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Author Topic: Bitcoin fungibility in relation to the BTC-e relaunch  (Read 233 times)
marky89
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September 01, 2017, 08:20:45 AM
 #1

BTC-e brought their .nz domain back online. Users are logging in, checking their balances, re-setting passwords......and the trollbox is live. Cheesy

The US government essentially labeled them a criminal money laundering organization, suggesting that any proceeds withdrawn from the exchange could be considered the proceeds of money laundering.

This sets up a very interesting case study regarding the fungibility of BTC and other cryptocurrencies (at least the ones offered on BTC-e). If I had to guess, companies like Coinbase and Bitstamp are already working closely with blockchain analysis companies to identify and track BTC-e coins. It's really unclear what might happen, but it seems possible to me that licensed, compliant exchanges might freeze accounts linked to coins withdrawn from BTC-e. Am I crazy to think that?

We are talking about hundreds of thousands of BTC (and quite a lot of LTC, among other coins). If these coins are blacklisted on some exchanges, I imagine a discount would develop for BTC-e coins, since they would be less fungible. But the bigger issue: this raises worrisome questions about fungibility in general as governments become increasingly involved in the cryptocurrency space.

Edit: This thread is about fungibility, not about the prospects for customer refunds, etc...

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September 01, 2017, 08:25:57 AM
 #2

The site looks legit even though there's no trading activity at all, but BTC-e user will be convinced for a while. I think if they really serious to restore BTC-e, they will return all users money while suffer big losses and hope they can earn profit in future.

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September 01, 2017, 08:35:53 AM
 #3

I had around $300 in BTC-e when it closed down (mostly in the form of Litecoin). Being a loyal user of BTC-e for the past 5 years, I hope that they will be able to get back online without any major issues. I am not worried about my coins. But I want BTC-e to come back online, as they were one of the most reliable exchanges.

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September 01, 2017, 07:52:48 PM
 #4

The risks outlined in the OP are real. I'm very surprised more people aren't talking about. Especially given the general attitude towards, and awareness of, civil asset forfeiture in the Bitcoin community.

They were a very big exchange, meaning that a large supply of coins could be flooding back to the market. If it's anything like Bitfinex last year, we can expect a big exodus from the exchange as soon as withdrawals are available.

I was reading some of the replies to their last Twitter announcement. I saw some people talking about how they plan to withdraw coins directly back into their Coinbase accounts. Unbelievable! Lips sealed



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September 01, 2017, 08:12:03 PM
 #5

It could become worse as time goes on, but right now there's not much risk of those coins becoming less valuable because BTC-e users have the option to:

-Run their coins through a good mixer
-Convert to an anonymous coin like Monero and back

Even if they end up receiving dirty coins, they can just show their mixer's message that they received the coins from the mixer or attempt to prove that they received the coins from a Shapeshift address.

This could change as mixers and altcoin exchanges become subject to more complex KYC procedures and governments attempt to intervene very aggressively into the space, but for now it looks relatively safe.

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September 01, 2017, 08:23:23 PM
 #6

It could become worse as time goes on, but right now there's not much risk of those coins becoming less valuable because BTC-e users have the option to:

-Run their coins through a good mixer
-Convert to an anonymous coin like Monero and back

The smart ones will mask their IP with TOR and VPN, mix their coins (multiple rounds) and still refrain from sending those coins to places like Bitstamp. On Stamp, people get their accounts frozen for weeks just for having the same name as some INTERPOL interested person.

But there is lots of low hanging fruit. Many people will just treat the coins same as ever.

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September 01, 2017, 08:38:28 PM
 #7

Current owners of "dirty" coins might easily deal with it by mixing -> selling BTC for XMR -> mixing again. But this doesn't solve the problem in general, since there will just be new owners of "dirty" coins. I see 2 soltuions for this - the weak one and the strong one. The weak solution would be to swap coins between people who need clean coins (customers of Coinbase and other exchanges that comply with US laws) and people who don't mind having "dirty" coins - people from some Eastern European countries, Africa, Asia, etc. This might be risky for the later, because just like it happened with BTC-E, the US government might seize some local exchanges from other countries or force local law enforcement to do it. The strong option would be to mix "dirty" coins with a big amounts of clean coins with a very high number of transactions and via some very trusted mixer. This would have huge costs in transaction fees and would require coordination from many bystanders. I can see it happening only if owners of "dirty" coins will organize this whole event and pay some bounties to people who are willing to participate in mixing with their clean coins.

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