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Author Topic: Bitcoins are not, in practice, fungible  (Read 8423 times)
makomk
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December 30, 2011, 01:36:51 PM
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Something interesting happened in #mtgox last night. A user got their account locked down and MagicalTux said that the reason for it was that the coins could be traced back to a theft a long time ago. He unlocked the account in question, but it means that the widely-held assumption that Bitcoins are fungible - that it doesn't matter which you get paid with - isn't true and hasn't been for some time. Some Bitcoins are tainted and will cause you problems when you try to exchange them while others aren't, and there's no easy way to tell which is which just by looking at them. (Wonder if there's a way to require payment with recently-mined bitcoins...)

I have no idea whether or how this will affect Bitcoin though.

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There are several different types of Bitcoin clients. Header-only clients like MultiBit trust that the majority of mining power is honest for the purposes of enforcing network rules such as the 21 million BTC limit. Full clients do not trust miners in this way.
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December 30, 2011, 01:55:07 PM
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I was wondering when we'd see some of the first cases of this.

Long term I expect it'll be the same as it is with fiat: if you deposit some bills at a bank with serial numbers associated with a robbery or ransom, you'll probably get some extra attention and questions, but ultimately the value remains yours.

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December 30, 2011, 01:58:34 PM
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Something interesting happened in #mtgox last night. A user got their account locked down and MagicalTux said that the reason for it was that the coins could be traced back to a theft a long time ago. He unlocked the account in question, but it means that the widely-held assumption that Bitcoins are fungible - that it doesn't matter which you get paid with - isn't true and hasn't been for some time. Some Bitcoins are tainted and will cause you problems when you try to exchange them while others aren't, and there's no easy way to tell which is which just by looking at them. (Wonder if there's a way to require payment with recently-mined bitcoins...)

I have no idea whether or how this will affect Bitcoin though.

Well if that were true (which I personally doubt)......

That would only mean that bitcoins are not fungible at mtgox and with any merchant or exchange that wanted that behavior.  Customers could choose if they wanted to deal with exchanges like that or not.  


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December 30, 2011, 01:59:10 PM
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This already happened once before, I've been searching but I can't find it, just tons of results about the original theft (it was allinvains coins). 

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December 30, 2011, 02:18:54 PM
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Why is mtgox still locking down those accounts? The bitcoins were probably sold long ago at Tradehill.

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December 30, 2011, 02:41:37 PM
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Well it won't stop the bit coin network from transacting in those coins (and ultimately laundering them) unless there's a change in the software to create some sort of address blacklist.  The worrying aspect is MtGox deciding to act as a policeman.  If they are going to do that I think they should make it quite clear.
makomk
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December 30, 2011, 03:04:32 PM
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Why is mtgox still locking down those accounts? The bitcoins were probably sold long ago at Tradehill.
Almost certainly - that's where the person depositing them reckoned they got them from originally. Though in theory I guess the amount of tainted bitcoins should be increasing over time until we hit the point where Mt Gox give up...

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December 30, 2011, 03:07:27 PM
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Why did tradehill decide not to cooperate with this blacklisting thing?  Was it the moral hazard?

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December 30, 2011, 03:08:30 PM
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locked because it could be traced back to a theft ? Really ?  Shocked

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December 30, 2011, 05:12:40 PM
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blacklisting is never a good idea

Why did tradehill decide not to cooperate with this blacklisting thing?  Was it the moral hazard?

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December 30, 2011, 05:20:35 PM
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Why did tradehill decide not to cooperate with this blacklisting thing?  Was it the moral hazard?

Because they shouldn't.  Mt. Gox is wrong.

There is no way to know the party in possession of the coins is the thief.

Thief steals coins.
Thief says I will give you 100K BTC for an equivalent amount of gold.
Thief has already profited, you have given up gold and are holding coins.  If those coins are worthless (or worth less in value) because of some merchants belief they have a God given right to be the Bitcoin Police then it undermines the entire system.

TL/DR version.
A bitcoin is only worth a bitcoin by consensus.  People deciding some bitcoins are worth more than other Bitcoins is not only idiotic it undermines the entire system. 
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December 30, 2011, 05:28:40 PM
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Why did tradehill decide not to cooperate with this blacklisting thing?  Was it the moral hazard?

Because they shouldn't.  Mt. Gox is wrong.

There is no way to know the party in possession of the coins is the thief.

Thief steals coins.
Thief says I will give you 100K BTC for an equivalent amount of gold.
Thief has already profited, you have given up gold and are holding coins.  If those coins are worthless (or worth less in value) because of some merchants belief they have a God given right to be the Bitcoin Police then it undermines the entire system.

TL/DR version.
A bitcoin is only worth a bitcoin by consensus.  People deciding some bitcoins are worth more than other Bitcoins is not only idiotic it undermines the entire system. 


Agreed.  At least they aren't "confiscating" them or returning to the previous holder.  Slippery slope though. 

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ineededausername
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December 30, 2011, 06:28:28 PM
 #13

Why did tradehill decide not to cooperate with this blacklisting thing?  Was it the moral hazard?

Because they shouldn't.  Mt. Gox is wrong.

There is no way to know the party in possession of the coins is the thief.

Thief steals coins.
Thief says I will give you 100K BTC for an equivalent amount of gold.
Thief has already profited, you have given up gold and are holding coins.  If those coins are worthless (or worth less in value) because of some merchants belief they have a God given right to be the Bitcoin Police then it undermines the entire system.

TL/DR version.
A bitcoin is only worth a bitcoin by consensus.  People deciding some bitcoins are worth more than other Bitcoins is not only idiotic it undermines the entire system. 


Agreed.  At least they aren't "confiscating" them or returning to the previous holder.  Slippery slope though. 

OK makes sense.  Another reason to dislike mtgox.

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December 30, 2011, 07:29:53 PM
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Because they shouldn't.  Mt. Gox is wrong.

There is no way to know the party in possession of the coins is the thief.

And further, trying to collect data based on where they came from is flawed too.  Let say a thief wants to cover his tracks...

They place an order with an online store like mine, and send the merchandise to someone they do not like (placing the order as that person)....  Now I try to sell them, and the exchange asks me for information on where the coins came from.  I would not tell them, but if they did get that info....  It could lead to the wrong person.

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December 30, 2011, 10:03:58 PM
 #15

This is an interesting topic...

I wonder, since bitcoins are divisible to 8 decimal places, and coins are churned and spent and divided and recombined, does this not mean that long term one would expect all accounts to have some fractions of "tainted" coins? Just like every person's normal dollar wallet probably has some bills that were involved in sketchy activity.

All coins will end up being tainted, and thus it wont' matter and it will be a meaningless observation.
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December 30, 2011, 10:25:59 PM
 #16

This is an interesting topic...

I wonder, since bitcoins are divisible to 8 decimal places, and coins are churned and spent and divided and recombined, does this not mean that long term one would expect all accounts to have some fractions of "tainted" coins? Just like every person's normal dollar wallet probably has some bills that were involved in sketchy activity.

All coins will end up being tainted, and thus it wont' matter and it will be a meaningless observation.

For some the taint will be more severe and more recent.

Naive merchants like MtGox will only be catching innocent users because it is trivial to shuffle coins and/or use a merchant or exchange that doesn't hassle people.

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Gerald Davis


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December 30, 2011, 10:29:23 PM
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This is an interesting topic...

I wonder, since bitcoins are divisible to 8 decimal places, and coins are churned and spent and divided and recombined, does this not mean that long term one would expect all accounts to have some fractions of "tainted" coins? Just like every person's normal dollar wallet probably has some bills that were involved in sketchy activity.

All coins will end up being tainted, and thus it wont' matter and it will be a meaningless observation.

For some the taint will be more severe and more recent.

Naive merchants like MtGox will only be catching innocent users because it is trivial to shuffle coins and/or use a merchant or exchange that doesn't hassle people.

Exactly.  It is scary though that MtGox even feels they should have the power to investigate coin histories.  I mean shit in some ways that is WORSE than bank.  It also sets a bad precedent.  MtGox complains about all the regulatory hoops doing stupid shit like performing their own internal "investigations" into coin history is just going to invite such regulation.

"Look MtGox has been Bitcoin Police for years so lets make that a requirement for any exchange and at the same time create a national registry of bad coins and a investigation arm, some requirements for people to document the history of their coins, etc". 
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December 31, 2011, 02:17:44 AM
 #18

This is an interesting topic...

Very - it's a moral issue that really has nothing to do with the underlying structure, but could still be viewed negatively from a certain perspective. Like anything else, I'd expect the time duration from an incident to gradually reduce any apprehension, just as people don't seem to be quite as sensitive anymore about the bubble and exchange security concerns.
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December 31, 2011, 06:57:02 AM
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Hmm nice that this was brought up.  I expect MtGox will be reading this and will choose a different course of actions next time this issue comes up.  The arguments made against locking accounts with "tainted" coins are very compelling.
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December 31, 2011, 09:27:12 AM
 #20

See this for some thoughts on how taint-tracking systems may actually be inevitable:
http://bitcoin.stackexchange.com/questions/2119/is-there-any-way-the-bitcoin-network-could-resist-a-viral-tainted-coin-tagging-s


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