Mixer restrictions

[BlackHatCoiner]

I don't understand what the benefit of claiming some coins are tainted is if they don't offer the solution.

That's the point. If you are afraid your coins may be tainted, and don't have a clear set of steps to "clean" them, you rely on an authority for the solution. The solution they offer you is simple; give up every square meter of privacy you have, and they immediately become clean!

Because they’re in the business of issuing decrees from an inscrutable black box.  They need a reputation, so they can sell their service to police and Compliance Officers who need tools to help them kill time ruining people’s lives to rationalize their paychecks.

Selling "AML score" to "rationalize their paychecks" is very optimistic. There's something far more insidious going on behind these services, and it's probably part of the operation to convince people that Bitcoin is not fungible.

[bitmover]

Also, I don't want to send high AML coins which I received to people who I know are not able to deal with them.

Why would the people in charge of this operation allow you to simply tell whether your coins are "high risk"? Have you ever paused and pondered about that? If there is an algorithm that reads my coin and tells me if it is tainted and why, then I can just not do the steps that makes it tainted.

So the fact that someone's selling these scores as a service means that they can very well be made up. Just as taint is made up.

I have a lot of UTXO received from casinos and mixers, which are all medium-high AML in most AML checkers. This is real, you can like it or not.

A few months ago a friend from my city asked to buy bitcoin from me.
I know that in a few years he will send those coins to a CEX to sell them.

 He is not able to deal with such utxo and he will get coins frozen. And he will ask me what to do. Maybe he may even be requested by the CEX to get documents/information from me about where those coins came from. Actually, this shows that if you care about privacy you should care about the AML of your coins.

I decided to sell him my coins that I got from other CEX, to avoid trouble.

all this ideology that "taint doesnt exist"  fails when it meets reality

Bitcoin is much larger than this forum community.

[BlackHatCoiner]

I have a lot of UTXO received from casinos and mixers, which are all medium-high AML in most AML checkers. This is real, you can like it or not.

I do not doubt that exchanges apply it. It is very real if you rely on these exchanges. But it is also made up. And because it is made up, any score that tries to predict where the next tainted coin is, is also made up.

There is no way we could all agree that X group of coins is tainted, and the rest of the coins are clean. Some scores will flag X coins, some will flag Y. These tools rely on heuristics that are unreliable, and completely overlook the fact that an exchange can just decide to clean some coins because it's the exchange.

If you don't care about the privacy of your coins, you can just comply with it, but you still risk having your coins flagged.

[joker_josue]

What I meant to say is that, unfortunately, you use good tools to do evil. The fault lies not with the tool, but with the people who use it.

Try drawing a truth table of your argument.  “If good tool, then not its fault if people misuse it” does not imply “If people misuse it, then good tool”.

✔ “PGP is a good tool, with a design both necessary and sufficient for many good uses.  Therefore, it’s not its fault if some people use it for evil.”

✔ “Untraceable money is a good tool, with a design both necessary and sufficient for many good uses.  Therefore, it’s not its fault if some people use it for evil.”

✘ “Bitcoin’s fully transparent blockchain is practically designed for mass-surveillance and Mike Hearn’s idea of taint.  Therefore, it’s not Bitcoin’s fault that its UTXOs are NFTs valued by ‘AML risk score’.”

Cf. what I said upthread:

Too many Bitcoiners start with their conclusion that “Bitcoin is perfect, handed down from the gods Satoshi”, and work backwards to retcon Bitcoin’s design bugs as desirable features.

So, is your criticism about the lack of high levels of privacy in Bitcoin? Or about the use of AML classification in Bitcoin?
That's because they are different things, with different responsibilities.

They are not different:  They are cause and effect.

Bitcoin’s surveillance-chain is a necessary and sufficient prerequisite for AML tainting of coins.

Daily reminder:  We are discussing this in a thread about a ban on mixer advertising.

Mixers are a Band-Aid on a gaping wound.

Edit:  Fix typos, tweak a word, add a link.

I never said Bitcoin is perfect. But what has been demonstrated over the years is that the way it was designed remains effective in fulfilling its purpose.

If the transparency of the blockchain were such a defining flaw, one would expect that cryptocurrencies with greater privacy would have achieved a much more dominant position. This doesn't mean Bitcoin can't improve its privacy; it just shows that there are other features that are also fundamental. Bitcoin has those.

Another point we must consider is the context in which Bitcoin was created. The goal was to allow people to have greater control over their money, without depending on third parties to validate their transactions. Blockchain transparency plays an important role in this model, allowing verification that no one is violating or abusing the system, by anyone.

Naturally, this brought limitations in terms of privacy. But we cannot analyze this characteristic only by its disadvantages, ignoring the role it played in building a decentralized and verifiable system.

It can be improved, yes. Does it make sense to do it now? I don't think so anymore. It's up to the community to create solutions that can allow these disadvantages to be overcome.

This won't solve the underlying problem. But it makes the system even more open, giving everyone the possibility to use it however they want.

This brings us to the issue of KYC and AML. Unfortunately, these are realities that we will hardly be able to completely avoid. But perhaps part of the solution involves doing what Bitcoin was truly created to do: be used as a medium of exchange.

If people start using BTC directly for payments, instead of constantly relying on conversion to fiat currency, we will be reducing the need to resort to intermediaries and, consequently, exposure to some of these restrictions. Because that was the idea behind Bitcoin: to eliminate intermediaries.

Perhaps it would be important to promote more acceptance of BTC as a means of payment by businesses and service providers.

I believe this would be a very important step towards achieving true financial freedom.

Maybe I'm being utopian, maybe. But, since I don't like to change the rules of the game after it's already started, I think it makes more sense to focus on what we can do with what we have, and not on what could have been done from the beginning.

[LoyceV]

Once the tainted coins land on an exchange ~, doesn't it make the entire exchange~ funds tainted?

Nope. That's when the magic happens:

The funds remain frozen at our addresses, and when the frozen funds are seized by the authorities, they are also sent from our addresses.

That's not true. You say the funds "remain frozen", but that can't be since you've mixed them already.
The first transaction was mixed in this transaction and that same output was used to sent to another address. The second transaction was mixed in this transaction and also sent to another address. None of the funds were frozen in your wallet, you're normally using them to pay other people.
To summarize: if those funds came from criminal activity as you claim, you've now sent it to other innocent users who now own those "tainted" Bitcoins.
It sounds very much like you only care about "taint" when it's convenient for you.

Whoever sells "the notion of taint", can also make it disappear. And that's exactly what they do when the "tainted" funds end up in the wallet of whoever pays them ("their client"). It's magic!

[nullius]

all this ideology that "taint doesnt exist"  fails when it meets reality

If there is an enforcement mechanism, it exists.

As I said before, I’m an anarchist—my ideology is that laws don’t exist.  I’ve declared that so-called “money laundering” doesn’t exist; it’s a made-up non-crime.  But “when it meets reality”, these things do exist due to enforcement mechanisms.

I have a lot of UTXO received from casinos and mixers, which are all medium-high AML in most AML checkers. This is real, you can like it or not.

A few months ago a friend from my city asked to buy bitcoin from me.
I know that in a few years he will send those coins to a CEX to sell them.

 He is not able to deal with such utxo and he will get coins frozen. And he will ask me what to do. Maybe he may even be requested by the CEX to get documents/information from me about where those coins came from. Actually, this shows that if you care about privacy you should care about the AML of your coins.

I decided to sell him my coins that I got from other CEX, to avoid trouble.

This is the nonfungible bagholder’s dilemma.  For both ethical and pragmatic reasons, you choose to be the bagholder, instead of making the other person the bagholder.

You drain your wallet of clean coins (= more valuable NFTs), you spend your intangible costs of your time, effort, and valuable expertise, you probably need to spend out-of-pocket costs doing these “AML checks”, and you wind up holding a bag of filthy, dirty, tainted coins (= less valuable NFTs).

If you chose otherwise, you’d inflict tangible and intangible costs on the n00b who’s gonna send your filthy, dirty coins to a CEX, lol.  (In this context, “don’t use CEX” is not a valid answer; fungible money by definition can be sent to anyone.)  Some of the intangible costs to them could be quite high—and could make blowback to you.

No one will thank you for making the responsible choice—which, incidentally, is also a self-protective choice.  Well, I’ll thank you.

Bitcoin is much larger than this forum community.

When institutional investors have $billions in Bitcoin, this forum community is a drop in the bucket.  It empowers them to co-opt Bitcoin for their own purposes, according to their own rules.

Coin taint and blacklisting are what break Bitcoin’s fungibility.  BTC is an NFT:  A non-fungible token, due to coin taint and blacklisting.  The subset of Bitcoiners who refuse to acknowledge this are either living in a Reality Distortion Field, or still under the influence of the blockchain transparency fetishization with which Mike Hearn, et al. poisoned Bitcoin early on.  I identify a lack of fungibility as the biggest long-term economic threat to Bitcoin.

I never said Bitcoin is perfect. But what has been demonstrated over the years is that the way it was designed remains effective in fulfilling its purpose.

The existence of this 82-page thread is evidence that it’s not effective at fulfilling its purpose.

If the transparency of the blockchain were such a defining flaw, one would expect that cryptocurrencies with greater privacy would have achieved a much more dominant position.

Bitcoin has had a flood of investment from big money that doesn’t give a fuck about cypherpunk values.  It’s why I’m more than beginning to think that the whole “number go up” thing is, in itself, a flaw—a security vulnerability.  It makes Bitcoin susceptible to being co-opted by banks, ETFs, billionaires, and CEX traders, along with a flood of n00bs who think of their Coinbase app as a magical kind of a bank account.

As you observe here, cryptocurrencies with greater privacy (ergo, fungibility) are successfully competing with Bitcoin amongst cypherpunks.  When I say that I must treat BTC as a hot potato to dump for ZEC/XMR, it is both a self-protective necessity, and a vote with my wallet.

Another point we must consider is the context in which Bitcoin was created. The goal was to allow people to have greater control over their money, without depending on third parties to validate their transactions. Blockchain transparency plays an important role in this model, allowing verification that no one is violating or abusing the system, by anyone.

Blockchain transparency is not necessary for this purpose.  Both Zcash and Monero provide the verification that you describe, without blockchain transparency.

They didn’t exist when Satoshi was active.  Satoshi didn’t know how to build them.  Within the past few pages of this thread, I’ve documented how in 2013, major Bitcoin developers such as Hal Finney, Greg Maxwell, and Adam Back were interested in applying new technologies to solve this problem:

This post will eventually have the maximum 100 merits from me.  The list of people who have sent it merit thus far is interesting:  Bitcoin experts and legends, privacy advocates, both Zcash and Monero users.

Merited by nullius (50), garlonicon (20), o_e_l_e_o (4), Foxpup (3), ABCbits (2), Hueristic (1), BitcoinFX (1)
[...] The challenge is, how do you prove that no other spends exist?  [...]  It's hard to think of how to apply zero-knowledge-proofs in this case.  [...]  We're trying to prove the absence of something, which seems to require knowing about all and checking that the something isn't included.

Naturally, this brought limitations in terms of privacy. But we cannot analyze this characteristic only by its disadvantages, ignoring the role it played in building a decentralized and verifiable system.

It can be improved, yes. Does it make sense to do it now? I don't think so anymore. It's up to the community to create solutions that can allow these disadvantages to be overcome.

That comes dangerously close to declaring Bitcoin obsolete.

If people start using BTC directly for payments, instead of constantly relying on conversion to fiat currency, we will be reducing the need to resort to intermediaries and, consequently, exposure to some of these restrictions. Because that was the idea behind Bitcoin: to eliminate intermediaries.

Perhaps it would be important to promote more acceptance of BTC as a means of payment by businesses and service providers.

I believe this would be a very important step towards achieving true financial freedom.

The XMR community has done the best of anyone to work towards building exactly what you say, with XMR:  Work for XMR, get paid in XMR, buy everything you need in XMR, live within the XMR economy.  They know this ideal, and they’ve been pushing for it hard.

The resilience, zealousness (unfortunately, sometimes to a fault), and creativity of their community is why I tacitly support XMR, even though I consider their privacy technology strictly inferior to Zcash.

You still haven’t explained to me why I should stick with BTC, instead of using XMR for the stated purpose and pushing for ZEC to get the same thing.

Maybe I'm being utopian, maybe. But, since I don't like to change the rules of the game after it's already started, I think it makes more sense to focus on what we can do with what we have, and not on what could have been done from the beginning.

That’s not Utopian at all.  To be Utopian is to envision an XMR circular economy where everyone lives from XMR, and then work to build it.  What you say sounds more like, “deeply invested in BTC and want number to go up, so no competition, please”.

I’ll be too polite to remark on “I don't like to change the rules of the game”, when Bitcoin was invented to change the rules of the game.

I give up on trying to keep up with replies that come in while I’m writing and previewing.

Edit:  Fixed substantive wording error that came off all wrong.  I wrote “on the other person”, then changed “person” to n00b.  The result, “the other n00b”, seems to imply that I’m calling bitmover a n00b.  Whoops!  Sorry, bitmover.

[bitmover]

If you chose otherwise, you’d inflict tangible and intangible costs on the n00b who’s gonna send your filthy, dirty coins to a CEX, lol.  (In this context, “don’t use CEX” is not a valid answer; fungible money by definition can be sent to anyone.)  Some of the intangible costs to them could be quite high—and could make blowback to you.

Exactly.

Telling other people what they should or shouldn't do with their own money goes against the ethos of Bitcoin. That's precisely what Satoshi's creation and bitcoin is about.

That is what banks do to us: "for your safety you can't send your money to this person".

[nullius]

(In this context, “don’t use CEX” is not a valid answer; fungible money by definition can be sent to anyone.)

Exactly.

Telling other people what they should or shouldn't do with their own money goes against the ethos of Bitcoin. That's precisely what Satoshi's creation and bitcoin is about.

I saw fit to clarify, because

“Not your keys, not your coins.”  So, don’t use CEX.  I don’t.

I routinely advocate against CEX.  But context is always important.  Here, we are discussing fungibility.  If you have fungible money, you can send it to CEX, or you can send it to a hooker to pay for sex, or you can send it to the government to pay your taxes; it makes no difference who the payee is.  If you can’t do that, then your money is nonfungible—and it’s therefore not money.

All of the stick-your-head-in-the-sand “taint doesn’t exist!” people must talk from both sides of their mouths, and blame the n00b for using CEX with tainted coins.

That is what banks do to us: "for your safety you can't send your money to this person".

But here, it is precisely inverted:  “For your safety, you can’t send your tainted money (which we deny is tainted, because taint doesn’t exist) to the bank.”

[joker_josue]

You still haven’t explained to me why I should stick with BTC, instead of using XMR for the stated purpose and pushing for ZEC to get the same thing.

Maybe I'm being utopian, maybe. But, since I don't like to change the rules of the game after it's already started, I think it makes more sense to focus on what we can do with what we have, and not on what could have been done from the beginning.

That’s not Utopian at all.  To be Utopian is to envision an XMR circular economy where everyone lives from XMR, and then work to build it.  What you say sounds more like, “deeply invested in BTC and want number to go up, so no competition, please”.

I’ll be too polite to remark on “I don't like to change the rules of the game”, when Bitcoin was invented to change the rules of the game.

I don't have to justify whether someone should or shouldn't use Bitcoin over other cryptocurrencies. I think everyone should use the currency they consider most suitable for their interests.

In turn, Bitcoin didn't change the rules of the game. Bitcoin came to create a new game, one that challenges the rules of the existing game.

Therefore, when I say "I don't like changing the rules of the game," it's in the sense of changes that go so far as to modify its identity.

I routinely advocate against CEX.  But context is always important.  Here, we are discussing fungibility.  If you have fungible money, you can send it to CEX, or you can send it to a hooker to pay for sex, or you can send it to the government to pay your taxes; it makes no difference who the payee is.  If you can’t do that, then your money is nonfungible—and it’s therefore not money.

If an exchange decides to reject certain BTCs, does that mean Bitcoin is no longer fungible? Or is that exchange introducing discriminatory criteria on something that the protocol treats uniformly?

[LoyceV]

If an exchange decides to reject certain BTCs, does that mean Bitcoin is no longer fungible? Or is that exchange introducing discriminatory criteria on something that the protocol treats uniformly?

Imagine if a bank would reject banknotes that have traces of cocaine on them. I'm pretty sure governments wouldn't even allow the bank to do this, even though the large majority of banknotes contains trace amounts of cocaine:

I've seen several posts lately from people willing to treat Bitcoin as non-fungible because they believe some coins are "tainted".
I'd say this is a severe threat to Bitcoin, and I wouldn't be surprised if governments use this because they can't stop Bitcoin in any other way. If people believe Bitcoin is "tainted", they won't accept it anymore. "We" should really inform people not to fall for this.
Nobody would reject a dollar bill because it has previously been used in a crime, despite the fact that 85 to 90% contains traces of cocaine. Claiming Bitcoin isn't fungible is just plain stupid.

What if tomorrow I decide to confiscate banknotes if the serial number has a 2 in it. Does that mean fiat money is no longer fungible, or that does mean you should simply not hand your fiat money to me?

[dkbit98]

Imagine if a bank would reject banknotes that have traces of cocaine on them. I'm pretty sure governments wouldn't even allow the bank to do this, even though the large majority of banknotes contains trace amounts of cocaine

People like to mention that cocaine example a lot but there are different examples I could name.
Banks can reject banknotes that have been marked somehow, even with invisible ink, and this happened several times in the past.
It also happened that banknotes became outdated or retired and they were not accepted anymore in banks or shops.

[JollyGood]

When governments want transparency they are not interested in whether it is fiat or crypto, they just want to know if the funds are being used for nefarious purposes (and that entails them keeping a history of what citizens are doing). With that in mind, the lines of losing privacy are crossed and that is unacceptable to the masses.

The governments already have access to virtually every transaction as far as the fiat banking system is concerned and they want to replicate that formula to crypto transactions via regulated exchanges. I am not advocating that their stance is correct, I am stating that they want more regulation and many people disagree with going even further with regulation.

Exactly.

Telling other people what they should or shouldn't do with their own money goes against the ethos of Bitcoin. That's precisely what Satoshi's creation and bitcoin is about.

That is what banks do to us: "for your safety you can't send your money to this person".

[joker_josue]

The governments already have access to virtually every transaction as far as the fiat banking system is concerned and they want to replicate that formula to crypto transactions via regulated exchanges. I am not advocating that their stance is correct, I am stating that they want more regulation and many people disagree with going even further with regulation.

That's why Bitcoin was created! So that people could have an alternative system to the traditional system.

But after 18 years, what have people done? They've used Bitcoin not as an alternative system, but as an alternative way to make money within the traditional system.

If you go to a store and pay with BTC, there's no issue of blocking or KYC requests.

The problem always arises when third parties are used to process something: payment, exchange, or custody. If this third element does not exist, then these questions no longer arise.

Of course, this requires more services and companies to accept Bitcoin as a form of payment, and to offer more self-custody services to avoid frequent conversions to fiat currency. In turn, merchants are using self-custody systems more than third-party gateways and similar solutions.