here's the slightly modified version:

I'm sorry but it is increasingly apparent to me that you are making a tragic mistake of conflating very different economic concepts.

For one, individual perception of value is quite different from the market's perception of value.

Bitcoin's traceability might make it interesting for someone with a collector's mindset but it has no impact on its fungibility.

It would be one thing for the market to disagree on the value of individual satoshis but this is absolutely impossible as they are totally undistinguishable from one another. Let me use two different examples to show why your analysis fail:

- Certain gold artifacts are valued at way more important prices then the actual market worth of their weight in gold. Does that make gold a "collectible"?

- A lot of people enjoy collecting notes and coins from certain years. A bundle of cash stolen from a bank might be identified and refused in certain circumstances because of its serial number. Does that make cash a "collectible"?

These two examples, I believe, demonstrate that what you refer to as an absence of fungibility is simply a consequence of individual or authorities attaching subjective value to an item because of its history but this is not an indictment on the monetary system itself!

Imagine one individual in possession of one of these gold artifacts or a special 20$ note attempts, for some unknown reason, to either trade his gold item to a pawnshop or deposit the 20$ at the bank.

What do you guess happens? If we assume the guy running the pawnshop doesn't know or care about the "symbolic" value of the item and is only concerned with its weight in gold no amount of history is going to bring him to buy said item for more than its market worth. Same for his "special bill", the cashier at the bank could not careless if it was used by Al Capone to do lines of cocaine, to her it's worth 20$ and no more.

The same logic applies for Bitcoin. If I am in possession of one of Mt. Gox's stolen coin and send it to Bitstamp, the market is not going to offer me a premium or refuse to buy it. Sure some nerds might cry foul and alert the exchange. In that case I could still head to fucking China and sell the same coin for market price on whatever their equivalent of localbitcoin is and no one will ask me any question.

Let's pretend I have one of Satoshi's wallet address and decide to send him a bitcoin. How can you tell which one is mine from his stash?

In fact I do believe there is quite a lot of people that have sent him dust or coins over the years. If somehow he decides to move this lot of coins to an exchange are people somehow going to make a distinction between his original coins and whatever amount that was sent to him by these clowns? Of course no because they can't!

This effectively demonstrates that your logic does not hold. The market could careless whatever coin Satoshi decides to move, it is not the coins that matter because THEY ARE INDEED FUNGIBLE. It is their owner's decision that has a psychological impact on the market because they can identify ownership through the public ledger. Let's say we pretend that somehow someone is able to tie Satoshi's identity to a wallet/coins from...2013. Surely you would agree that the psychological impact on the market would be the same whether he decides to move these coins to BitStamp or the "original" ones.

All of this is to say you are confusing privacy and traceability and somehow making this aspect of Bitcoin an indictment on its fungibility. Again, this is a mistake.

Perfectly fungible is what you said. Your bolded example above proves my point that bitcoin is not perfectly fungible as in your example an exchange/site can refuse to exchange or accept a particular set of coins coming from certain addresses.


Just because you say something, doesn't make it true.  

The mere fact that you know stolen coins came from an address to another address...removes the fungibility portion. Who cares which coin was exactly the coin that was part of a scam? The point is that some of them (or all of them) are linked to a known crime/theft/scam.

NOT KNOWING which exact coin is related to a scam/crime/theft is not the way I would define bitcoin being "PERFECTLY FUNGIBLE".

I think you have your concepts/terminology mixed up.

[brg444]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

wow really? lol

Yes, I addressed it in another thread, here's the slightly modified version:

I'm sorry but it is increasingly apparent to me that you are making a tragic mistake of conflating very different economic concepts.

For one, individual perception of value is quite different from the market's perception of value.

Bitcoin's traceability might make it interesting for someone with a collector's mindset but it has no impact on its fungibility.

It would be one thing for the market to disagree on the value of individual satoshis but this is absolutely impossible as they are totally undistinguishable from one another. Let me use two different examples to show why your analysis fail:

- Certain gold artifacts are valued at way more important prices then the actual market worth of their weight in gold. Does that make gold a "collectible"?

- A lot of people enjoy collecting notes and coins from certain years. A bundle of cash stolen from a bank might be identified and refused in certain circumstances because of its serial number. Does that make cash a "collectible"?

These two examples, I believe, demonstrate that what you refer to as an absence of fungibility is simply a consequence of individual or authorities attaching subjective value to an item because of its history but this is not an indictment on the monetary system itself!

Imagine one individual in possession of one of these gold artifacts or a special 20$ note attempts, for some unknown reason, to either trade his gold item to a pawnshop or deposit the 20$ at the bank.

What do you guess happens? If we assume the guy running the pawnshop doesn't know or care about the "symbolic" value of the item and is only concerned with its weight in gold no amount of history is going to bring him to buy said item for more than its market worth. Same for his "special bill", the cashier at the bank could not careless if it was used by Al Capone to do lines of cocaine, to her it's worth 20$ and no more.

The same logic applies for Bitcoin. If I am in possession of one of Mt. Gox's stolen coin and send it to Bitstamp, the market is not going to offer me a premium or refuse to buy it. Sure some nerds might cry foul and alert the exchange. In that case I could still head to fucking China and sell the same coin for market price on whatever their equivalent of localbitcoin is and no one will ask me any question.

Let's pretend I have one of Satoshi's wallet address and decide to send him a bitcoin. How can you tell which one is mine from his stash?

In fact I do believe there is quite a lot of people that have sent him dust or coins over the years. If somehow he decides to move this lot of coins to an exchange are people somehow going to make a distinction between his original coins and whatever amount that was sent to him by these clowns? Of course no because they can't!

This effectively demonstrates that your logic does not hold. The market could careless whatever coin Satoshi decides to move, it is not the coins that matter because THEY ARE INDEED FUNGIBLE. It is their owner's decision that has a psychological impact on the market because they can identify ownership through the public ledger. Let's say we pretend that somehow someone is able to tie Satoshi's identity to a wallet/coins from...2013. Surely you would agree that the psychological impact on the market would be the same whether he decides to move these coins to BitStamp or the "original" ones.

All of this is to say you are confusing privacy and traceability and somehow making this aspect of Bitcoin an indictment on its fungibility. Again, this is a mistake.

Perfectly fungible is what you said. Your bolded example above proves my point that bitcoin is not perfectly fungible as in your example an exchange/site can refuse to exchange or accept a particular set of coins coming from certain addresses.


Just because you say something, doesn't make it true.  

The mere fact that you know stolen coins came from an address to another address...removes the fungibility portion. Who cares which coin was exactly the coin that was part of a scam? The point is that some of them (or all of them) are linked to a known crime/theft/scam.

NOT KNOWING which exact coin is related to a scam/crime/theft is not the way I would define bitcoin being "PERFECTLY FUNGIBLE".

I think you have your concepts/terminology mixed up.

I think not. What you are observing is a result of Bitcoin's traceability.

If I can obfuscate the provenance of what you call a "tainted" coin by use of crypto and other technologies then no one will refuse it.

It seems to me you are the one confusing terminologies. Bitcoin does not discriminate one coin from another. Within the system they are perfectly fungible. Only human preferences and personal subjective value could lead one coin to be refused.

http://trilema.com/2014/guidance-there-is-no-such-thing-as-bitcoin-taint/

[brg444]

Bitcoin is perfectly fungible. Anyone who claims otherwise is confusing economic concepts.

we already had this discussion.
maybe bitcoin is technically fungible (because any coin can always be send an mixed) but practically you have problems when using coins which where stolen (eg bitstamp hack) or why do you think new minted coins are sold with a premium?

Indeed, and as you explain we have established that Bitcoin is "technically fungible" which is really all that matters. Fungibility is a property inherent to a system. It is not dependent on human preferences.