How do "they" tag BTC (from gambling, mixers, dark markets, etc.)?

[Karartma1]

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General comment.  I sense, have no proof of course, that all this "analysis", KYC/AML, PofFunds, etc. is all aimed at making BTC less useful.  And by the "usual suspects" (.gov and/or banks).

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.  If the exchanges get overly picky about sources of BTC and make it harder to cash out, then that is bad news AFAIC.

I guess your concerns are valid ones. As I've already stated previously, this all started when the link between fiat currencies and crypto got created. 1BTC is 1BTC only when transacting in the Bitcoin realm, otherwise when, for whichever reason, one needs to exchange BTC for fiat, all that we have discussed is unavoidable.
Let's see how this unfolds.

[o_e_l_e_o]

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.

The obvious answer to this is to not convert back and forth between BTC and fiat and just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

If the exchanges get overly picky about sources of BTC and make it harder to cash out, then that is bad news AFAIC.

It's bad news for centralized exchanges. More and more people will be refused service or will rightly stop using them over their shady practices of allowing deposits and then freezing accounts. Such people will move to decentralized exchanges and peer-to-peer trading. The growth of these things is only good for bitcoin and good for privacy.

Other than that even wallets are now linked to the banks and banks to the particular ID of a person which is very easy to link.

If your wallet is demanding KYC, then you should find a new wallet immediately.

This is an issue that does need to be resolved but for a normal bitcoiner I do believe until and unless you are not involved with any illegal activities it is of any significance.

Nonsense. Privacy is a fundamental right for everyone, regardless if you are doing anything illegal or not. If you don't think you need privacy, then please post a PDF of your most recent bank statement.

[Karartma1]

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.

The obvious answer to this is to not convert back and forth between BTC and fiat and just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

In my humble opinion, Bitcoin was never intended to be linked with the fiat currencies world:
Chancellor on brink of second bailout for banks
This is where it all started, Bitcoin is here to replace to old financial world. Of course, I am not being naive, I do recognize that for the majority of us is not possible to live fully on Bitcoin. But that should always be our end goal.
I am pretty confident that one day we will be using Bitcoin only financial instruments or, at least, that's my dream since being into BTC.
 

In the end, yes! Just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

[Bigpiggy01]

There have been multiple examples of exchanges, Binance in particular, "flagging" coins and asking users to video document how their coins ended up with them.
This is pretty bloody rich coming from the same exchange that does not care two hoots about having been used to launder hacked coins like the latest Ravencoin debacle.

The way I see it, we need more people participating in mixing or this will get out of hand.

[pooya87]

General comment.  I sense, have no proof of course, that all this "analysis", KYC/AML, PofFunds, etc. is all aimed at making BTC less useful.  And by the "usual suspects" (.gov and/or banks).

maybe a handful of them have some government ties but majority of them are just opportunists who have found an area that wasn't saturated already and started a business to make money. that's why we see all these chainanalysis services grow like mushrooms over the past couple of years. and that's why most of their services are pretty crappy too.

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.  If the exchanges get overly picky about sources of BTC and make it harder to cash out, then that is bad news AFAIC.

its a bad news for these  exchanges and people who want to day trade bitcoin not for bitcoin or bitcoin users.
another thing to keep in mind is that the entire system is not mature enough yet. for example how many major popular bitcoin exchanges we have? it is still only a handful. so they all have the power and don't have to compete with anything. if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

with that said i believe that slowly but surely things will change. for example if we look back a couple of years ago (eg. 2012-2013) there were only 1 big exchange (85% of volume) and a bunch of small ones but today there are more users, more exchanges,... this is just a period that we should get past before people realize  bitcoin is not just something you trade on a centralized exchange to make fiat profit.

[Karartma1]

General comment.  I sense, have no proof of course, that all this "analysis", KYC/AML, PofFunds, etc. is all aimed at making BTC less useful.  And by the "usual suspects" (.gov and/or banks).

maybe a handful of them have some government ties but majority of them are just opportunists who have found an area that wasn't saturated already and started a business to make money. that's why we see all these chainanalysis services grow like mushrooms over the past couple of years. and that's why most of their services are pretty crappy too.

Chainalysis has made $10 million in five years from the U.S. government, with nearly a dozen agencies and a military branch tapping the blockchain forensics firm for everything from tracking tools to training on analyzing network data. All started with a $9,000 data software contract for a 3 letter agency in 2015. But just five years later, Chainalysis is now the cryptocurrency-tracing equivalent of Palantir, the data analytics company flush with lucrative government software contracts.
https://www.coindesk.com/inside-chainalysis-multimillion-dollar-relationship-with-the-us-government

[o_e_l_e_o]

if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

I don't think governments (certainly not the US government) will ease up on the restrictions and regulations they are placing on centralized exchanges. Centralized exchanges will always be sticking their noses where they don't belong and freezing accounts and seizing coins for trivial reasons. A multiplicity of centralized exchanges won't change that, as they will all have to play by the same rules. The real solution will be when the majority of users are trading freely and privately on decentralized exchanges.

Chainalysis has made $10 million in five years from the U.S. government, with nearly a dozen agencies and a military branch tapping the blockchain forensics firm for everything from tracking tools to training on analyzing network data.

These companies were not set up or launched by the government, but now that they exist, the government is more than happy to use them. There are many more firms which US government agencies have been paying for their privacy-invading expertise. Here are a few examples you can examine for yourself:

Chainalysis - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CHAINALYSIS+INC.%22
Elliptic - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22ELLIPTIC+INC.%22
CipherTrace - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CIPHERTRACE%2C+INC.%22
Coinbase - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22COINBASE%2C+INC.%22

[Karartma1]

Chainalysis has made $10 million in five years from the U.S. government, with nearly a dozen agencies and a military branch tapping the blockchain forensics firm for everything from tracking tools to training on analyzing network data.

These companies were not set up or launched by the government ...

Hey o_e_l_e_o, thanks for your add. I know most of them actually since it is all public. Only allow me to clarify that I have never written that they were set up or launched by the gov. I might concede that I may have thought it though 

[Killrbit]

if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

I don't think governments (certainly not the US government) will ease up on the restrictions and regulations they are placing on centralized exchanges. Centralized exchanges will always be sticking their noses where they don't belong and freezing accounts and seizing coins for trivial reasons. A multiplicity of centralized exchanges won't change that, as they will all have to play by the same rules. The real solution will be when the majority of users are trading freely and privately on decentralized exchanges.

Exactly this I think the only real solution is dexes, and seeing the current volumes on uniswap is really encouraging, wether that is part of the current Defi trend, or a long term trend is still up in the air though.

However with regard to a Dex can anyone think of a way where the government could impose restrictions or some form penalties on the facilitators(maybe the operators of the dex) or  perhaps by tainting any coins that pass through them.

Also how how would one implement a Dex or another solution for say bitcoin. Assuming you don't want to use wrapped coins

Chainalysis has made $10 million in five years from the U.S. government, with nearly a dozen agencies and a military branch tapping the blockchain forensics firm for everything from tracking tools to training on analyzing network data.

These companies were not set up or launched by the government, but now that they exist, the government is more than happy to use them. There are many more firms which US government agencies have been paying for their privacy-invading expertise. Here are a few examples you can examine for yourself:

Chainalysis - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CHAINALYSIS+INC.%22
Elliptic - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22ELLIPTIC+INC.%22
CipherTrace - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CIPHERTRACE%2C+INC.%22
Coinbase - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22COINBASE%2C+INC.%22
[/quote]


I think the biggest in the bunch here is coin base I mean it is still the go to exchange for most people's first crypto purchases, so it could be very easy for a centralized govt to create issues for users ( freezing accounts and such ) which could harm a lot of innocent people how many have no idea regarding the origin of some their coins.

[o_e_l_e_o]

perhaps by tainting any coins that pass through them.

It is very difficult to track coins which are traded through a true DEX, for the exact reason that there is no centralized wallet to which the coins must first be deposited. In some cases the coins pass directly from one person to another, and in others they pass first of all through a multi-sig escrow address which is a single use address and is indistinguishable from other multi-sig addresses. Blockchain analysis fails in these cases, and the only way to reliably track these trades would be to infiltrate the DEX in question.

Further, even if government's did manage to taint coins being traded peer-to-peer, then who cares? Provided you don't use centralized exchanges, it doesn't actually matter if they think your coins are tainted or not.

Also how how would one implement a Dex or another solution for say bitcoin.

Fiat to bitcoin (and vice versa) DEXs already exist. Look at Bisq as a great example.

[Killrbit]

perhaps by tainting any coins that pass through them.

It is very difficult to track coins which are traded through a true DEX, for the exact reason that there is no centralized wallet to which the coins must first be deposited. In some cases the coins pass directly from one person to another, and in others they pass first of all through a multi-sig escrow address which is a single use address and is indistinguishable from other multi-sig addresses. Blockchain analysis fails in these cases, and the only way to reliably track these trades would be to infiltrate the DEX in question.

Yes but while there may be no centralized wallet there is always the issue of the individual/organization controlling the Dex correct.

For example the Ether delta case where the sec bought charges against its founder Zachary Coburn.

Source: https://www.sec.gov/news/press-release/2018-258

Further, even if government's did manage to taint coins being traded peer-to-peer, then who cares? Provided you don't use centralized exchanges, it doesn't actually matter if they think your coins are tainted or not.

Yea assuming you don't use a centralized exchange then that's fine, but how practical is that for the average user. For instance lets say an individual has received payment for goods and services provided in ether how could he then possibly know if said payment includes tainted coins or not (assuming it eventually gets identified as being tagged somewhere down the line). And wouldn't this then be harmful for the  long term adoption of cryptocurrencies as a payment mechanism.

[o_e_l_e_o]

Yes but while there may be no centralized wallet there is always the issue of the individual/organization controlling the Dex correct.

That's why I specifically mentioned Bisq.

Not only is Bisq a decentralized exchange, but the Bisq platform itself is decentralized. You run the software yourself on your own computer, and connect directly to other users via Tor. Just like with bitcoin, even if governments shutdown the the website, shutdown the GitHub, stopped the developers from working on it, you can still run it yourself and connect to other users.

Yea assuming you don't use a centralized exchange then that's fine, but how practical is that for the average user.

Sure, using DEXs is currently not as easy as using centralized exchanges, but that doesn't make it impossible for the average user. With the caveat I mentioned above, that the real long term solution is the proliferation of DEXs until they have become the "standard" way of buying and selling bitcoin, then I don't see this as an issue.

For instance lets say an individual has received payment for goods and services provided in ether how could he then possibly know if said payment includes tainted coins or not (assuming it eventually gets identified as being tagged somewhere down the line). And wouldn't this then be harmful for the  long term adoption of cryptocurrencies as a payment mechanism.

An individual cannot possibly know all the different algorithms that different centralized services are using to tagged coins as "tainted". But as I said above, this is bad for the long term outlook of centralized exchanges - they are adopting an untenable position that will be impossible for them to continually enforce as time goes on. I don't see this as bad for bitcoin. If anything, it will encourage people to use more peer-to-peer and decentralized services, which I see as a positive.

[pooya87]

if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

I don't think governments (certainly not the US government) will ease up on the restrictions and regulations they are placing on centralized exchanges. Centralized exchanges will always be sticking their noses where they don't belong and freezing accounts and seizing coins for trivial reasons. A multiplicity of centralized exchanges won't change that, as they will all have to play by the same rules. The real solution will be when the majority of users are trading freely and privately on decentralized exchanges.

they will surely keep forcing KYC but it is different from freezing an account just because it had a transaction history that might have been coinjoin related. and whenever a state or even a country forces ridiculous laws the companies simply relocate their headquarters as it has happened multiple times in the past. there are lots of other countries that don't have such stupid rules they can go to or even a new exchange can be created there. the later is what i meant about multiplicity of CEX but i agree that the ultimate solution is using DEX all the way.

[Killrbit]

if instead the number of exchanges was 50 (keep in mind that it is a global market) and they had to compete to get customers and stay afloat then they could never lose business by closing an account just because it contained a history of coinjoin transactions. additionally if majority of users were using coinjoins and other privacy oriented things then again these exchanges had to close all accounts instead of a select few.

I don't think governments (certainly not the US government) will ease up on the restrictions and regulations they are placing on centralized exchanges. Centralized exchanges will always be sticking their noses where they don't belong and freezing accounts and seizing coins for trivial reasons. A multiplicity of centralized exchanges won't change that, as they will all have to play by the same rules. The real solution will be when the majority of users are trading freely and privately on decentralized exchanges.

they will surely keep forcing KYC but it is different from freezing an account just because it had a transaction history that might have been coinjoin related.

Yes as the use of bitcoin increases as a payment mechanism, it is natural that governments in order to protect their own monopoly  will force centralized exchanges to start freezing tainted accounts ( many already black list wallets with hacked coins), but what about real world transactions, could someone eventually try and blacklist wallets containing coins with a tainted history lets say wallets containing laundered coins or coins that have been passed through a mixer or Dex even if the current owner could seemingly prove that it was unknown to him when he acquired said coins. i think most wallets would contain some amount of coins like these, perhaps a centralized authority would try to blacklist them if it contains tainted coins above a certain threshold ( maybe above 25% - 30% or so).

I get that something like this would be very difficult to enforce assuming the use of bitcoin has proliferated in the hands of enough people and is used as an everyday payment mechanism , which is way i mentioned that they might try and target wallets above a certain threshold.

[Killrbit]

Yes but while there may be no centralized wallet there is always the issue of the individual/organization controlling the Dex correct.

That's why I specifically mentioned Bisq.

Not only is Bisq a decentralized exchange, but the Bisq platform itself is decentralized. You run the software yourself on your own computer, and connect directly to other users via Tor. Just like with bitcoin, even if governments shutdown the the website, shutdown the GitHub, stopped the developers from working on it, you can still run it yourself and connect to other users.

So i did some reading up on bisq and from what i could gather it does seem on a technical level to be what an ideal Dex should be like, and an exchange that could resist to a very large degree centralized censorship.

here are a few reviews on it that i read if anyone's interested

1) https://cryptogeek.info/en/exchanges/bisq
2) https://www.cointelligence.com/exchanges_list/bisq/

But the recent hack on it a few months back does show that it is still exploitable. An attacker here was able to change other users’ default fallback address for a failed trade to one controlled by him.

Source: https://www.coindesk.com/hacker-exploits-flaw-in-decentralized-exchange-bisq-to-steal-250k


Another question i had with regard to bisq was the fiat gateway and payment methods. Since a user would have to provide his own account details in order to receive or make a payment in fiat wouldn't this then open up its own risks, and couldn't a centralized authority then use this as way to trace a user and link bitcoins to their original sources ?

1) https://docs.bisq.network/payment-methods.html

Sure, using DEXs is currently not as easy as using centralized exchanges, but that doesn't make it impossible for the average user.

yes and this should only become easier with time as User interfaces gradually improve and we start seeing volumes on them, most definitely some thing to look forward to.

[o_e_l_e_o]

and whenever a state or even a country forces ridiculous laws the companies simply relocate their headquarters as it has happened multiple times in the past.

Sure, but they can still be prevented from operating in a country or state unless they comply with specific rules and regulations, regardless of where they are headquartered.

perhaps a centralized authority would try to blacklist them if it contains tainted coins above a certain threshold ( maybe above 25% - 30% or so).

I'm not sure I follow you here. Bitcoin itself does not have a central authority. Centralized exchanges, services, websites, etc., are free to blacklist coins, since they are private businesses and can essentially do what they like. There is no central authority which could blacklist coins from being transferred or sent to another address altogether, though. The only way to do that would be with a fork which the community would never agree to.

Another question i had with regard to bisq was the fiat gateway and payment methods. Since a user would have to provide his own account details in order to receive or make a payment in fiat wouldn't this then open up its own risks, and couldn't a centralized authority then use this as way to trace a user and link bitcoins to their original sources ?

With Bisq, you only provide your fiat payment details to the other party, not to Bisq itself. Having said that, a government agency could still pose as a buyer on Bisq to collect bank details of people trying to trade. If this is a particular concern of yours, then you should look in to anonymous payment methods such as cash or anonymous money orders.

[Cryptocurrency Hunter]

They label Bitcoin badly. In doing so, they accuse it of money laundering.I think Bitcoin decentralized has a successful sheltered system so sometimes I see good tags and get happy transfer money securely to each other in seconds with sample Bitcoin or it is a great app to buy an item. I think these tags are way better for Bitcoin.

[bitcoindusts]

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.

The obvious answer to this is to not convert back and forth between BTC and fiat and just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

In my humble opinion, Bitcoin was never intended to be linked with the fiat currencies world:

If that so, how can one identify the value of BTC?  And since BTC is created as currency, we cannot avoid linking fiat currency to BTC.  Old world is always linked to new world same with finances. 

I am pretty confident that one day we will be using Bitcoin only financial instruments or, at least, that's my dream since being into BTC.
 

Well, we are already using Bitcoin as financial instrument but I think it is too much for a dream for Bitcoin to the only financial instrument to be use in this world and this will never happen.

In the end, yes! Just stay in BTC as much as possible. Earn bitcoin, accept bitcoin, spend bitcoin.

If only all merchants will accept Bitcoin as it is.

[Killrbit]

and whenever a state or even a country forces ridiculous laws the companies simply relocate their headquarters as it has happened multiple times in the past.

Sure, but they can still be prevented from operating in a country or state unless they comply with specific rules and regulations, regardless of where they are headquartered.

perhaps a centralized authority would try to blacklist them if it contains tainted coins above a certain threshold ( maybe above 25% - 30% or so).

I'm not sure I follow you here. Bitcoin itself does not have a central authority. Centralized exchanges, services, websites, etc., are free to blacklist coins, since they are private businesses and can essentially do what they like. There is central authority which could blacklist coins from being transferred or sent to another address altogether, though. The only way to do that would be with a fork which the community would never agree to.

What I meant here was not whether  bitcoin has a central authority to stop the movement of blacklisted coins, one can always move your coins on a peer to peer basis.

But that the state could perhaps stop you or at the very least make it difficult for you to use wallets  where chain analysis can prove that a large portion of the coins in said wallet can be traced back to a tainted wallet/source. Assuming of course that  chain analysis becomes more sophisticated in the future as well.( while we are talking about chain analysis how effective do you think chain hopping is as a way of obscuring data from chain analysis companies)

And by stop or hinder i don't mean on a peer to peer basis but  perhaps when an everyday average user who may have bought some bitcoin  from a friend and is now trying to use this to make a payment at say a starbucks or a Walmart. ( wouldn't this then negatively effect the adoption of bitcoin as a day to day payment mechanisim)

Again maybe all this could be rendered moot once we can implement schnorr signatures and taproot or some other future privacy features.

Thoughts ?

[o_e_l_e_o]

-snip-

There will always be ways to obfuscate where your coins came from - mixers, coinjoin, payjoin, peer-to-peer trading, atomic swaps to and from Monero, and so on. If a state does blacklist your address, there will always be a way around it.

It also becomes an impossible task as time goes on. Because of all the things I've just mentioned, particularly mixers and coinjoins, tainted coins regularly get mixed in among other circulating coins. Lets say there is a coinjoin with 1 tainted input and 50 outputs. Are all those outputs now tainted? What if all those outputs are later coinjoined again somewhere down the line, with another 50 outputs each. Are all 2500 outputs now tainted? If you look far enough back in time, then the majority of coins in active circulation can be claimed to be tainted in some way or another. With the growth of DEXs, mixers, coinjoins, etc., this is only going to get worse as time goes on. You obviously can't blacklist every address, so then you must choose a completely arbitrary cut off for how far back in time you look. 5 transactions? 10? 20?