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Author Topic: Bitcoins are not, in practice, fungible  (Read 8437 times)
TTBit
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December 31, 2011, 02:46:18 PM
 #21

What is at issue here?

A) "Bad business decision by MtGox" - ok, I can agree, but haven't heard both sides of the story.

B) "MtGox can't do that." - They can do whatever they want with their business (not including defrauding people). MtGox owes the community nothing.


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December 31, 2011, 04:29:15 PM
 #22

I've also anticipated this happening.
If it continues, it will simply add pressure for a competing exchange that is much more anonymous and is always mixing customers Bitcoins.
You could call it the BMBTCX (black market bitcoin exchange). Making it truly anonymous and secure would be challenging.
But I'm sure you could go there and buy tainted bitcoins for a discount. In time, tainted bitcoins may become a non-issue.
It will be interesting to see how this develops.
Hope they catch anyone involved in fraud.

Sounds like a website needs to be built where stolen funds can be published and individuals and organizations can digitally vouch for bitcoins being tainted or not.
Might be cool.
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December 31, 2011, 04:37:18 PM
 #23

What is at issue here?

A) "Bad business decision by MtGox" - ok, I can agree, but haven't heard both sides of the story.

B) "MtGox can't do that." - They can do whatever they want with their business (not including defrauding people). MtGox owes the community nothing.


Both.  MtGox is asserting itself as a Police entity.  They have no lawful Police powers.  Seizing funds that don't belong to you is also known as STEALING.

Here is an example.  I offer to sell you a GPU for 50 BTC.  You send me the 50 BTC.  Based on my secret and internal "D&T database of bad coins" (trademarked and patent pending) I determine those coins were stolen.  I keep your 50 BTC.

Would you say "Sure D&T can do that.  He can run his business however he wants".

Police work is the responsibility of the Police.  If MtGox is complying w/ a warrant or court order that is one thing.  If MtGox has suddenly appointed themselves the Bitcoin Police that is UNLAWFUL.  I expect eventually if they do this on a large enough sum someone will file suit.


If MtGox doesn't want to do business w/ self determined "bad coins" they could simply reverse the transaction and inform the depositor.
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December 31, 2011, 04:51:59 PM
 #24

As many pointed out, this is a slippery slope.

mtGox has no right to act as a police, but it would be nice to be able to help the community in cases where coins are stolen and then attempted to be sold on mtGox. But who should determine this, and how should it be done? There would need to be rules for this, and it's not an easy subject.

What if someone stole 10K BTC. Then gradually sold these off for cash in person. How on earth would anyone be able to know that these coins were stolen? I'm sure a tracking system could be created, but how could we make sure that any addresses entered into that system were legit ?

So say Joe steals 10K BTC from onlinewallet.com, he lives in London, and travels frequently in Europe. He sells bitcoins for 100 - 1000 USD to a lot of buyers, in person. Do we expect these buyers to check against some kind of black list? Should there be a blacklist in the client ? Would it not happen that some coins wrongfully became blacklisted? Seems like a bad idea to have some kind of blacklisting.

Joe sells 200 BTC to Alice in Amsterdam. Alice keeps her coins, but one day she decides to sell them for whatever reason. She could have found a local buyer, but she has an mtGox account, and deposits the coins there. Shortly thereafter her account is blocked and she recieves a message that her coins are coming from a bitcoin robbery.

Is this fair or even legal ?

* Joe steals 200 BTC from onlinewallet.com.
* Joe sells 200 BTC to Alice: Joe profit in hard cash.
* Alice try to sell coins on mtGox, but lose her coins: Alice lost a lot of money.

Who's to keep the coins then ? mtGox ? Onlinewallet.com that got robbed gets them back?

I think the only way to solve things like these is to let mtGox have absolutely zero police power.

If someone loses 10K BTC, they should contact the police immediately. But another issue is:
What's the legal standing of such a loss, is it something that would be recognized and handled
correctly by the police, and would the police have enough technical knowledte to do anything
about the case ?

There are many questions here, and a very slippery slope for mtGox. What I know is that if I bought
a lot of coins and tried to sell them on mtGox, and the coins were frozen because they were tainted,
this would not make me much happy at all...
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December 31, 2011, 08:23:23 PM
 #25

I believe it's the Bitcoin network that makes transactions legitimate.  If Alice transfers coins to Gox and it gets into the blockchain, that money was paid, and Gox has an obligation to uphold their side of the implicit contract, specifically to increase her account balance.

If we are going to start treating coins as tainted, that needs to happen with network consensus.

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December 31, 2011, 08:32:37 PM
 #26

What is at issue here?

A) "Bad business decision by MtGox" - ok, I can agree, but haven't heard both sides of the story.

B) "MtGox can't do that." - They can do whatever they want with their business (not including defrauding people). MtGox owes the community nothing.

Here is an example.  I offer to sell you a GPU for 50 BTC.  You send me the 50 BTC.  Based on my secret and internal "D&T database of bad coins" (trademarked and patent pending) I determine those coins were stolen.  I keep your 50 BTC.

Would you say "Sure D&T can do that.  He can run his business however he wants".


If it's in the terms of service to you and you've agreed to those terms of service, then he can.

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December 31, 2011, 08:51:10 PM
 #27

What is at issue here?

A) "Bad business decision by MtGox" - ok, I can agree, but haven't heard both sides of the story.

B) "MtGox can't do that." - They can do whatever they want with their business (not including defrauding people). MtGox owes the community nothing.


Both.  MtGox is asserting itself as a Police entity.  They have no lawful Police powers.  Seizing funds that don't belong to you is also known as STEALING.

Here is an example.  I offer to sell you a GPU for 50 BTC.  You send me the 50 BTC.  Based on my secret and internal "D&T database of bad coins" (trademarked and patent pending) I determine those coins were stolen.  I keep your 50 BTC.

Would you say "Sure D&T can do that.  He can run his business however he wants".

Police work is the responsibility of the Police.  If MtGox is complying w/ a warrant or court order that is one thing.  If MtGox has suddenly appointed themselves the Bitcoin Police that is UNLAWFUL.  I expect eventually if they do this on a large enough sum someone will file suit.


If MtGox doesn't want to do business w/ self determined "bad coins" they could simply reverse the transaction and inform the depositor.


I agree he can refuse the transaction. I don't know the details of what happened.

Maybe this leads to a clean coin exchange. I'll pay 50.500 btc for a virgin block.

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December 31, 2011, 09:23:41 PM
 #28

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). 

I believe this is a continuation of this case:
https://bitcointalk.org/index.php?topic=3712.0

Edit: The same coins, I mean. Perhaps not the same person.

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January 02, 2012, 10:12:29 PM
 #29

If we are going to start treating coins as tainted, that needs to happen with network consensus.

Exactly - there is no provision for locking units in the protocol. It's a third-party dependent feature currently - in the example being used for this thread, Mt. Gox is policing its own environment within the greater Bitcoin economy.

If it's a direct transfer, there should be no issue. That means anything that isn't part of Mt. Gox. For there to even be a 'taint' problem, any complication would have to occur to a user within the exchange (which could be viewed as its jurisdiction).

So trouble might arise if funds were removed from MG, subsequently viewed by MG as 'tainted' and then the current owner of the funds attempted to make use of Mt. Gox afterward using those same funds. That would still only discourage use of Gox, not eliminate potential for transfer.

This comes down to a similar set of trade-offs as citizenship: if I have an account with Mt. Gox (passport from EU), my funds can be protected to an extent, but I have to submit to whatever the rules are within the exchange (or EU). If I don't have an account at the exchange, I forfeit the level of protection offered (safety from extradition, etc) but am free to conduct transactions however I choose.

Now a question might arise involving ownership of an account with Mt. Gox that has zero balance and experiencing a loss elsewhere. Is that the exchange's concern or not? Who decides? If that situation were honored, would it lead to witch-hunt style refusal of transactions through the exchange due to circumstantial reporting?

I think that would be a very dangerous precedent and hope it never becomes part of the protocol. Responsible asset management is far better in the long-run.
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January 03, 2012, 10:13:35 PM
 #30

I think it's a good idea to do this kind of tracing of stolen coins. Theoretically, if people know that if they buy stolen coins they might not be able to resell them, they might not buy them in the first place. As a result, thieves will have a tougher time unloading stolen coins.
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January 03, 2012, 10:29:16 PM
 #31

I think it's a good idea to do this kind of tracing of stolen coins. Theoretically, if people know that if they buy stolen coins they might not be able to resell them, they might not buy them in the first place. As a result, thieves will have a tougher time unloading stolen coins.

We really have no way of knowing which coins are stolen in the first place.  Someone could buy something with coin, then say they were stolen after the goods were delivered.  It would almost always be one persons word against another.  Even in high profile cases it would be very hard to tell what is really going on. 



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January 03, 2012, 10:34:32 PM
 #32

I think it's a good idea to do this kind of tracing of stolen coins. Theoretically, if people know that if they buy stolen coins they might not be able to resell them, they might not buy them in the first place. As a result, thieves will have a tougher time unloading stolen coins.

I have some coins to sell you.

Are they stolen or are they legit?  Please let me know how you verify.

The only person getting stuck w/ tainted coins is victims.

Worst case scenario is it simply makes Bitcoins less valuable for theives (i.e. less than face value) as they will want to unload them quickly before being considered tainted (and thus once again only screw over the person who unkowingly buys them.

Even if there was a global universal database of tainted coins (a pipe dream if I ever heard one) here is a timeline.

1) I steal 10,000 coins.
2) Knowing time is of the essence I unload them before the victim even discovers they have been stolen.   The more I discount them the quicker I can sell them. 
3) Victim reports coins as stolen.
4) Some central authority  (Mt Gox Police Dept??) verifies the claim of stolen coins and within hours? days? weeks? updated the global registry of stolen coins.

Not my problem I already have unloaded them to some suckers who see the value of their coins becomes worthless.

Now how many victims have to see their coins become worthless before people start saying "Fuck Bitcoin your coins can become worthless at any point in time"?  What do you think that will do to the overall value of Bitcoin as a mechanism for exchange?
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January 03, 2012, 11:20:23 PM
 #33

I think it's a good idea to do this kind of tracing of stolen coins. Theoretically, if people know that if they buy stolen coins they might not be able to resell them, they might not buy them in the first place. As a result, thieves will have a tougher time unloading stolen coins.

I have some coins to sell you.

Are they stolen or are they legit?  Please let me know how you verify.

The only person getting stuck w/ tainted coins is victims.

Worst case scenario is it simply makes Bitcoins less valuable for theives (i.e. less than face value) as they will want to unload them quickly before being considered tainted (and thus once again only screw over the person who unkowingly buys them.

Even if there was a global universal database of tainted coins (a pipe dream if I ever heard one) here is a timeline.

1) I steal 10,000 coins.
2) Knowing time is of the essence I unload them before the victim even discovers they have been stolen.   The more I discount them the quicker I can sell them. 
3) Victim reports coins as stolen.
4) Some central authority  (Mt Gox Police Dept??) verifies the claim of stolen coins and within hours? days? weeks? updated the global registry of stolen coins.

Not my problem I already have unloaded them to some suckers who see the value of their coins becomes worthless.

Now how many victims have to see their coins become worthless before people start saying "Fuck Bitcoin your coins can become worthless at any point in time"?  What do you think that will do to the overall value of Bitcoin as a mechanism for exchange?

More like how many times does MtGox have to get screwed by taking coins that don't get marked tainted until later before they go out of business.

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January 04, 2012, 06:56:28 AM
 #34

I think it's a good idea to do this kind of tracing of stolen coins. Theoretically, if people know that if they buy stolen coins they might not be able to resell them, they might not buy them in the first place. As a result, thieves will have a tougher time unloading stolen coins.

I have some coins to sell you.

Are they stolen or are they legit?  Please let me know how you verify.

The only person getting stuck w/ tainted coins is victims.

Worst case scenario is it simply makes Bitcoins less valuable for theives (i.e. less than face value) as they will want to unload them quickly before being considered tainted (and thus once again only screw over the person who unkowingly buys them.

Even if there was a global universal database of tainted coins (a pipe dream if I ever heard one) here is a timeline.

1) I steal 10,000 coins.
2) Knowing time is of the essence I unload them before the victim even discovers they have been stolen.   The more I discount them the quicker I can sell them. 
3) Victim reports coins as stolen.
4) Some central authority  (Mt Gox Police Dept??) verifies the claim of stolen coins and within hours? days? weeks? updated the global registry of stolen coins.

Not my problem I already have unloaded them to some suckers who see the value of their coins becomes worthless.

Now how many victims have to see their coins become worthless before people start saying "Fuck Bitcoin your coins can become worthless at any point in time"?  What do you think that will do to the overall value of Bitcoin as a mechanism for exchange?

This is a strawman of how any government tainting system would ever operate.
The coins in the innocent party's hands wouldn't automatically become worthless.

The coins would, upon entering one of the government audited merchants/exchanges be either taxed heavily, or placed in temporary escrow.
The point being - that the affected person could then provide information as to where the tainted coins came from in order to get their funds back, thus getting the regulators a step closer to the thief.

I'm not saying I would really like such a system - but I think that's a far more likely scenario as to how it would operate, and I do see something like this as an inevitability if people start using bitcoin as the preferred tool for serious crimes such as kidnapping and for 'financing of terrorism'.



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January 04, 2012, 08:03:27 AM
 #35

any kind of tracing- marking as tainted or Bitcoin FBI involvement is an anathema to me. All such talk debases the core principal of Bitcoin and should in my opinion be avoided. each BTC I recieve is the same as any other its value is determined by me and one other (the exchange partner ) agreed probably by current exchange rate. I do not need to know where it came from or where it is going. It is my private intelectual property to do with as I please without interference or control by any other third party.  There is no legal system attatched to this as BTC do not exist in reality. It is not money. each BTC is a string of random numbers in cyberspace. nothing more and would dissapear if cyberspace was for some reason not accessable. (ie no internet)  The solution to theft is in my opinion only feasable by ensuring widespread and easier protection and storage of wallet.dat files. If only I as origionator and operator of a wallet can have access to its contents there is no theft!. regards reg.
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January 04, 2012, 10:54:20 AM
 #36

Coins are not fungible, that's a given. MtGox has full rights to chose it's customers. Don't start with that liberal bullshit about non-discrimination. Bars frequently reject customers that score positive for cocaine on their hands (they have very sensitive scanners). It's not a stretch to imagine they could reject drug-tainted money:
http://en.wikipedia.org/wiki/Contaminated_currency

So MtGox if fully within it's rights to reject or confiscate "stolen" coins, as long as it makes it perfectly clear in their TOS. Of course, it's a stupid stunt that will only harm innocent bystanders. The fact that MtGox can get away with this is a testament to the flaky nature of the bitcoin economy, which is basically composed of miners and speculators all centered around a single site, MtGox.
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January 04, 2012, 11:29:09 AM
 #37

They're within their rights like I have the right to sell dogshit soup. It's super bad to act like you accept bitcoin when you only accept some bitcoins. And the method for telling which ones they accept is opaque, and they aren't simply going to return them or it would be fairly pointless. It would be like a paper dollar merchant not just declining dollars they deemed suspicious, but keeping them and not delivering product.

Maybe someone from this site wants to tell us if customers have an expectation of being paid only in coins that were never involved in a crime. Likely the risk runs one way only. Lose coins if they are deemed tainted by Gox, no recourse if Gox gives you tainted coins.

Is there a procedure for reporting crimes? Are crimes of all sizes given consideration? Someone didn't send me product, this counts right? How about my cousin grabbing my instawallet funds?

Really, promise to give it up and then actually give it up.

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January 04, 2012, 11:44:41 AM
 #38

Wow, I never thought of banknotes as a health hazard - one more argument for Bitcoins Smiley
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January 04, 2012, 12:10:59 PM
 #39

What is at issue here?

A) "Bad business decision by MtGox" - ok, I can agree, but haven't heard both sides of the story.

B) "MtGox can't do that." - They can do whatever they want with their business (not including defrauding people). MtGox owes the community nothing.


Both.  MtGox is asserting itself as a Police entity.  They have no lawful Police powers.  Seizing funds that don't belong to you is also known as STEALING.

Here is an example.  I offer to sell you a GPU for 50 BTC.  You send me the 50 BTC.  Based on my secret and internal "D&T database of bad coins" (trademarked and patent pending) I determine those coins were stolen.  I keep your 50 BTC.

Would you say "Sure D&T can do that.  He can run his business however he wants".

Police work is the responsibility of the Police.  If MtGox is complying w/ a warrant or court order that is one thing.  If MtGox has suddenly appointed themselves the Bitcoin Police that is UNLAWFUL.  I expect eventually if they do this on a large enough sum someone will file suit.


If MtGox doesn't want to do business w/ self determined "bad coins" they could simply reverse the transaction and inform the depositor.


This is such a fundamentally absurd post.  Market's police themselves without the state.  If that involves shunning transactions with those known to trade in stolen goods, they absolutely have that right.  MtGox has no obligation to comply with any warrant, court order, or any authority whatsoever because all "lawful authority" is unjustly acquired.  If MtGox gets a reputation for stealing coins under dubious circumstances then people will shun them and the market will police itself by putting MtGox out of business.  MtGox absolutely has the right to police themselves and you can go somewhere else to funnel your stolen coins into dollars.
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January 04, 2012, 01:19:09 PM
 #40

MtGox can do whatever they want, legal, illegal, moral, immoral, and they answer for it legally or business-wise. I wouldn't do business with someone if I believe it might get me in trouble (whatever that "trouble" might be), either. They probably considered it's more risky for their business (remember they are, but Bitcoin standards, huge) to allow the trading of those coins. What's the problem?

Whether they will lose business because of it, remains to be seen. As long as we have choices of exchangers, I don't worry. What they should do, is to write an easy to read and understand TOS so customers know what are the security procedures (maybe they do have something like this, I only checked the front page, it's not there), how they do their checks, and so on.

Let me be the devil's advocate: a risk-adverse customer (let's ignore for a moment the fact that Bitcoin is not for the risk-adverse people Smiley ) might consider a great advantage that someone is taking care they won't buy stolen coins. Who are we to decide that is not a reasonable thing to do?
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