It's Time for a Fungibility Talk

[charleshoskinson]

Given the recent developments:

http://www.reddit.com/r/Bitcoin/comments/1qmbtu/mike_hearn_chair_of_the_bitcoin_foundations_law/

http://www.forbes.com/sites/kashmirhill/2013/11/13/sanitizing-bitcoin-coin-validation/

I'm wondering if the time has come to seriously examine the issues of blacklists, coin taint and anonymity outside of an academic or would be nice to have discussion. When I entered the ecosystem, my concern was fiat to cryptocurrency conversion and now PAUV, Mastercoin and BitShares are running well as funded evolving projects. I believe the next issue that needs to be resolved is the fungibility issue.

My hope for this thread is to start a discussion about fungibility, where it is threatened and the current technology that can ensure it. Like the Project Invictus thread that resulted in a VC funded company, I'd like to find something that makes sense and get it developed.

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[Littleshop]

Given the recent developments:

http://www.reddit.com/r/Bitcoin/comments/1qmbtu/mike_hearn_chair_of_the_bitcoin_foundations_law/

http://www.forbes.com/sites/kashmirhill/2013/11/13/sanitizing-bitcoin-coin-validation/

I'm wondering if the time has come to seriously examine the issues of blacklists, coin taint and anonymity outside of an academic or would be nice to have discussion. When I entered the ecosystem, my concern was fiat to cryptocurrency conversion and now PAUV, Mastercoin and BitShares are running well as funded evolving projects. I believe the next issue that needs to be resolved is the fungibility issue.

My hope for this thread is to start a discussion about fungibility, where it is threatened and the current technology that can ensure it. Like the Project Invictus thread that resulted in a VC funded company, I'd like to find something that makes sense and get it developed.

I think the threat level is quite low despite then spew of threads on this subject in the past few days.  Most merchants gain nothing from this, miners gain nothing and general users gain nothing.  That is most of the network.  Even if this was somehow forced on the default client, forks (clients not blockchains) would quickly emerge.  In the end, if anything substantial is done on the legal size, Bitcoin will just leave the USA behind.  People who can in the USA would switch to an alt-coin and nothing would be gained for the people who want this.

If I was forced legally to do coin validation I would probably just close my bitcoin shop.  If all US exchanges were forced to do this, I would barely effect me, I would just spend all of my BTC as BTC.  If Bitpay required it, I would switch providers or roll my own acceptance server. 

The market does not want this, and the market will reject it.  If it is forced, the market will find a way around it. 

US dollars will be RFID tracked before Bitcoin operates under some forced blacklist. 

[dree12]

My personal opinion:

Bitcoins are already non-fungible, and that's not a problem.

Certain bitcoins are worth more or less than others. A few common reasons and examples:

Novelty
If Satoshi were to sell the genesis block's coins, he could probably get at least double their "value" for them.

Colour
Coloured bitcoins are obviously worth far more than other bitcoins.

Velocity
Nominally, receiving a hundred 1 mBTC transactions should be equivalent to receiving one 100 mBTC transaction. This isn't the case, however, because the latter can be used much more quickly and with much fewer fees owed.

Taint
This contentious subject is already affecting the value of coins. Companies like Mt. Gox may freeze them, companies like StrongCoin may seize them, etc. Tainted coins are much more likely to be seized or frozen, so their value is already lowered due to the increased risk.

I contend that this is not a problem. Why?

Choice
Every business can choose which coins to accept and which coins to accept at a discount or premium. If a business finds, for example, hate crime appalling, then it should have the right to reject coins likely traceable to the KKK's public address. This freedom of choice does not violate financial freedom; rather, it facilitates it.

Deterrent
Crime and other unsavoury actions would be discouraged greatly if their coins were rejected by various major companies. If a critical mass of companies rejects accepting certain tainted coins, other companies will likely follow in fear that their own coins will be tainted. Criminals would have much less incentive to commit financial crimes.

Precedent
Nothing is truly fungible. That includes gold, USD, water, human lives, etc. Tainted coins are no different in principle from muddied water or impure gold. They simply aren't as useful as regular coins because many businesses won't accept them. Nobody is stopping you from using impure gold or muddied water. But you shouldn't force others to accept those either.

[btc4ever]

fungibility and privacy should be our priorities.

It is not just about big brother.  It is also about your neighbor, co-worker, family member, or stalker across town spying on your spending habits.

coinjoin (or similar) should take place for every transaction, such that mixing is the norm, not the exception.

Once we get this right, bitcoin might have a chance at mass adoption.   Not before.

Most people don't care (so much) about a big corporation like visa or even the nsa knowing all their purchases.  But no one wants people they actually see on a daily basis to have the same opportunity.

[cosmicapex]

From what I read, it seems that Businesses using the Coinvalidation site would select a number of "hops" it will check, so perhaps 3 or 6, to see if it came from an illicit place.  This is good, because this whole situation reminded me of how there's cocaine on so much of money (but that money's fine  ).  Despite that, it's likely that the cocaine is from a while ago on any given bill.  In this way, using only a few hops back to see if perhaps the money came straight from the silk road is fine. 

FWIW, if this is where Bitcoin is going, isn't that totally okay?  If there's more of a market for "cleancoins" then that's democracy.  The open source nature of Bitcoins, and the true beauty of Satoshi's work, is that we can take from his vast knowledge any bits and pieces we desire.  The reality is government intervention was always a definite, for anything that becomes super popular, and thus is just a sign of growth.  It's just a test.