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

[brg444]

Two satoshis are exactly alike much like two atoms of gold are indistinguishable and can be perfectly substituted.

This again is incorrect.

We discussed a few posts back that two satoshis coming out of the same transaction (even if different outputs) are indistinguishable (though only if no social convention develops which would distinguish between outputs of the same transaction, as I explained).

But two satoshis from two different transactions are absolutely distinguishable. The have different histories and therefore can be trivially distinguished. It therefore becomes non-fungible (i.e. non-interchangable) if people choose to attach some significance to that difference. The technology or physical properties do not determine fungibility here, people do.

I believe that is where we differ. From where I stand fungibility is an inherent property of the monetary system. Subjective valuation and user preference due to a privacy/traceability issue is entirely dependent on "people".

The units themselves are never discriminated against, only their history can be. For example, I could argue that the "taint" is interchangeable given the fungibility of each units ie. I can trivially replace any spent satoshi from a "tainted" output by another one with no distinction made between the two.

This is what fungibility is. We may need to agree to disagree but I insist that any issue you bring up is one of privacy and traceability, not fungibility which is inherent to Bitcoin.

I can taint gold and make it somewhat traceable using radioactivity. That doesn't make gold non-fungible but only traceable to a certain extent.

It certainly would be non-fungible if some important property were recognized to apply to the radioactive gold (for example if it were stolen). People would routinely check gold with a geiger counter before accepting it and you would not be able to substitute your radioactive gold for non-radioactive gold.

Do you understand then how subjective your definition of fungibility is? From your POV any medium of exchange that is suspect to traceability by any means is non fungible.

TLDR; When people speak of Bitcoin's fungibility "issue" they really are referring to a privacy/traceability one. 

You would have essentially zero privacy and anonymity but the coins themselves would still be inherently fungible.

I guess except if some sort of social convention discriminates against this particular medium of exchange... right?

[Mickeyb]

This tweet by Davout sums up the situation perfectly

The most important thing is that there is no blacklisting in the core of the Bitcoin never introduced. What will third party services do and decide to do is their own thing and we can hardly influence their decisions.

About Bitpay blacklisting coins, what else can we add about the morons that just got hacked $2 million of their money via a simple email. No comment really!

[smooth]

Do you understand then how subjective your definition of fungibility is?

Hey I'm just using the dictionary man

From your POV any medium of exchange that is suspect to traceability by any means is non fungible.

That is not what I said.

What I said is the intrinsic properties make something inherently fungible only when there is no useful traceability (or other physical distinguishability). Otherwise if individual units can be distinguished and then it is up to people, not technology or science, to decide whether it is fungible in practice or not. The obvious example here is paper money. Not only is it fungible by law (we'll ignore that here) but it is fungible only because people don't for the most part ever pay any attention to the serial numbers. If people started doing so, fungibility could only be restored by creating money (such as metal coins) without serial numbers.

Obviously intrinsic indistinguishability properties provide stronger fungibility than people do, and because the Bitcoin ledger doesn't have those properties, this thread exists.

About Bitpay blacklisting coins, what else can we add about the morons that just got hacked $2 million of their money via a simple email. No comment really!

Agree with you there but it isn't just them doing it.

[brg444]

Privacy and fungiblity are different concepts, but perhaps there is some overlap?  The fact people often conflate them would indicate this.

I don't disagree there.

When individual or groups of satoshis may be (on the basis of unique traits or general taint) identified and discriminated for/against, how is Bitoin "absolutely fungible?"

Anything can be discriminated against. Does that make everything non-fungible? If I refuse to be paid in gold does that make gold non-fungible? Strangely enough the Thai Baht is not accepted at my cornerstore. Is it non-fungible?

If Bitcoin is "absolutely fungible" then how did BTCE [do whatever they did] with the Evolution coins?

I see your point about gold (in spite of the tenuous radioactivity example).  (Non-radioactive) gold is fungible, even if a particular institution acts in a particular way towards some particular customer's particular gold.

But wouldn't the gold be be even more (ie exhaustively) fungible if it could somehow negate the ability of any and all institutions to discern its provenance, thereby destroying the possibility of non-interchangeability in all particular instances?

Not if I follow your logic (and smooth's) which states that anything which can be discriminated against in a transaction is to be considered non-fungible. I know it was a reach for me to lead you there with the "radioactivity" example but that was simply to illustrate the current popular interpretation of fungibility is kind of a slippery slope  

BTW, if it was illegal for merchants to accept XMR, we'd just use shapeshift or https://xmr.to/ and be on our fungibility-not-affected way!   

That's unfair   I can obfuscate my Bitcoin transactions also and be on my fungility-not-affected way either

[brg444]

Do you understand then how subjective your definition of fungibility is?

Hey I'm just using the dictionary man

From your POV any medium of exchange that is suspect to traceability by any means is non fungible.

That is not what I said.

What I said is the intrinsic properties make something inherently fungible only when there is no useful traceability (or other physical distinguishability). Otherwise if individual units can be distinguished and then it is up to people, not technology or science, to decide whether it is fungible in practice or not. The obvious example here is paper money. Not only is it fungible by law (we'll ignore that here) but it is fungible only because people don't for the most part ever pay any attention to the serial numbers. If people started doing so, fungibility could only be restored by creating money (such as metal coins) without serial numbers.

Obviously intrinsic indistinguishability properties provide stronger fungibility than people do, and because the Bitcoin ledger doesn't have those properties, this thread exists.

About Bitpay blacklisting coins, what else can we add about the morons that just got hacked $2 million of their money via a simple email. No comment really!

Agree with you there but it isn't just them doing it.

Okay, let me try this way:

Monero is perfectly distinguishable from any other forms of money therefore if some social convention somewhere prescribes they will not accept it then it is non-fungible.

Careful, you're slippin 

[smooth]

Okay, let me try this way:

Monero is perfectly distinguishable from any other forms of money therefore if some social convention somewhere prescribes they will not accept it then it is non-fungible.

"Fungibility refers only to the equivalence of each unit of a commodity with other units of the same commodity. Fungibility does not relate to the exchange of one commodity for another different commodity" https://en.wikipedia.org/wiki/Fungibility

Also, from the same source:

"A good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place."

Notice the wiggle word in there. Fungibility is subjective.

[brg444]

Okay, let me try this way:

Monero is perfectly distinguishable from any other forms of money therefore if some social convention somewhere prescribes they will not accept it then it is non-fungible.

"Fungibility refers only to the equivalence of each unit of a commodity with other units of the same commodity. Fungibility does not relate to the exchange of one commodity for another different commodity" https://en.wikipedia.org/wiki/Fungibility

Also, from the same source:

"A good is fungible if one unit of the good is substantially equivalent to another unit of the same good of the same quality at the same time and place."

Notice the wiggle word in there. Fungibility is subjective.

Maybe this bit is also relevant to our discussion, waddayathink?

Fungibility does not imply liquidity, and vice versa. Diamonds can be readily bought and sold (the trade is liquid) but individual diamonds, being unique, are not interchangeable (diamonds are not fungible). Indian rupee bank notes are mutually interchangeable in London (they are fungible there because law) but they are not easily traded there (they cannot be spent in London).

"Bitcoins are mutually interchangeable in Fiatlandia (they are fungible there) but they are not easily traded there (they cannot be spent in Fiatlandia because law)."

I think a quick look at what is actually non-fungible shows how mindless our debate is...

[brg444]

Here's another take on this from Mr. Popescu:

mircea_popescu:this actually works as an argument. bitcoin needs no assaying, which makes it more fungible than something that does.

[smooth]

Here's another take on this from Mr. Popescu:

mircea_popescu:this actually works as an argument. bitcoin needs no assaying, which makes it more fungible than something that does.

Wishfully, it is true.

In actual fact people are building businesses (with I'm guessing millions of dollars of funding) to provide the assaying service i.e. blockchain analysis.

[brg444]

Here's another take on this from Mr. Popescu:

mircea_popescu:this actually works as an argument. bitcoin needs no assaying, which makes it more fungible than something that does.

Wishfully, it is true.

In actual fact people are building businesses (with I'm guessing millions of dollars of funding) to provide the assaying service i.e. blockchain analysis.

That is entirely another problem: http://trilema.com/2012/the-problem-of-too-much-money/

[Mobius]

This is a serious issue that I'm concerned with as well. I think this will give the authorities a good reason to dismiss BTC.

[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.

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.

I agree that having coins be perceived by others (businesses etc.) sucks. But it is what it is.

If you want more privacy added to bitcoin core...write your local core dev representative and ask them to do just that.

[smoothie]

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.

Agreed fiat is destined to be dead. But if they just come up with a new fiat currency ...?....the other shoe has not dropped so the whole fiat is dead scenario is ...possibly a ways away...( within next 1-3 years)

[smoothie]

---

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.

Try telling THAT to every new bitcoin newbie and see how many of them run away.

There will always be people who don't know any better and it happens to them. Bad things happen to good people all the time.

You can't stop all of it. But to say "you deserve it" is a bit hard especially if they are just trying to buy something with bitcoin or convert out to buy something with fiat.

[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.

Try telling THAT to every new bitcoin newbie and see how many of them run away.

There will always be people who don't know any better and it happens to them. Bad things happen to good people all the time.

You can't stop all of it. But to say "you deserve it" is a bit hard especially if they are just trying to buy something with bitcoin or convert out to buy something with fiat.

If someone is not able to make proper use of Bitcoin then he shouldn't bother. I really don't care if this scares away a few newbies. Bitcoin is really not something you should sell to newbies anyway. It's really not a consumer-ready tool, at least not as it currently exists.

If you are trying to buy something with bitcoin from a fiat accepting merchant: your problem, not Bitcoin's.

If you depend entirely on exchanges to cash out to fiat: your problem, not Bitcoin's.

[smoothie]

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.

I think fiat is an exception as it is the currency of the status quo.

Do we really think governments want people to question the fungibility of their fiat paper currencies?

I don't think so. That's probably why Bitcoin has not been able to stay under the radar as like the USD has in terms of people tracking it etc.

Authorities track it from time to time but I do not believe they do as much as they will do it (% wise to the total supply) with bitcoin.

[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?

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

I agree there is a slight possibility will occur where black lists in one country are different than another. I expect a pretty decent spectrum of blacklists.

There are so many variables that I would be surprised if the US tries to impose its will on other countries in terms of what they think is an appropriate "BLACK LIST".

[maku]

This is a serious issue that I'm concerned with as well. I think this will give the authorities a good reason to dismiss BTC.

Authorities are already untrustworthy enough. Government is starting to act more like Big Brother than good Uncle Sam, this is the freedom we asked for? The only reason authorities would have to banish bitcoin is to control people even more. Argument that this will help fight terrorists is laughable.

[smoothie]

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 was 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.

Link where trace made that claim?

[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 was 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.

Link where trace made that claim?

https://www.youtube.com/watch?v=uHXfEJD6DUk