Exchanges not accepting mixed BTC, so is BTC no longer fungible?

[hatshepsut93]

This was the case for a long time, for example exchanges refused were closing accounts of customers who made deposits from their crypto gambling accounts. This can be explained by the fact that crypto casinos are unregulated and can be used for money laundering, so coins that come from them might be dirty.

From a practical point of view, there should be ways to "clean" your coins. Maybe it's enough to just move them between your addresses to build up a bit of history after the mixing. Or maybe you can deposit it to some exchange or other service that doesn't care about mixing and then withdraw from them. It all will not work if you will be personally approached and requested to explain the origin of your coins, but it might be enough to avoid triggering the automated chain analysis tools.

[rexxarofmoknathal]

I have been reading that many exchanges are using Chainalysis (etc.) to look at transactions, and refusing to exchange BTC (or even accept them).
This looks like a problem for BTC and possibly all of crypto, in that crypto NOW has / will have to be "proven" clean, else hard to exchange for fiat, other crypto, or even for large purchases?

I recently took part in a similar discussion, and we can think whatever we want, but if someone says that your BTC is not what he wants based on any criteria, then in that particular case that BTC is actually worth nothing. We all know that every banknote has a unique serial number, but when we pay something, the cashiers do not check every banknote to determine where it came from. Of course, it’s about the fiat being part of the system, while the BTC is just the opposite.

I share the concern of those who see this as a problem, because it can really happen that someone one day wants to use their BTC to pay for something or wants to sell them for a fiat, and everyone rejects it because coins are from some suspicious sources.

Here is something interesting about how BTC could be categorized in the future - > Classify coins (UTXOs) in several categories

While I recognise and share the concern raised in this topic and also addressed in the above comment, I would like to point out that perhaps this extra level of policy on some of these exchanges is one which will not be incorporated into all the exchange platforms.

I fail to see how this type of response will be encouraged by the crypto holders, and while it is evident that some measures like this have been put in place to deal with crypto based money laundering, I don't think this is the way forward.

The reason for this is that BTC isn't the only crypto currency and if bad people take advantage of this technology they won't be limiting themselves to BTC, other coins will be at risk too.

Because of this I don't think that banning of BTC exclusively from some exchanges will be sustainable or solve the issue, and so failure to see this on the part of these exchanges will be detrimental to their business.

[DdmrDdmr]

I’ve read about some particular cases, although I still don’t have the impression that it is anywhere close to it being a general trend, neither in terms of practicing Exchanges, nor in terms of the total number of impacted users.

It is an uncertainty though which people could do without, and there are some more adamant voices that pop-up every now and then, asking for this type of activity to be acted upon, and are at least drafting studies to elaborate future standards. Take for example the following EU study:
https://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurrencies%20and%20blockchain.pdf

Policy recommendations for future EU standards
<…> Furthermore, the EU should think about imposing a specific ban on such aspects surrounding cryptocurrencies that are aimed at making it impossible to verify their users (e.g. mixing) and criminally sanctioning these aspects. <…>

Now the aim of the above EU study is on money laundering and such, but the key is in seeing how far they can/will go, both technically and legaly, without treading on people’s toes. A person is conceptually entitled to obscure his BTCs (et al) for legitimate reasons (i.e. keeping nosy parkers at bay), and it’s not as if FIAT doesn’t have a trace of illegal activities on many of the paper bills. Reeling-in or acting upon pre-emptively on mixer users through chain-analysis, should have clear boundaries on just how many steps back can implicate you in some way, and how, alongside the layout ethics and presumption of fairplay (as opposed to foul play).

[fullhdpixel]

I have been reading that many exchanges are using Chainalysis (etc.) to look at transactions, and refusing to exchange BTC (or even accept them).  I also know that BitPay is using such blockchain analysis to NOT accept BTC that looked like they were mixed or otherwise have a "dubious" history.

Do you have any information or links on which may get knowing on what are criteria they are following to label some bitcoins as mixed or having bad history? If many all other services/business start copying such a practice that may lead to many unexpected consequences and one of them is end of mixing business.

I am not going to blame them for doing that if it’s all being done for the reason of not supporting hackers/scammer and for security purpose. There are lots of things going on in the cryptocurrency space, from hackers stealing from exchanges and scammers creating fake projects and stealing from investors. And these scammers would usually send the stolen coins to coin mixers so that they can’t be traced. That’s why these exchanges are rejecting coins that are traced to such, because they certainly have a bad record.

[figmentofmyass]

I’ve read about some particular cases, although I still don’t have the impression that it is anywhere close to it being a general trend, neither in terms of practicing Exchanges, nor in terms of the total number of impacted users.

+1. i've primarily only read about coinjoin users being flagged and having accounts frozen/closed, and those reports are few and far between. however, sometimes exchanges (especially gemini and coinbase) don't tell customers why their accounts are being closed, and proximity to mixing services could be involved.

the OP didn't bring anything new to the table. exchanges have been hiring chainalysis type companies for years. anecdotally i haven't noticed much of a change in recent times. things have been pretty quiet outside of that one binance singapore incident where they froze someone's account for using wasabi wallet coinjoins.

[pixie85]

One day most Bitcoins will be mixed and what then? Exchanges who won't accept them will lose revenue and all traders will move to exchanges that do.

It's stuypid to taint bitcoins. Normal users who will buy some coins from someone or sell a physical item will inevitably get some of those mixed coins and add them to their clean coins. What then? Will all their coins become tainted?

[StonerStanley]

It would be hardly practicable on the long term because someone can pay a legit person using mixed BTC.

[pooya87]

look at Coinbase, have they lost any volume? no. so they will continue doing whatever they like.

This is because majority of users don't use mixing services for their bitcoins and those do they already have other plans if they face these kind of problems. So you always have to be responsible for your funds or else there are many people in the market to who want to con you.

you forgot to read my full comment. the problem with Coinbase, and many other exchanges, is not just the mixed coins issue outlined in OP.  there are a ton of other issues.
- lack of security and insurance for when they get hacked (not if, but when)
- selling user data to anyone that asks including government (basically betraying users' trust and privacy)
- in many cases specially among altcoin exchanges: manipulation of the market
- weak servers that go down when there is a traffic rise specifically during price rises that leads to a lot of loss for traders that rely on responsive servers.
- ...
does anybody care? no. they keep bitching about all these issues and more but they keep going back instead of seeking and improving the alternative and better solutions such as decentralized exchanges that could actually solve a lot of these issues.

[witcher_sense]

Bitcoin is phenomenon we have never witnessed before. It's something that has unique qualities in terms of trust, neutrality, level of globalization. At the same time it shares similarities with precious metals and cash. Those are money that perfectly fungible, no one trying to taint gold bars or banknotes. No matter where transactions happen, in legal or illegal environment, everything remains the same. We still use dollars that were stolen from bank. There are some reasons why regulation is being applied in case of bitcoin. It is relatively easy to track transactions in bitcoin network. They are transparent and thus give an ability to monitor every purchase. Just possible to track, but not to control, however that is enough to start applying some regulations. That is part of the reason why we are switching to a cashless society, everything needs to be controled and censored. Governments might think so. The second reason, why they are trying to regulate and tainting bitcoins is inability of governments to control the network in other way. There is no point of failure, no one in charge, let's discredit the network by calling it taint, used by criminals, etc. As long as participants of the bitcoin network rely on third-parties when trying to exchange bitcoins for trackable cashless world currency, we will keep facing such attacks. There should be no tainted bitcoins in a pure bitcoin economy, an economy in which no one controls every transaction.

[adzino]

This was the case for a long time, for example exchanges refused were closing accounts of customers who made deposits from their crypto gambling accounts. This can be explained by the fact that crypto casinos are unregulated and can be used for money laundering, so coins that come from them might be dirty.

From a practical point of view, there should be ways to "clean" your coins. Maybe it's enough to just move them between your addresses to build up a bit of history after the mixing. Or maybe you can deposit it to some exchange or other service that doesn't care about mixing and then withdraw from them. It all will not work if you will be personally approached and requested to explain the origin of your coins, but it might be enough to avoid triggering the automated chain analysis tools.

Isn't this the exact reason why exchanges implement KYC? I mean, more and more exchanges are asking for user identification. They are doing this in order to keep the user database clean. They are doing so that users don't launder money using their exchange. The KYC process helps them identify those who might be laundering money using their exchange and hand over the information to the law enforcement officers.

[whyrqa]

This was the case for a long time, for example exchanges refused were closing accounts of customers who made deposits from their crypto gambling accounts. This can be explained by the fact that crypto casinos are unregulated and can be used for money laundering, so coins that come from them might be dirty.

From a practical point of view, there should be ways to "clean" your coins. Maybe it's enough to just move them between your addresses to build up a bit of history after the mixing. Or maybe you can deposit it to some exchange or other service that doesn't care about mixing and then withdraw from them. It all will not work if you will be personally approached and requested to explain the origin of your coins, but it might be enough to avoid triggering the automated chain analysis tools.

Isn't this the exact reason why exchanges implement KYC? I mean, more and more exchanges are asking for user identification. They are doing this in order to keep the user database clean. They are doing so that users don't launder money using their exchange. The KYC process helps them identify those who might be laundering money using their exchange and hand over the information to the law enforcement officers.

In any case, if we assume that Bitcoin will be used by someone for criminal purposes, then such coins will always be under scrutiny and will be called "dirty." Indeed, the above actions of cryptocurrency exchanges that refuse to exchange or sell the so-called “dirty Bitcoins” are primarily due to the relevant rules of controlling structures that fight money laundering. Each exchange wants to work legally and without any problems, so they try to protect themselves in various ways. But the provision of KYC by users on the cryptocurrency exchange is the final character of recognizing the owner of the so-called “dirty Bitcoin”. in fact, there is no difference between these Bitcoins, but the situation is very similar to that when the dollars received for the sale of drugs or weapons are also considered dirty, but after confiscation and return to the State Treasury, they become clean again.

[yhiaali3]

I think exchanges are under the pressure of governments, governments want to control everything and want to have a centralization in everything and of course Bitcoin is the primary enemy of government centralization, what will make the exchanges care if the bitcoin is mixed or not? I think the governments are the reason as well as the reason to request verification by KYC.
But I have a question, are there no Bitcoin mixers capable of preventing exchanges from knowing whether Bitcoin is mixed or not?

[carlisle1]

So I guess the mixers would be useless now? or Exchanges who has this policy would be a lesser option for anyone who is using mixers to wash their bitcoins?

Same concern here,what will be the advantage of using Mixing service since this has been happening in some exchange?do we have to find another exchange to make our privacy still indeed?

The move was quite good, since there are lots of stolen bitcoin that is being mixed/wash so it won't be tracked from the blockchain and they can continue using the same old address of them.

Actually i support also this because we already know that bad elements are using Mixer to hide their activities but what about those legit that only wanted to keep private?

But I got to ask one thing, why would the exchanges do this? I know they are not all has this kind of policy.

Exchange are now getting target of the government thats why they need to keep their company clean so maybe about regulation so this has been implemented?

[amishmanish]

For those who have a lot of bitcoin from early days, what other option do they have than to obscure the source before spending? Even if they want to do a small peer to peer transaction, nobody would like it be known that the addresses that can be traced to them contain 100s of BTC. It would be dangerous for their personal safety in light of the "five dollar wrench" attack.

The exchanges maybe choosing to do this not merely to comply to KYC. They have bigger interests. Imagine a future where you will have to provide proof of your BTC source as being non-mixed or non-tainted. In that case, exchanges can easily claim to be the only "legitimate" source of "untainted" bitcoin, much like a federal reserve on their own.

So coinbase, binance etc must be opposed in some way before this solidifies as an acceptable norm.

[gentlemand]

The exchanges maybe choosing to do this not merely to comply to KYC. They have bigger interests. Imagine a future where you will have to provide proof of your BTC source as being non-mixed or non-tainted. In that case, exchanges can easily claim to be the only "legitimate" source of "untainted" bitcoin, much like a federal reserve on their own.

So coinbase, binance etc must be opposed in some way before this solidifies as an acceptable norm.

Binance made it clear this was imposed on them by the authorities in Singapore. I expect Coinbase is rather keener on the idea since they're actively pursuing surveillance. Whoever they are they'll have to make a decision on how far to take it. There comes an inflection point where it starts to hurt their business in a significant way.

[The Cryptovator]

This is the disadvantage of centralization. If all centralized exchange do same thing then likely use fiat will be more easier. Sometimes Bitpay act like they are preventing bitcoin adoption. Bitcoin should consider as bitcoin it isn't came from hackers. But unfortunately only hackers aren't using mixer, everyone who want to keep private their identity and secure their privacy they are using mixer. I really don't want to see such as action from reputed exchange. If they don't accept bitcoin from mixer and gambling then only way will remain use decentralized exchange even it's quite slower.

[Atrax]

Companies like Chainalysis are doing different things:
- They have a good marketing towards the exchanges. However, they do not disclose in any way how they do their analysis and what the background for the level of taintednes is. They can claim anything - exchanges believe them.
- It is not clear yet how many information are being forwarded or made accessible to the government.
- They are using open source information. Some of the information may be wrong, some not.

And again and again, they claim that "regulation" requires this analysis. This is bullshit for most countries. If Bitcoin is going through a Wasabi-wallet. Chainanylis most probably flags the transaction. There is NO regulation to my knowledge asking for this.

The best way to counter this behavior, imho, would be to set up a community driven analysis tool which is doing exactly what the regulators ask for. Not more. Not less:

A database with addresses of hacks.

A tool which follows these coins.

If a part of this coin is in a transaction, the transaction is not tainted per se. It may be some Satoshis.

If the community runs this tool and offers it for free, firms like Chainalysis would soon be thrown out of the market.

[figmentofmyass]

Binance made it clear this was imposed on them by the authorities in Singapore.

this is what CZ said:

Binance SG operates under the requirements as set forth by MAS and our MAS regulated partner, Xfers. Hence there are AML CFT controls set in place for the Binance SG.

i haven't heard of any similar cases at huobi or kucoin. i've also never seen any specific MAS rules that refer to mixing, coinjoins, or anything like that. none of those things were mentioned in singapore's new AML law passed last year.

normally i would assume that any licensed third party operator is just a binance shell corporation, but maybe "Xfers" is actually an independent third party and has internal policies re mixing.

i'm still at a loss for why binance would put themselves in this position given that other singapore-based exchanges don't seem to have similar rules. according to their posted TOS they are still working with Xfers.

There comes an inflection point where it starts to hurt their business in a significant way.

+1. people underestimate how much lack of fungibility can hurt exchanges. they know it too.

[Russlenat]

They just follow the regulation since they are regulated, that is going to happen even in all exchanges as the regulators look at transactions that are possibly violating the anti money laundering law, mixers will not make transaction origin untraceable but it's hard for the regulators to trace such transaction, so they give the task to the exchange so regulators can carry their job effectively.

With this going to happen, what would happen to the mixer business?

But anyway, I don't really think too much of this as I don't see any complaints yet regarding this kind of transaction from a user, so there's also a possibility that it could not be implemented in the future.

[eaLiTy]

I have been reading that many exchanges are using Chainalysis (etc.) to look at transactions, and refusing to exchange BTC (or even accept them).  I also know that BitPay is using such blockchain analysis to NOT accept BTC that looked like they were mixed or otherwise have a "dubious" history.

This looks like it is going to be an issue, probably getting to be a bigger issue into the future.

I am not surprised we are seeing this happening, we will see exchanges rejecting coins which are deemed dubious and coins that are coming through mixers and there will be a time when we are not able to use those coins. We might even see the coins that are dubious might  be confiscated by the authorities and then auctioned off at a later time, in simple terms washing through the legal system.

It is impossible to overcome the legal obstacles and we will be forced to follow what the regulators set out.