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

[RGBKey]

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

I'm saying if Service A supports blacklisting, and Service B does not, and User recieves blacklisted coins from Service B, which does not blacklist, and tries to use them at Service A, they will not be able to.

[smooth]

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

I'm saying if Service A supports blacklisting, and Service B does not, and User recieves blacklisted coins from Service B, which does not blacklist, and tries to use them at Service A, they will not be able to.

Yes that is the whole reason for this thread.

I think you missed the point of my comment. See MtGox (and many others). People lost money. Bitcoin is still here.

[jonald_fyookball]

I wasn't aware of that.  I assume that only goes one level deep.  In other words, if I have stolen coins (.5 BTC) and normal coins (.5 BTC)
and I send that to another address of mine, and then send you 1 BTC, you can't separate out the stolen coins from the normal coins.

that is true indeed.

You can separate them until the two are spent together, since they are separate outputs as explained in the last few posts. Once they are spent together, they can't be separated.

What I expect will likely happen in a system with widespread regulation and blacklist once they are mixed (spent) together is that you would then have to send the 1.0 to some government (or other third party service) address, along with your identifying information, and you would get the 0.5 clean back.

That would be the end of bitcoin, since there's going to be some amount of taint going on almost all the time.  Can't see it happening.

Agreed, you will get people that are unlucky and receive coins from an exchange that did not support blacklisting, and then that user will have effectively lost money.

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

If I get Bitcoins privately from my friend Alice and her coins had some taint and I then used those Bitcoins to buy a T shirt on a web shop and then they tried to cash those Bitcoins out to their bank account with Bitpay and Bitpay told me I don't get my T shirt but if I send them a scan of my passport I can get half my money back, then either it would be the end of Bitcoin or it would be the end of people using payment services.

[smooth]

I wasn't aware of that.  I assume that only goes one level deep.  In other words, if I have stolen coins (.5 BTC) and normal coins (.5 BTC)
and I send that to another address of mine, and then send you 1 BTC, you can't separate out the stolen coins from the normal coins.

that is true indeed.

You can separate them until the two are spent together, since they are separate outputs as explained in the last few posts. Once they are spent together, they can't be separated.

What I expect will likely happen in a system with widespread regulation and blacklist once they are mixed (spent) together is that you would then have to send the 1.0 to some government (or other third party service) address, along with your identifying information, and you would get the 0.5 clean back.

That would be the end of bitcoin, since there's going to be some amount of taint going on almost all the time.  Can't see it happening.

Agreed, you will get people that are unlucky and receive coins from an exchange that did not support blacklisting, and then that user will have effectively lost money.

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

If I get Bitcoins privately from my friend Alice and her coins had some taint and I then used those Bitcoins to buy a T shirt on a web shop and then they tried to cash those Bitcoins out to their bank account with Bitpay and Bitpay told me I don't get my T shirt but if I send them a scan of my passport I can get half my money back, then either it would be the end of Bitcoin or it would be the end of people using payment services.

What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

[jonald_fyookball]

I wasn't aware of that.  I assume that only goes one level deep.  In other words, if I have stolen coins (.5 BTC) and normal coins (.5 BTC)
and I send that to another address of mine, and then send you 1 BTC, you can't separate out the stolen coins from the normal coins.

that is true indeed.

You can separate them until the two are spent together, since they are separate outputs as explained in the last few posts. Once they are spent together, they can't be separated.

What I expect will likely happen in a system with widespread regulation and blacklist once they are mixed (spent) together is that you would then have to send the 1.0 to some government (or other third party service) address, along with your identifying information, and you would get the 0.5 clean back.

That would be the end of bitcoin, since there's going to be some amount of taint going on almost all the time.  Can't see it happening.

Agreed, you will get people that are unlucky and receive coins from an exchange that did not support blacklisting, and then that user will have effectively lost money.

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

If I get Bitcoins privately from my friend Alice and her coins had some taint and I then used those Bitcoins to buy a T shirt on a web shop and then they tried to cash those Bitcoins out to their bank account with Bitpay and Bitpay told me I don't get my T shirt but if I send them a scan of my passport I can get half my money back, then either it would be the end of Bitcoin or it would be the end of people using payment services.

What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

not a good analogy since the conterfeit cash would be 100% "tainted". 

[smooth]

I wasn't aware of that.  I assume that only goes one level deep.  In other words, if I have stolen coins (.5 BTC) and normal coins (.5 BTC)
and I send that to another address of mine, and then send you 1 BTC, you can't separate out the stolen coins from the normal coins.

that is true indeed.

You can separate them until the two are spent together, since they are separate outputs as explained in the last few posts. Once they are spent together, they can't be separated.

What I expect will likely happen in a system with widespread regulation and blacklist once they are mixed (spent) together is that you would then have to send the 1.0 to some government (or other third party service) address, along with your identifying information, and you would get the 0.5 clean back.

That would be the end of bitcoin, since there's going to be some amount of taint going on almost all the time.  Can't see it happening.

Agreed, you will get people that are unlucky and receive coins from an exchange that did not support blacklisting, and then that user will have effectively lost money.

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

If I get Bitcoins privately from my friend Alice and her coins had some taint and I then used those Bitcoins to buy a T shirt on a web shop and then they tried to cash those Bitcoins out to their bank account with Bitpay and Bitpay told me I don't get my T shirt but if I send them a scan of my passport I can get half my money back, then either it would be the end of Bitcoin or it would be the end of people using payment services.

What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

not a good analogy since the conterfeit cash would be 100% "tainted". 

Not really. Your friend Alice gives you two $10 bills. One is good, one is bad. You take both to buy a $20 T-shirt. Now what?

[RGBKey]

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What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

Counterfeit cash is more easily detectable, and if it's a good counterfeit it will probably fool other people too.

[smooth]

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What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

Counterfeit cash is more easily detectable, and if it's a good counterfeit it will probably fool other people too.

Maybe. I've seen stores uses counterfeit detector pens quite a bit, and in a few cases run the bills through a machine (usually only larger bills). Banks routinely run cash you deposit through fancier machines and probably catch more. I don't do any of these when I get cash from a friend, and I wouldn't necessarily detect whatever it is those tests are doing.

The point is, you can lose money this way, so losing money due to receiving bad Bitcoin is nothing qualitatively new. I'm not saying it is a good thing though.

[RGBKey]

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What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

Counterfeit cash is more easily detectable, and if it's a good counterfeit it will probably fool other people too.

Maybe. I've seen stores uses counterfeit detector pens quite a bit, and in a few cases run the bills through a machine (usually only larger bills). Banks routinely run cash you deposit through fancier machines and probably catch more. I don't do any of these when I get cash from a friend, and I wouldn't necessarily detect whatever it is those tests are doing.

The point is, you can lose money this way, so losing money due to receiving bad Bitcoin is nothing qualitatively new. I'm not saying it is a good thing though.

Good point, but I feel like "tainted" coins would be much more prevalent if blacklisting became a thing.

[smoothie]

If people start trying to blacklist coins I will do everything in my power to stop them and I suggest everyone else do the same because blacklisting would harm bitcoin beyond anything we've seen so far.

That would help your peers or people you are in communication with. But not everyone.

You can't stop black listing.

It's kind of in the gray area. I isn't in full force but it isn't something you can just squish (unless we are talking major bitcoin protocol code changes).

You can fight it by boycotting any service that uses or supports blacklisting coins. That much is within your power.

Yes, but in a limited space (ecosystem wise) currently, boycotting any business that is a major player in the space does limit your ability and others to transact with bitcoin.

You basically take those businesses off of your list to do deals with. Essentially limiting your options even more.

Hopefully this wont be a wide spread problem. As if it gains traction I can see boycotting being irrelevant especially if most large BTC businesses start implementing blacklists.

There are very few bitcoin services currently that do not have at least one alternative.

At some point though your idea does go nowhere as if you boycott all bitcoin companies then essentially you paint yourself into a corner.

Unlikely but possible.

I'm all for the free market. But we have governments that love to regulate.

[dnaleor]

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

I'm saying if Service A supports blacklisting, and Service B does not, and User recieves blacklisted coins from Service B, which does not blacklist, and tries to use them at Service A, they will not be able to.

I know what you mean. You think that people will avoid services that blacklist, but it's far more likely that people will voluntarily start using services that blacklist, because those coins can be spend everywhere, without risks of government seizure, failed payments, ending up in jail because guilt by association, etc

edit: and the bigger bitcoin becomes, the more services will start to comply to regulation or so self-censorship
Imagine that webshops want to start accepting BTC. Well, at the moment, those webshops are already regulated (in Belgium for example they need to have a physical address mentioned on the website). it is still a business. Most businesses want to comply. If a busines don't comply, it will eventually be shut down. So expect that 99% of the businesses will choose to use a regulated payment processor that blacklists/whitelists

[chennan]

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What happens if your friend Alice gives you counterfeit cash, you go to spend it in a store, and they confiscate it?

Counterfeit cash is more easily detectable, and if it's a good counterfeit it will probably fool other people too.

But I think what a good percentage of what people are trying to say in this thread, is that if businesses start incorporating a way to detect if a bitcoin is blacklisted; it would be just as easily detectable and therefore wouldn't make bitcoin fungible... Also you would end up losing a lot of money that way if you yourself didn't incorporate a way to be able to check if the bitcoin you are receiving for payment by someone else is tainted, since in the future it will be more protocol for every bitcoin business to start checking the blacklist to see if the bitcoin they received for a service has been tainted or not.

[jonald_fyookball]

Bitcoin must stay strongly (although not perfectly) fungible, otherwise people will lose confidence in a major way.
That's the bottom line.  I think we all agree on that.  I'm all for adding features to Bitcoin that will help that.
Perhaps if the LN is incorporated as a second layer, it will be able to add those features.

[dnaleor]

Bitcoin must stay strongly (although not perfectly) fungible, otherwise people will lose confidence in a major way.
That's the bottom line.  I think we all agree on that.  I'm all for adding features to Bitcoin that will help that.
Perhaps if the LN is incorporated as a second layer, it will be able to add those features.

LN network depends on node incentives, comparable with the masternode network in DASH.
What happens there? Because it costs money to run a node, and people get a reward for running a node, they want to have their node up 24/7
=> people run their node on a webserver like Amazon. Yes, NSA will track that.

I really can't see a way on how to make tokens fungible that are by default transparent.

[gentlemand]

Just as there are oddballs out there willing to do stress tests for no particular reason, there'll be armies of people looking to taint as many coins as possible with little drops of evil. I really can't see how they'll be able to prevent endless dilution.

[dnaleor]

Just as there are oddballs out there willing to do stress tests for no particular reason, there'll be armies of people looking to taint as many coins as possible with little drops of evil. I really can't see how they'll be able to prevent endless dilution.

when people are starting to have problems when paying because this tainted dust is included in their transactions, wallet software will make it an option to not include this taint dust. When the problem grows, it will probable be an option to include it (so ignoring the dust by default)

[smoothie]

Bitcoin must stay strongly (although not perfectly) fungible, otherwise people will lose confidence in a major way.
That's the bottom line.  I think we all agree on that.  I'm all for adding features to Bitcoin that will help that.
Perhaps if the LN is incorporated as a second layer, it will be able to add those features.

Does LN add untraceability and unlinkability?

Where is it at in development?

I keep hearing about it but only seen theoretical scenarios drawn up on how it would work.

If not, then I'm confused why you mentioned it.

[smoothie]

Just as there are oddballs out there willing to do stress tests for no particular reason, there'll be armies of people looking to taint as many coins as possible with little drops of evil. I really can't see how they'll be able to prevent endless dilution.

I think this was discussed.

It goes one level deep.

You can select the specific outputs you want to spend (assuming you have not sent your coins + tainted coins to another address).

[jonald_fyookball]

Bitcoin must stay strongly (although not perfectly) fungible, otherwise people will lose confidence in a major way.
That's the bottom line.  I think we all agree on that.  I'm all for adding features to Bitcoin that will help that.
Perhaps if the LN is incorporated as a second layer, it will be able to add those features.

Does LN add untraceability and unlinkability?

Where is it at in development?

I keep hearing about it but only seen theoretical scenarios drawn up on how it would work.

If not, then I'm confused why you mentioned it.

I've just very shallowly perused the whitepaper.  The microchannels it speaks about don't
seem to be well defined, but the basic idea seems to be some kind of heirarchical structure
of peer to peer communications.  I mention it because if blockchain structures and schemes
are going to be expanded, and fungbility/privacy/anonymity features are desired, then their
inclusion should be planned for.

[johnyj]

It seems that bitcoin will be regulated similar to cash at first. Then at a later stage, when the blockchain trace technology get more mature, there will be a public police database that is open to every one, certain coins might have a flag in this database, thus will not be accepted by any formal merchant application that is aware of this database. So every thief can not spend his coins and they all reduce the coin supply thus contribute to the rising value of bitcoin  

But since there is almost no way to prove that you lost your bitcoin, it is very difficult to flag certain coins at all. Take for example the Bitpay loss of 5000 coins, they have no way to prove that those 5000 coins are not under their control, thus it is almost impossible for insurance company and police to register those coins as tainted, otherwise everyone would just claim the coins in top 100 address are stolen and get all those coins flaged  

From this point of view, legally it is almost impossible to blacklist certain coins