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

[smoothie]

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

But since when do governments obey their own laws?

[cellard]

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.

Bitcoin would eventually end with barely any "clear coins". This tainting and blacklisting thing is as dumb as it gets. We need to make all Bitcoins the same, otherwise some Bitcoins may be more valued than others. We need more privacy as well.

[Slark]

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.

Bitcoin would eventually end with barely any "clear coins". This tainting and blacklisting thing is as dumb as it gets. We need to make all Bitcoins the same, otherwise some Bitcoins may be more valued than others. We need more privacy as well.

Hear this man for he knows the truth! Blacklisting and blocking funds are not the option to prevent crimes.
It is just the way for the government to grab more money in the name of fighting crime while in reality they are letting it to spread.

[bitcoinrocks]

For privacy, I use blockchain.info's SharedCoin (a type of mixer) to avoid linking my BTC spends/transfers to my main wallet.  Has there been any indication that using a service like that could prevent a company from being willing to transact with you?

Of course, if the answer is no, this brings to mind a question like: why wouldn't a person with BTC from an undesirable source just use a mixer?

Mixers are ultimately poor workarounds. You are trusting that the mixer service is not keeping logs. It's a centralized measure. It requires trust, it's not a real solution. Also it's annoying as hell that everytime you use Bitcoin you have to first send it to some mixing service to guarantee privacy. Something needs to be done about this so this privacy is by default in-built in every wallet without needing to trust some mixing company.

Agreed on all counts.  So it sounds like I'm not greylisting or blacklisting my white BTC by using blockchain.info's SharedCoin service.

[brg444]

---

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.

..... how did we even get into counterfeiting?
 
"Bad Bitcoin"? Wtf... I know you have some Monero to sell but this is beyond ridiculous

[brg444]

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.

Jesus the FUD is strong here.

[jonald_fyookball]

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.

Bitcoin would eventually end with barely any "clear coins". This tainting and blacklisting thing is as dumb as it gets. We need to make all Bitcoins the same, otherwise some Bitcoins may be more valued than others. We need more privacy as well.

Agree 100%.

You're saying the same thing I said in a different way...perhaps your wording is more clear.

Conceivably, the powers that be could rule that coins with X% of blacklist taint are not accepted, but
seems that either the % would be so small as to end up in the scenario you described or it would be
so big that it would be easily circumvented.

[smooth]

---

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.

..... how did we even get into counterfeiting?

Because the question was what happens when you receive Bitcoins from someone and when you try to spend them you find they are blacklisted and lose money. That's very much analogous to counterfeiting.

"Bad Bitcoin"? Wtf... I know you have some Monero to sell but this is beyond ridiculous

Yes because Monero supporters are the only ones to ever consider the issue of fungibility of Bitcoin. NOT!

BTW, I don't have an Monero to sell. None, zero, zip. I have some passive holdings but they are sized that I'm fully comfortable holding them forever. If it goes to zero, it goes to zero, no worries.

[brg444]

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.

How about merchants will stop using BitPay because fiat will be.. ya know... dead.

[brg444]

---

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.

..... how did we even get into counterfeiting?

Because the question was what happens when you receive Bitcoins from someone and when you try to spend them you find they are blacklisted and lose money. That's very much analogous to counterfeiting.

Right, this just might be the most stupid thing I've read all week.

If you enter a transaction that involves any type of blacklisting it is your own undoing and you deserve it.

Bitcoin exists precisely to enable monetary sovereignty & bypass any of these stupid fiat rules. Government doesn't have any right to know or be aware of the existence of any wallet in my possession therefore any coin I receive I'm free to spend at its current market value, no matter what its history is.

I mean who the hell are we kiding here!? We have the USG currently trying to get their hand on every chip of all DNM and either keep it for themselves or "sell it" to their friends possibly over market price.

You think they really give a damn where the coins are coming from?

If you wanna use Bitpay, Coinbase, Circle and all them USG exchanges then by all means no one is stopping you or your rapist's interests but Bitcoin don't play these batty-boys games.

But then don't you dare fancy you using Bitcoin.

Cause Bitcoin is a peer-to-peer market and what you're doing doesn't sound like bitcoinating to me.

[smooth]

Bitcoin exists precisely to enable monetary sovereignty & bypass any of these stupid fiat rules.

It remains to be seen whether that ever actually happens. The way Bitcoin is used today it is predominantly nonsense, given that most usage is exchanges which are all regulated by fiat rules (except, somewhat, BTC-E which also seems to have issues with fungibility anyway), Coinbase/Circle, and Bitpay. The rest is negligible.

I agree with you about the original stated goals, but it hasn't worked out that way at all after 6 years. I don't rule out that it may still evolve in that direction but it seems a bit of a long shot given the high degree of influence that the pro-regulation crowd has in the ecosystem. It also seems plausible that the next adoption surge, if it happens, will be Wall Street money which will also be very pro-regulation.

[dnaleor]

How about merchants will stop using BitPay because fiat will be.. ya know... dead.

I already answered that:

But then people might not like that and stop using payment processors and just deal directly in Bitcoin.
Once a critical mass is reached, people won't need to convert to fiat as much.

people will stop using payment processors when businesses stop using payment processors.
That will only happen when bitcoin is much much less volatile and much much more liquid.

In other words, that will only happen when the critical mass is reached.
Conclusion, fungibility will be an issue for BTC until critical mass is reached.

=> We need to ask our self the question if a token that isn't fungible has the ability to reach critical mass.

[smooth]

It seems that bitcoin will be regulated similar to cash at first. ... {more stuff}

This is already completely wrong right from the start of your post.

At first (i.e. right now), Bitcoin is being regulated such that participants see a need to trace the blockchain and identify suspicious coins (or suspicious uses of coins) and take what the deem to be appropriate action on the basis of that information. Businesses do not routinely trace cash, outside of some major criminal investigations as mentioned earlier on this thread.

That Bitcoin is not functioning in the real world the way your mental model suggests that it should ought to give you reason to reexamine your model.

[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

But since when do governments obey their own laws?

No, they don't obey another government's law, so it is likely coins blacklisted in one country will be totally fine in another country. Unless world's government all united (Is that possible?), the black list just makes the coin going for a round trip abroad

[brg444]

Bitcoin exists precisely to enable monetary sovereignty & bypass any of these stupid fiat rules.

It remains to be seen whether that ever actually happens. The way Bitcoin is used today it is predominantly nonsense, given that most usage is exchanges which are all regulated by fiat rules (except, somewhat, BTC-E which also seems to have issues with fungibility anyway), Coinbase/Circle, and Bitpay. The rest is negligible.

I agree with you about the original stated goals, but it hasn't worked out that way at all after 6 years. I don't rule out that it may still evolve in that direction but it seems a bit of a long shot given the high degree of influence that the pro-regulation crowd has in the ecosystem. It also seems plausible that the next adoption surge, if it happens, will be Wall Street money which will also be very pro-regulation.

It seems to me the predominant use of Bitcoin today is holding. Then I guess it's a toss up between general black market activities and speculative trading. If we're to believe Trace Mayer the notion that Bitcoin is already used worldwide to escape capital controls is understated. He himself suggests that a OTC trading desk in Switzerland trades more BTC on average than most major Bitcoin exchanges to help clients circumvent FATCA regulations.

All of this to illustrate that the amount of Bitcoin that moves through Coinbase/Circle/Bitpay/Bitstamp is, in fact, negligible if we are to account for the whole of Bitcoin's economy. At the very least we can be confident saying that what is publicized and readily available to the naked eye is not the "predominant" way Bitcoin is being used.

Therefore I'm very tentative in putting any value into the rest of your statement. Yes, I recognize that your average bitcointalk & reddit users might not be privy to actual legitimate use cases of Bitcoin at this stage of the game. That is where the figurative attempt to put round bitcoin pegs into fiat square holes creates such confusion and this illusion that Bitcoin's success is impeded by "blacklists" and "tainted coin". Of course this illusion did not spawn on its own and it is the careful fabrication of fiat institutions and banking parasites interested in either capturing Bitcoin and its users or straight out perpetuating FUD in an attempt to undermine the users faith.

[brg444]

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

But since when do governments obey their own laws?

No, they don't obey another government's law, so it is likely coins blacklisted in one country will be totally fine in another country. Unless world's government all united (Is that possible?), the black list just makes the coin going for a round trip abroad

Indeed.

If the United States government wants to implement these totalitarian laws then these bitcoins will flee elsewhere (sometimes with their users) and all of this will serve to ultimately ostracize their country from the thriving Bitcoin economy, at their risks & perils.

[smooth]

It seems to me the predominant use of Bitcoin today is holding.

That's probably true.

Then I guess it's a toss up between general black market activities and speculative trading.

That's probably incorrect. The last study I saw put Bitpay (maybe also including other smaller processors) and black market activities in rough parity, speculation being larger than both.

As for the rest of  your comments about secret trading desks and such, well maybe. It's unproven and largely unprovable so I guess I'll just wait and see how and if that develop into something significant enough to become obvious, because it currently isn't.

[brg444]

It seems to me the predominant use of Bitcoin today is holding.

That's probably true.

Then I guess it's a toss up between general black market activities and speculative trading.

That's probably incorrect. The last study I saw put Bitpay (maybe also including other smaller processors) and black market activities in rough parity, speculation being larger than both.

As for the rest of  your comments about secret trading desks and such, well maybe. It's unproven and largely unprovable so I guess I'll just wait and see how and if that develop into something significant enough to become obvious, because it currently isn't.

Maybe I wasn't clear enough but by black market activities I included capital control evasion and other similar use cases.

Obviously I cannot prove it but I am confident much more Bitcoin moves OTC than on exchanges. I would also venture to say that except those trading desks that are under legislation in the US it is likely the rest of them do have any interest in "blacklists".

[smooth]

Obviously I cannot prove it but I am confident much more Bitcoin moves OTC than on exchanges.

I''m not. If it were it would show up in blockchain analysis, at least under the category of "unknown". It doesn't. Most activity is fairly easy to categorize (speculation, mining, legal and illegal payments). Certainly there is some that isn't but not some massive hidden economy that is larger than all the known exchanges. It just isn't so.

[brg444]

Obviously I cannot prove it but I am confident much more Bitcoin moves OTC than on exchanges.

I''m not. If it were it would show up in blockchain analysis, at least under the category of "unknown". It doesn't. Most activity is fairly easy to categorize (speculation, mining, legal and illegal payments). Certainly there is some that isn't but not some massive hidden economy that is larger than all the known exchanges. It just isn't so

Where can one find such analysis?

How do you differentiate legal & illegal payments from OTC trading activities?