This Might Sounds Strange: Bitcoin Violates the Principle of Money Fungibility

[Wapinter]

Here is a transaction:

https://blockchain.info/tx/a7f71be180e6180c48c1631009999a79a117947f00912beb466c594bd7eba3ad

Unless you can demonstrate to me exactly which satoshis from outputs A,B,C went into input D,E then our discussion here is done.

That is what fungibility means.

Yes I know you can identify and track the outputs history yet it is certain you cannot differentiate the units in each of them.

This is what fungibility is.

Fungibility is related to value not identity.For example if someone lend me 1 btc now I can return him 1 btc or 0.1 btc 10 times or in whatever small units I want thus bitcoin is fungible

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[smoothie]

https://www.youtube.com/watch?v=ak1iojpiHpM&feature=youtu.be&t=33m6s

Andreas A. seems to believe that bitcoin can work on its "fungibility".  

Andreas: "We need to address the issue of fungibility..."

      ...     "the metric of economic inclusion is very much affected by the fungibility and black lists ..."

Also...

Dr. Adam Back says in regards to Bitcoin (in Feb 2014) - https://www.youtube.com/watch?v=3dAdI3Gzodo&feature=youtu.be&t=28m31s

"Weak fungibility: Feature & bug"


"Fungibility provides privacy as a side effect"


"Bitcoin privacy is fragile (Shamir & Dorit network analysis)"


By Dr. Adam Back's definition of fungibility PLUS(+) his statement of "Bitcoin privacy is fragile" you therefore can deduce Dr. Adam Back also believes that Bitcoin's fungibility is also fragile.

[brg444]

Spare us your appeal to authority please  

It just demonstrates that these guys, as smart as they are (have my doubts about Andreas), are also guilty of using wrong terminologies.

[smoothie]

Spare us your appeal to authority please  

It just demonstrates that these guys, as smart as they are (have my doubts about Andreas), are also guilty of using wrong terminologies.

Spare me your assumptions of my "appeal to authority".

Speak for yourself. There is no "us" in "you".

You don't have to like what Dr. Adam Back and Andreas A. have said on record. But it is what they said.

And no they are not my leader nor are they my authority, if you were presuming that.

I guess to you what they say does not matter. That's fine.

No one is making you listen to me nor them. Just put me on ignore if you cant handle it.  

[jonald_fyookball]

Already, businesses are springing up that are selling bitcoin with no previous transaction fee at a premium. This violates the principle of money fungibility.
 

What businesses?  Quite doubtful many people would pay for "clean" Bitcoins.

[smoothie]

Already, businesses are springing up that are selling bitcoin with no previous transaction fee at a premium. This violates the principle of money fungibility.
 

What businesses?  Quite doubtful many people would pay a premium (?) for "clean" Bitcoins.

I'm sure they would pay for "clean" coins... but would some people a premium for coins just minted with only the coinbase transaction history from the miner?

I could see that if someone has a fear of receiving coins associated with a crime.

[brg444]

To give a more lay explanation of why /u/brg444 is right about the difference between fungibility and privacy, consider a transaction where you consolidate one tainted satoshi into an address along with 10 untainted Bitcoin. Once those inputs are combined in a single address, there is no way to distinguish the tainted satoshi from the others. If you spent each of those millions of satoshis to different addresses, there would be no way to determine which address had the tainted satoshi.
The only way you could enforce any kind of tainting logic would be to taint the address, not the satoshi. That would effectively mean that you 'tainted' 10 Bitcoin in order to track the single satoshi. If you did do that, it's likely that tainted coins would rapidly outnumber untainted coins because any tainted coins effectively infect all the clean coins they interact with. Untainted coins might command a premium, but they would almost certainly become impractically rare to treat as the only valid currency.

https://www.reddit.com/r/Bitcoin/comments/3psbz7/re_blockchain_alliance_please_explain_how_is_an/cw9n8qs

[smoothie]

You can't have privacy in a currency without fungibility.

LINK: http://diyhpl.us/wiki/transcripts/scalingbitcoin/privacy-and-fungibility/

"Privacy is the weakest link in censorship resistance. Fungibility is an absolute necessity for any medium of exchange. The properties of money include fungibility. Without privacy you may not be able to have fungibility."

[brg444]

You can't have privacy in a currency without fungibility.

LINK: http://diyhpl.us/wiki/transcripts/scalingbitcoin/privacy-and-fungibility/

"Privacy is the weakest link in censorship resistance. Fungibility is an absolute necessity for any medium of exchange. The properties of money include fungibility. Without privacy you may not be able to have fungibility."

Thanks for the link, I actually sat at that roundtable.

Anyway as to your confusion read above.

[iCEBREAKER]

Here is a transaction:

https://blockchain.info/tx/a7f71be180e6180c48c1631009999a79a117947f00912beb466c594bd7eba3ad

Unless you can demonstrate to me exactly which satoshis from outputs A,B,C went into input D,E then our discussion here is done.

That is what fungibility means.

Yes I know you can identify and track the outputs history yet it is certain you cannot differentiate the units in each of them.

This is what fungibility is.

Taint measurement is about shades of probability and degrees of separation, not "exactly which" outputs went into inputs.

Fungibility means different things to different people.  The common definition the the one that (as Dr Backamoto quipped) provides privacy as a side effect.

In the aggregate (so as to ignore individual nodes' idiosyncratic black/white lists) at the neutral protocol level, all satoshis are fungible.

At the socioeconomic level, you may identify and track the outputs history THUS it is certain you CAN differentiate the units.

As fresh clean coins sell for a premium and an entire new anti-privacy industry grows around the task of differentiating the units, sweeping claims of blanket 'Fungible...Because Sovereign' will get the Willy Wonka 'tell me more' eye-rolling treatment.

And I say that as someone who *almost* entirely agrees with the #b-a 'there are no tainted BTC, only tainted institutions' POV.

[smoothie]

I'm reposting this here as I believe it is relevant:


I love bitcoin and what it was created to be. But in light of the ability for regulatory authorities to ban or blacklist specific coins that have a certain address history association personally I see bitcoin as losing its fungibility in that respect.

Sure "Bitcoin is not the problem" is one way of looking at it, but other side of the argument is that "why not just fix that issue by disallowing transactions to be tracked by default and just have privacy features on by default?"

We know the answer: Too much opposition to changing the core protocol allow that to happen.

So the argument has those two sides...

SIDE A: Bitcoin is broken via fungibility because one can discriminate some coins to be accepted vs others based on block chain analysis.

SIDE B: Bitcoin is not broken and the financial system and businesses who choose to discriminate certain coins from being spent/exchanged in 3rd party businesses are broken (and the problem).

Two sides and probably both right in their own respect.

Although the arguments and sides exist it doesn't change the fact that businesses/govt/individuals can discriminate from accepting certain coins based on block chain analysis of their respective histories.

We have to remember that bitcoin does exist in this current world no matter how much we disagree with TPTB or the broken legacy monetary system. As long as that type of system exists there will be some issues concerning discriminating against accepting certain coins from certain addresses.

THOUGHT SCENARIO EXERCISE DEALING WITH COIN DISCRIMINATION
This thought experiment is to merely be just that an experiment and is not intended to give people ideas on what to do or not do in certain scenarios

You are an average joe looking to trade cash for bitcoins or some object like (gold coin) for bitcoins. Assuming you know each of the possible scenarios are true below.

BOB has bitcoins he wants to trade/exchange with you.

Which scenarios below would you consider not trading with BOB and discriminating against accepting his BTC for payment or trade?

Which scenarios would you trade with BOB and not discriminate against doing a trade?

BOB wants to trade you his BTC is the same person who just:

A. Robbed an old lady of her BTC by ransacking her house then beating the crap out of her.

B. Sold Kiddie porn for BTC

C. Ordered and executed a terrorist attack on a city killing a few hundred people and was paid in BTC to do so

D. Evading taxes with BTC

E. Was paid in BTC for prositution

F. Sold illegal drugs for BTC


Now if you really think about it, people can and will discriminate if they know or suspect something has happened with those BTC.

Would you accept BTC for trade or payment knowing that one of those things happened?

Which ones would you discriminated against more than others?

This brings in different shades of discrimination. As not every person would necessarily pick all of them to discriminate against. Some might even pick all of them to discriminated against. Some possibly would not care.

[VirosaGITS]

I'm reposting this here as I believe it is relevant:


I love bitcoin and what it was created to be. But in light of the ability for regulatory authorities to ban or blacklist specific coins that have a certain address history association personally I see bitcoin as losing its fungibility in that respect.

Sure "Bitcoin is not the problem" is one way of looking at it, but other side of the argument is that "why not just fix that issue by disallowing transactions to be tracked by default and just have privacy features on by default?"

We know the answer: Too much opposition to changing the core protocol allow that to happen.

So the argument has those two sides...

SIDE A: Bitcoin is broken via fungibility because one can discriminate some coins to be accepted vs others based on block chain analysis.

SIDE B: Bitcoin is not broken and the financial system and businesses who choose to discriminate certain coins from being spent/exchanged in 3rd party businesses are broken (and the problem).

Two sides and probably both right in their own respect.

Although the arguments and sides exist it doesn't change the fact that businesses/govt/individuals can discriminate from accepting certain coins based on block chain analysis of their respective histories.

We have to remember that bitcoin does exist in this current world no matter how much we disagree with TPTB or the broken legacy monetary system. As long as that type of system exists there will be some issues concerning discriminating against accepting certain coins from certain addresses.

THOUGHT SCENARIO EXERCISE DEALING WITH COIN DISCRIMINATION
This thought experiment is to merely be just that an experiment and is not intended to give people ideas on what to do or not do in certain scenarios

You are an average joe looking to trade cash for bitcoins or some object like (gold coin) for bitcoins. Assuming you know each of the possible scenarios are true below.

BOB has bitcoins he wants to trade/exchange with you.

Which scenarios below would you consider not trading with BOB and discriminating against accepting his BTC for payment or trade?

Which scenarios would you trade with BOB and not discriminate against doing a trade?

BOB wants to trade you his BTC is the same person who just:

A. Robbed an old lady of her BTC by ransacking her house then beating the crap out of her.

B. Sold Kiddie porn for BTC

C. Ordered and executed a terrorist attack on a city killing a few hundred people and was paid in BTC to do so

D. Evading taxes with BTC

E. Was paid in BTC for prositution

F. Sold illegal drugs for BTC


Now if you really think about it, people can and will discriminate if they know or suspect something has happened with those BTC.

Would you accept BTC for trade or payment knowing that one of those things happened?

Which ones would you discriminated against more than others?

This brings in different shades of discrimination. As not every person would necessarily pick all of them to discriminate against. Some might even pick all of them to discriminated against. Some possibly would not care.

Then the problem would not be "That money is bad" but it would be you not wanting you to deal with criminals, which is up to the law enforcement to catch. Or the individual to care.

Do you see anyone having problem buying or accepting the Bitcoins sold by the FBI? No. Do you see exchanges using some sort of blacklist database considering BTC as bad? No.

Do you see some sort of centralized authority that track and detect all BTC used in criminal activity? No. And wait, its not even possible to detect/enforce, since bitcoin does not have a centralized authority.

So unless you have actionable example of your super project that isint even possible in the first place (Its effectively impossible to detect which BTC has been used for anything you mentioned or not, its impossible to enforce, etc) then we can safely say that we're at no risk.

There just is no way for a company to dedicate billions of USD trying to track and tag every single transaction ongoing when there's not even a way to consistently connect the BTC to a crime or even an identity.

TLDR; Its fungibility, even though its not even relevant with BTC, is assured because there is not way to say whether the BTC was obtained legally or illegally. Especially when you take into account how easily it is to mix BTC.

[BoscoMurray]

Do you see anyone having problem buying or accepting the Bitcoins sold by the FBI? No. Do you see exchanges using some sort of blacklist database considering BTC as bad? No.

Do you see some sort of centralized authority that track and detect all BTC used in criminal activity? No. And wait, its not even possible to detect/enforce, since bitcoin does not have a centralized authority.

So unless you have actionable example of your super project that isint even possible in the first place (Its effectively impossible to detect which BTC has been used for anything you mentioned or not, its impossible to enforce, etc) then we can safely say that we're at no risk.

There just is no way for a company to dedicate billions of USD trying to track and tag every single transaction ongoing when there's not even a way to consistently connect the BTC to a crime or even an identity.

TLDR; Its fungibility, even though its not even relevant with BTC, is assured because there is not way to say whether the BTC was obtained legally or illegally. Especially when you take into account how easily it is to mix BTC.

Bitcoins sold by the US gov would drop off any such blacklist and be considered clean again.

http://www.blacklistedbitcoins.com/
Fair enough, individual bitcoins or satoshis cannot be blacklisted, but addresses can. I also doubt the cost of creating such blacklisting services would be anywhere near millions of dollars, never mind billions. So it's not true fungibility problems, but it creates perceived fungibility problems.

I think the only solution to this issue is private, untraceable transactions by default. Transparent transactions should be optional somehow, maybe on a side chain.

[smoothie]

I'm reposting this here as I believe it is relevant:


I love bitcoin and what it was created to be. But in light of the ability for regulatory authorities to ban or blacklist specific coins that have a certain address history association personally I see bitcoin as losing its fungibility in that respect.

Sure "Bitcoin is not the problem" is one way of looking at it, but other side of the argument is that "why not just fix that issue by disallowing transactions to be tracked by default and just have privacy features on by default?"

We know the answer: Too much opposition to changing the core protocol allow that to happen.

So the argument has those two sides...

SIDE A: Bitcoin is broken via fungibility because one can discriminate some coins to be accepted vs others based on block chain analysis.

SIDE B: Bitcoin is not broken and the financial system and businesses who choose to discriminate certain coins from being spent/exchanged in 3rd party businesses are broken (and the problem).

Two sides and probably both right in their own respect.

Although the arguments and sides exist it doesn't change the fact that businesses/govt/individuals can discriminate from accepting certain coins based on block chain analysis of their respective histories.

We have to remember that bitcoin does exist in this current world no matter how much we disagree with TPTB or the broken legacy monetary system. As long as that type of system exists there will be some issues concerning discriminating against accepting certain coins from certain addresses.

THOUGHT SCENARIO EXERCISE DEALING WITH COIN DISCRIMINATION
This thought experiment is to merely be just that an experiment and is not intended to give people ideas on what to do or not do in certain scenarios

You are an average joe looking to trade cash for bitcoins or some object like (gold coin) for bitcoins. Assuming you know each of the possible scenarios are true below.

BOB has bitcoins he wants to trade/exchange with you.

Which scenarios below would you consider not trading with BOB and discriminating against accepting his BTC for payment or trade?

Which scenarios would you trade with BOB and not discriminate against doing a trade?

BOB wants to trade you his BTC is the same person who just:

A. Robbed an old lady of her BTC by ransacking her house then beating the crap out of her.

B. Sold Kiddie porn for BTC

C. Ordered and executed a terrorist attack on a city killing a few hundred people and was paid in BTC to do so

D. Evading taxes with BTC

E. Was paid in BTC for prositution

F. Sold illegal drugs for BTC


Now if you really think about it, people can and will discriminate if they know or suspect something has happened with those BTC.

Would you accept BTC for trade or payment knowing that one of those things happened?

Which ones would you discriminated against more than others?

This brings in different shades of discrimination. As not every person would necessarily pick all of them to discriminate against. Some might even pick all of them to discriminated against. Some possibly would not care.

BTW I noticed you did not even address my thought example above.



How would you determine who you would trade with if you knew those things were true? Which scenarios would you trade with that person if you know that the scenario is true and BOB is guilty of doing that?

Then the problem would not be "That money is bad" but it would be you not wanting you to deal with criminals, which is up to the law enforcement to catch. Or the individual to care.

Do you see anyone having problem buying or accepting the Bitcoins sold by the FBI? No.

You forget that TPTB (the authority) can pretty much do what they want. When they possess the coins from criminals it is all of a sudden made "clean".

Do you see exchanges using some sort of blacklist database considering BTC as bad? No.

YES. BTC-e and the evolution stolen coins.

MTGOX did this with bitcoinica stolen coins.

Bitpay is doing this on their own recently announced black list as I linked to in this thread once already.

Do you see some sort of centralized authority that track and detect all BTC used in criminal activity? No. And wait, its not even possible to detect/enforce, since bitcoin does not have a centralized authority.

So unless you have actionable example of your super project that isint even possible in the first place (Its effectively impossible to detect which BTC has been used for anything you mentioned or not, its impossible to enforce, etc) then we can safely say that we're at no risk.

There just is no way for a company to dedicate billions of USD trying to track and tag every single transaction ongoing when there's not even a way to consistently connect the BTC to a crime or even an identity.

TLDR; Its fungibility, even though its not even relevant with BTC, is assured because there is not way to say whether the BTC was obtained legally or illegally. Especially when you take into account how easily it is to mix BTC.

Just because you can't see something, doesn't mean it isn't there.

I'm pretty sure it won't cost billions to track and tag transactions that they want to.

How is there no way to consistently connect BTC to a crime when many people who operated on silk road got caught and thrown in jail? <---- this topic is irrelevant as we are not really talking about people getting caught in their crime but coins associated with a crime not being accepted for payment/trade.

Do you think Ross Ulbright could have benefitted from default privacy options in bitcoin?

Mixing BTC doesn't remove the transactional history. Thus coins can be traced back to their source on the block chain.

[VirosaGITS]

Do you see anyone having problem buying or accepting the Bitcoins sold by the FBI? No. Do you see exchanges using some sort of blacklist database considering BTC as bad? No.

Do you see some sort of centralized authority that track and detect all BTC used in criminal activity? No. And wait, its not even possible to detect/enforce, since bitcoin does not have a centralized authority.

So unless you have actionable example of your super project that isint even possible in the first place (Its effectively impossible to detect which BTC has been used for anything you mentioned or not, its impossible to enforce, etc) then we can safely say that we're at no risk.

There just is no way for a company to dedicate billions of USD trying to track and tag every single transaction ongoing when there's not even a way to consistently connect the BTC to a crime or even an identity.

TLDR; Its fungibility, even though its not even relevant with BTC, is assured because there is not way to say whether the BTC was obtained legally or illegally. Especially when you take into account how easily it is to mix BTC.

Bitcoins sold by the US gov would drop off any such blacklist and be considered clean again.

http://www.blacklistedbitcoins.com/
Fair enough, individual bitcoins or satoshis cannot be blacklisted, but addresses can. I also doubt the cost of creating such blacklisting services would be anywhere near millions of dollars, never mind billions. So it's not true fungibility problems, but it creates perceived fungibility problems.

I think the only solution to this issue is private, untraceable transactions by default. Transparent transactions should be optional somehow, maybe on a side chain.

The problem is that, if the coins are *actually* dirty, they will certainly be moved and sent through loop. Split and spent, mixed. Its not just blacklisting an address, its keeping tracks of where they were, are and going.

Let say i have 10k of BTC that was at one point dirty, there is no way to know if i'm the second holder, third, fourth, etc.

I send them to an exchange and we already know there is no problem doing this. At which point, did i just make all the exchange's coin dirty? No.

Because there is no way to know who sent in and who receive out, you would have to black list all the coins which is not going to happen, at which point you're forced to accept all the coins.

So yes you would need some super spy agency like NSA that ignore country boundaries and forcefully keep tract exactly how BTC transaction are internally (in the exchange) handle to "keep" track.

Its not something you can do by looking at the blockchain.

[cjmoles]

I don't know....I may be out of line, but it seems like the question of fungibility with bitcoin could provide some possible solutions to some of its problems.  How many people have been scammed and had no recourse for which to get retribution?  Would a scammer be less likely to scam if he knew his scammed coin would be blacklisted?  Very interesting conversation, indeed.

[VirosaGITS]

I don't know....I may be out of line, but it seems like the question of fungibility with bitcoin could provide some possible solutions to some of its problems.  How many people have been scammed and had no recourse for which to get retribution?  Would a scammer be less likely to scam if he knew his scammed coin would be blacklisted?  Very interesting conversation, indeed.

There is no central authority, so the only way to make this happen is if its accepted by consensus. Seeing how hard it is to get consensus even on important things, and how abusable a blacklist being enforced could be in the wrong hand...

It simply will not happen.

[cjmoles]

I don't know....I may be out of line, but it seems like the question of fungibility with bitcoin could provide some possible solutions to some of its problems.  How many people have been scammed and had no recourse for which to get retribution?  Would a scammer be less likely to scam if he knew his scammed coin would be blacklisted?  Very interesting conversation, indeed.

There is no central authority, so the only way to make this happen is if its accepted by consensus. Seeing how hard it is to get consensus even on important things, and how abusable a blacklist being enforced could be in the wrong hand...

It simply will not happen.

True...it would be nice if we could figure out a way to regulate ourselves as a community.  Wishful thinking probably...but it's worth some thought.

[RodeoX]

If anybody here feels their coins are tainted, then by all means sell them to me cheap. The next day they will be all mixed up shiny and new. You can then buy them back from me at full value. Your conscience and money will be as pure as math itself.
    

[RyanX]

A coin is just coin, it will retain its value even if it was used in doggy business before. Most US dollar bills have been used illegally. Most of them have the taint of cocaine.