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

[brg444]

These recurring fungibility threads have FUD written all over them.

It is not a problem and will never be if you use Bitcoin as intended.

Why design it to rely on something when it can be built into the core protocol, eliminating "improper use"?

You don't have to rely on anything to use Bitcoin and not be involved with any of this "fungibility" FUD.

Quite the opposite: as long as you deal with your Bitcoin business in a purely peer-to-peer way, as Satoshi intended, this is not a problem.

A fully private chain involves trade-offs, it is not so simple as "stick ring signatures into Bitcoin and we're done here".

That's why sidechains are the most natural evolution if you desire to transact anonymously.

You seem to dismiss the privacy/fungibility problem, and at the same time suggest a solution. If privacy/fungibility were not a problem, you wouldn't need a side chain to fix it.

Perhaps a side chain will give the privacy/fungibility desired. But then only coins which spend their entire life on that chain will remain private and fungible. Will people also need to check so they can be sure they are using a privacy side chain? There's that reliance again...  What if the side chain decides to remove its privacy features at some stage? Find a new one?

Fungibility issues are not FUD, they are fact. The evidence shows this - so the only example I know if is Coinbase, but that's just the beginning. Say at some stage government regulations stipulate tainted coins will not be accepted in certain institutions/retailers/wherever. Are your Bitcoins still fungible then?

There is also the fact that leaving Bitcoin unchanged is enabling one of the greatest surveillance tools of all time. It may not be as simple as sticking ring-signatures in there to fix it, however I think we should do something instead of ignoring a glaring problem.

Hold on here. I'm not dismissing the privacy issues. While the two may seem related they are not the same and my position is that fungibility is not a problem.

Do we need a sidechain to eventually accommodate private transactions? You bet. Does Bitcoin's transparent ledger creates a fungibility issue, absolutely not.

(By the way you seem a bit confused as to what sidechains are. May I advise you read up a bit on them before we move forward with this particular aspect of our discussion )

Now as for your "facts", let us address them. Somehow you propose that because a fiat regulated third-party discriminated certain coins based on their history that it reflects on Bitcoin's fungibility. Should we be any surprised that a US bank attempts to undermine the viability & trust of a currency they do not control?

If you are intent on going through Coinbase to process your Bitcoin transactions then you are completely missing the point and might as well use your VISA credit card.

Bitcoin enables unprecedented proliferation of the black market/informal economy. There are no government regulations or "blacklists" that will resist this change of paradigm. Discrimination of economic participants based on the origins of their money is a one way street to destruction of your market reputation.

Again:

Bitcoin exists so that you can work outside of this system. I understand it takes a bit of foresight to imagine a world where KYC/AML are not a thing anymore but understand that it is coming and it will be all because of Bitcoin.

[AgentofCoin]

The thing is... the fungibility of Bitcoin is hardly a thing you can criticize. Privacy issues? Sure, go right ahead but a careful analysis of the fungibility FUD shows that the arguments simply do not hold up. That is because most of them are looking at Bitcoin from behind fiat lenses which is the definition of trying to fit a square peg into a round hole.  

Which argument doesn't hold up? The fact that the units aren't interchangeable? Hmm let's see:

So far we have:
- Exchanges refusing previously stolen coins
- Wallet services banning customers who use gambling sites
- Miners selling freshly minted coins at a premium

I don't know about you, but to me it's starting to seem like the units aren't interchangeable.

If the time comes that certain coins are considered permanently clean and others permanently dirty in a future regulated world system,
the community as a whole should purposefully contaminate all clean coins found on the blockchain.

Dirty coins can be purchased at a discount, at that time, and we will send them to the clean address accounts.
The coins have now been co-mingled with a "dirty batch" and when the user sends his "clean coins" out from the "dirty",
the exchanges and banks will claim they are still dirty. There is no way to prove the user didn't add the dirty coins himself.

Thus, all talks about clean versus dirty is worthless in the long run. IMO.

Edit: This should probably be done before a system is devised to keep "clean coins" isolated from the dirty.
Best to do this on a rolling basis every year till end of mining. Also contaminate all exchange's cold storage addresses and etc.

[BoscoMurray]

Hold on here. I'm not dismissing the privacy issues. While the two may seem related they are not the same and my position is that fungibility is not a problem.

OK, I understand that you are differentiating privacy and fungibility, but I believe you need perfect privacy to have perfect fungibility.

If you are intent on going through Coinbase to process your Bitcoin transactions then you are completely missing the point and might as well use your VISA credit card.

Bitcoin enables unprecedented proliferation of the black market/informal economy. There are no government regulations or "blacklists" that will resist this change of paradigm. Discrimination of economic participants based on the origins of their money is a one way street to destruction of your market reputation.

Again:

Bitcoin exists so that you can work outside of this system. I understand it takes a bit of foresight to imagine a world where KYC/AML are not a thing anymore but understand that it is coming and it will be all because of Bitcoin.

I'm intent on the best a crypto can be, period.

Who mentioned FIAT? If, one day everyone is using only Bitcoin, how will you buy your passport from the government if they won't accept your tainted coins?

[Johnny Mnemonic]

If the time comes that certain coins are considered permanently clean and others permanently dirty in a future regulated world system,
the community as a whole should purposefully contaminate all clean coins found on the blockchain.

And what incentive does anyone have in doing that? Should we use the Bitcoin Honor System(TM) and hope people are willing to devalue their clean money?

I have a better idea. Fungibility.

[Johnny Mnemonic]

Hold on here. I'm not dismissing the privacy issues. While the two may seem related they are not the same and my position is that fungibility is not a problem.

Privacy and fungibility are only distinct in currencies with a central regulating authority. Bitcoin, however, is decentralized. So in this context, privacy and fungibility are interdependent and of equal meaning for most purposes.

[brg444]

I'm guessing you also hail from the bizarro fiat zombies world where money is literally burning holes through pockets and you have got to spend it like RIGHT NOW.

Actually, I'm part of this community because I want to see a future where decentralized crypto eventually replaces fiat. Sure, it's fun to be a hippie anarchist living outside "the system" for the time being. But some of us are trying to change the world. And in the real, modern world, consumers transact with businesses.

Understand that I was mostly addressing your interpretation of what "money is useful for" as if your bitcoins are only good if you can spend them at Bitpay affiliated merchants. Transacting with businesses that are only interested in Bitcoin because of the free press it provides them and proceed to dump your payments to fiat are in no way helpful in "changing the world".

Either way.. yes I do believe the future of crypto commerce depends on participants not relying on third parties.

I'm not sure why that sounds so strange? If that is not the plan why bother with crypto at all?

It sounds so strange because crypto is supposed to be trustless! It shouldn't have to "depend" on anything! It shouldn't have to depend on businesses being cool and it shouldn't have to depend on people not shopping at Walmart and it shouldn't have to depend on us all using side chains.

Yet you choose to depend on Bitpay, Coinbases and the likes to handle your Bitcoin business. That's a rather curious rhetoric.

Again, I could careless if some fiat store starts using all kinds of blacklisting services I'll be glad to avoid doing business with them and as I've previously said they'll soon discover this is not an economically sustainable model.

You should, because it's proof your money isn't equal! And pretending otherwise won't make it so.

No, it shows that economic participants may enforce arbitrary preference especially when they have to suck up to their banking sponsors. If the Chinese spot down the street doesn't accept my gold bullion it doesn't mean my "money is not equal", they just don't want to deal with it. In the same way, fiat businesses don't want to deal with Bitcoin so they rely on third-parties to process these transactions. Users that decide to deal with such businesses do so at their own risk as it works against the p2p principles of Bitcoin.

How will you feel, as a customer, being discriminated because a couple of your satoshis once crossed paths with "tainted" coins?

I would feel shitty knowing that such discrimination wouldn't even be impossible if only Bitcoin were fungible.

And are you actually suggesting that businesses have never discriminated against their customers despite it being bad for business? Do you live in the United States?

Again, the problem is not one of fungibility, but that a Bitcoin business would decide to snoop into his customers' coin history and discriminate him on that basis. I would advise you stay away from these kinds as surely no good will come out of them.

[brg444]

The thing is... the fungibility of Bitcoin is hardly a thing you can criticize. Privacy issues? Sure, go right ahead but a careful analysis of the fungibility FUD shows that the arguments simply do not hold up. That is because most of them are looking at Bitcoin from behind fiat lenses which is the definition of trying to fit a square peg into a round hole.  

Which argument doesn't hold up? The fact that the units aren't interchangeable? Hmm let's see:

So far we have:
- Exchanges refusing previously stolen coins
- Wallet services banning customers who use gambling sites
- Miners selling freshly minted coins at a premium

I don't know about you, but to me it's starting to seem like the units aren't interchangeable.

- Arbitrary third-party discrimination
- Arbitrary third-party discrimination
- Arbitrary user preference. If I decide to pay 2000$/oz for certain gold coins, that doesn't make gold non-fungible does it?

[brg444]

Hold on here. I'm not dismissing the privacy issues. While the two may seem related they are not the same and my position is that fungibility is not a problem.

OK, I understand that you are differentiating privacy and fungibility, but I believe you need perfect privacy to have perfect fungibility.

If you are intent on going through Coinbase to process your Bitcoin transactions then you are completely missing the point and might as well use your VISA credit card.

Bitcoin enables unprecedented proliferation of the black market/informal economy. There are no government regulations or "blacklists" that will resist this change of paradigm. Discrimination of economic participants based on the origins of their money is a one way street to destruction of your market reputation.

Again:

Bitcoin exists so that you can work outside of this system. I understand it takes a bit of foresight to imagine a world where KYC/AML are not a thing anymore but understand that it is coming and it will be all because of Bitcoin.

I'm intent on the best a crypto can be, period.

Who mentioned FIAT? If, one day everyone is using only Bitcoin, how will you buy your passport from the government if they won't accept your tainted coins?

 

This here, shows how little imagination and foresight you have. In a world where everyone is using Bitcoin, there will be no such thing as state issued passports.

[brg444]

If the time comes that certain coins are considered permanently clean and others permanently dirty in a future regulated world system,
the community as a whole should purposefully contaminate all clean coins found on the blockchain.

And what incentive does anyone have in doing that? Should we use the Bitcoin Honor System(TM) and hope people are willing to devalue their clean money?

I have a better idea. Fungibility.

The idea is not that one should have an incentive to do it but that it is possible.

If I can willingly contaminate every known addresses containing "clean" coins this just goes to show you how worthless and patently unworkable the concept of blacklisting is.

[Johnny Mnemonic]

Transacting with businesses that are only interested in Bitcoin because of the free press it provides them and proceed to dump your payments to fiat are in no way helpful in "changing the world".

I disagree. It might not be the end goal, but acceptance is an important step that increases awareness and support.

Either way.. yes I do believe the future of crypto commerce depends on participants not relying on third parties.

I'm not sure why that sounds so strange? If that is not the plan why bother with crypto at all?

It sounds so strange because crypto is supposed to be trustless! It shouldn't have to "depend" on anything! It shouldn't have to depend on businesses being cool and it shouldn't have to depend on people not shopping at Walmart and it shouldn't have to depend on us all using side chains.

Yet you choose to depend on Bitpay, Coinbases and the likes to handle your Bitcoin business. That's a rather curious rhetoric.

We all depend on them at this point if we ever want crypto to really grow. Coinbase is pretty much the only easy way to get Bitcoin if you live in the U.S. and you're not willing to mine it or meet people from craigslist or localbtc (my mother being an example). I assume you'll disagree but let's table that discussion for another time.

Again, I could careless if some fiat store starts using all kinds of blacklisting services I'll be glad to avoid doing business with them and as I've previously said they'll soon discover this is not an economically sustainable model.

You should, because it's proof your money isn't equal! And pretending otherwise won't make it so.

No, it shows that economic participants may enforce arbitrary preference especially when they have to suck up to their banking sponsors. If the Chinese spot down the street doesn't accept my gold bullion it doesn't mean my "money is not equal", they just don't want to deal with it. In the same way, fiat businesses don't want to deal with Bitcoin so they rely on third-parties to process these transactions. Users that decide to deal with such businesses do so at their own risk.

They are unnecessary risks that could be avoided or completely eliminated with protocol improvements.

How will you feel, as a customer, being discriminated because a couple of your satoshis once crossed paths with "tainted" coins?

I would feel shitty knowing that such discrimination wouldn't even be impossible if only Bitcoin were fungible.

And are you actually suggesting that businesses have never discriminated against their customers despite it being bad for business? Do you live in the United States?

Again, the problem is not one of fungibility, but that a Bitcoin business would decide to snoop into his customers' coin history and discriminate him on that basis. I would advise you stay away from these kinds as surely no good will come out of them.

This seems to be a disagreement in definitions. Regardless, it seems my goals with crypto are more ambitious than yours. I envision a system that cannot be corrupted. No business, no matter how shady, should have the ability to discriminate against its customers. And no government, no matter how powerful, should have the ability to pressure businesses to do so.

[VirosaGITS]

I understand its easier to do than real money, but is this not the same thing as saying "We won't accept any Bills that became in contact with cocaine in their lifetime."?
You don't see shops rejecting bills because they came into the money of criminal once, so, why would this become a problem for BTC?

[Johnny Mnemonic]

The idea is not that one should have an incentive to do it but that it is possible.

I realize this is out of context but it's exactly how I feel about our fungibility argument. You think we shouldn't transact with businesses who discriminate, and I think it should be possible to discriminate in the first place.

If I can willingly contaminate every known addresses containing "clean" coins this just goes to show you how worthless and patently unworkable the concept of blacklisting is.

Either that, or it shows you how worthless and patently unworkable Bitcoin is.

[RodeoX]

I don't see it? If the price is 2.1BTC then it does not matter what bitcoin you send, the price is the same. The price you PAY for a bitcoin varies, but not the value. I might be able to sell you a dollar for $1.05, however that does not mean dollars have lost their fungibility.

[Johnny Mnemonic]

I understand its easier to do than real money, but is this not the same thing as saying "We won't accept any Bills that became in contact with cocaine in their lifetime."?
You don't see shops rejecting bills because they came into the money of criminal once, so, why would this become a problem for BTC?

You don't see shops rejecting bills because it is illegal for them to do so. Fiat is fungible because governments enforce it.

Bitcoin has no central authority to enforce anything, so it's fungibility must come at the protocol level.

[BoscoMurray]

I don't see it? If the price is 2.1BTC then it does not matter what bitcoin you send, the price is the same. The price you PAY for a bitcoin varies, but not the value. I might be able to sell you a dollar for $1.05, however that does not mean dollars have lost their fungibility.

If someone won't accept your tainted coins, then you may be able to swap 1.1 BTC of tainted coins and receive 1.0 BTC of clean coins in return. You could then spend your clean coins, but you've lost 0.1 BTC.

[VirosaGITS]

I don't see it? If the price is 2.1BTC then it does not matter what bitcoin you send, the price is the same. The price you PAY for a bitcoin varies, but not the value. I might be able to sell you a dollar for $1.05, however that does not mean dollars have lost their fungibility.

And some coins or bills with specific history, serial number or print are worth more. Misprint, etc. That doesn't mean that the dollars isint the same value. Imagine if you could own the very first Genesis BTC, it would be like owning the very first bill ever made.

That doesn't mean a btc to another, the value is different.

I understand its easier to do than real money, but is this not the same thing as saying "We won't accept any Bills that became in contact with cocaine in their lifetime."?
You don't see shops rejecting bills because they came into the money of criminal once, so, why would this become a problem for BTC?

You don't see shops rejecting bills because it is illegal for them to do so. Fiat is fungible because governments enforce it.

Bitcoin has no central authority to enforce anything, so it's fungibility must come at the protocol level.

I see what you mean, but its fungibility isint being called to question right now, and if it does, then we can come up with a solution then, or just enforce it by law. And then maybe, money doesn't need to be fungible, when its a decentralized entity like Bitcoin. But its still fungible.

You will always receive the amounts you're supposed.

Any different value to BTC would be attributed by the buyer.

Its like having a guy that will pay more for bills print on a certain year. It doesnt actually change the value of the bill. Its just a damn entity that decide he,s going to pay more or less based on his criteria.

Bills arent indistinguishable from one another. And Bitcoin is not either. If this boil down to being able to spend it without revealing all the previous transaction, than so be it, wait for sidechains.

[Johnny Mnemonic]

The thing is... the fungibility of Bitcoin is hardly a thing you can criticize. Privacy issues? Sure, go right ahead but a careful analysis of the fungibility FUD shows that the arguments simply do not hold up. That is because most of them are looking at Bitcoin from behind fiat lenses which is the definition of trying to fit a square peg into a round hole.  

Which argument doesn't hold up? The fact that the units aren't interchangeable? Hmm let's see:

So far we have:
- Exchanges refusing previously stolen coins
- Wallet services banning customers who use gambling sites
- Miners selling freshly minted coins at a premium

I don't know about you, but to me it's starting to seem like the units aren't interchangeable.

- Arbitrary third-party discrimination [which would not be possible with fungible money]
- Arbitrary third-party discrimination [which would not be possible with fungible money]
- Arbitrary user preference [which would not be possible with fungible money]

FTFY

If I decide to pay 2000$/oz for certain gold coins, that doesn't make gold non-fungible does it?

Now you're making fiat comparisons. Even if you're not talking about fiat, you're talking about collectibles. I'm talking about decentralized cryptocurrency.

[AgentofCoin]

If the time comes that certain coins are considered permanently clean and others permanently dirty in a future regulated world system,
the community as a whole should purposefully contaminate all clean coins found on the blockchain.

And what incentive does anyone have in doing that? Should we use the Bitcoin Honor System(TM) and hope people are willing to devalue their clean money?

I have a better idea. Fungibility.

I meant that other bitcoin users, who have "dirty coins" should send some to "clean addresses".

There is no way for exchanges and banks to know whether the coins that are moved forward from that (clean) address contain the "dirty coins".
And so, all coins within that addresses would be outright considered "dirty".

If all addresses are "dirtied" then there is no fungibility problem. All coins become dirty.

If all coins are dirtied, there can be no "dirty coin" blacklisting on the Bitcoin blockchain.

[Johnny Mnemonic]

I see what you mean, but its fungibility isint being called to question right now, and if it does, then we can come up with a solution then, or just enforce it by law. And then maybe, money doesn't need to be fungible, when its a decentralized entity like Bitcoin. But its still fungible.

If we suddenly need government help to make Bitcoin fungible, we might as well go back to fiat and pass more laws to limit crooked banking practices. While we're at it we should just elect better politicians and vote third party

I'm not trying to be a jerk. I just feel like the spirit of crypto is about taking these matters into our own hands.

[VirosaGITS]

If the time comes that certain coins are considered permanently clean and others permanently dirty in a future regulated world system,
the community as a whole should purposefully contaminate all clean coins found on the blockchain.

And what incentive does anyone have in doing that? Should we use the Bitcoin Honor System(TM) and hope people are willing to devalue their clean money?

I have a better idea. Fungibility.

I meant that other bitcoin users, who have "dirty coins" should send some to "clean addresses".
There is no way of exchanges and banks to know whether the coins that are moved forward from that address contain the "dirty coins".
And so, all coins within that addresses would be outright considered "dirty".
If all addresses are "dirtied" than there is no fungibility problem. All coins become dirty.

Well machines can sift through a lot more data than "is at any point...?" so this argument would still stand against coins that was dirty before "the great Bitcoin mudfight" to make all coins dirty.

There's also the added problems that more new clean coins are made every 9.9~ minutes on average. And if you add a few satoshis to new or old clean coins, it doesn't really make them dirtied.

Its not hard to have the clean/unclean system ignore "dirtying" of less than x.

You would need to actually mix all the coins with all the coins. Doesn't sound doable.

I see what you mean, but its fungibility isint being called to question right now, and if it does, then we can come up with a solution then, or just enforce it by law. And then maybe, money doesn't need to be fungible, when its a decentralized entity like Bitcoin. But its still fungible.

If we suddenly need government help to make Bitcoin fungible, we might as well go back to fiat and pass more laws to limit crooked banking practices. While we're at it we should just elect better politicians and vote third party

On step at a time, but yeah its ridiculous. Also it will not become a problem or be needed.