Bitcoins are not, in practice, fungible

[DeathAndTaxes]

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.

There is a difference between REJECTING a transaction and simply SEIZING the money.  

i.e.
"Sorry we can't accept this deposit of 1000 BTC because they have been flagged by our internal database.  They have been refunded to the sending address.  For more information click here"

vs

"Sorry your deposit includes funds that our secret database has determined (at our sole discretion) are tainted.  We have seized the funds until you prove to use they are legit.  If you can't prove to use they are legit we will keep them."

Seizure of assets by a private entity without backing of the courts (due process) is generally considered unlawful.  Just because Mt. Gox can get away with it doesn't make it right and certainly doesn't make it something we should advocate.

[1714023865]

1714023865

[BubbleBoy]

Seizure of assets by a private entity without backing of the courts (due process) is generally considered unlawful.

They are not seizing the money, they force you to identify yourself in order to redeem them. There is nothing illegal in doing so, in fact most jurisdictions require financial entities to know their customers. If MtGox has reasons to believe the customer might be a criminal, then asking the customer to identify himself is unquestionably legal.

This is exactly what PayPal does on a regular basis with account limitations until you submit ID info. And they do it on a massive scale, there are much more limited accounts in PayPal's system than there are regular accounts in MtGox. It should not be surprising that Bitcoin processing sites start to look more and more like PayPal, they are shaped by the same real-world laws.

[DeathAndTaxes]

Seizure of assets by a private entity without backing of the courts (due process) is generally considered unlawful.

They are not seizing the money, they force you to identify yourself in order to redeem them. There is nothing illegal in doing so, in fact most jurisdictions require financial entities to know their customers. If MtGox has reasons to believe the customer might be a criminal, then asking the customer to identify himself is unquestionably legal.

This is exactly what PayPal does on a regular basis with account limitations until you submit ID info. And they do it on a massive scale, there are much more limited accounts in PayPal's system than there are regular accounts in MtGox. It should not be surprising that Bitcoin processing sites start to look more and more like PayPal, they are shaped by the same real-world laws.

Um this isn't indentifying the person.  I have no issue w/ know your customer compliance.

This is MtGox determining coins are tainted and seizing them until/unless the depositor can prove otherwise.

[BubbleBoy]

Has this actually happened  ? (the depositor forced to prove the "coins are not tainted", whatever that means)
From what I understand up to now in all cases where funds were frozen the customers could not be contacted by email. Until shown otherwise, we must assume that MtGox will be satisfied with a photo ID of the owner and a description of how they acquired the funds. Both of which are regularly requested by my bank.

They also stated they only act upon notification from a law enforcement agency, and depending on the local law returning stolen property to the lawful owner might be mandatory. So they might have no choice over confiscating the coins, other than compensate the alleged thief out of their own pocket.

[FreeMoney]

I don't believe that law enforcement contacted them and said hey keep an eye out for bitcoin transactions that had inputs from this or that address.

[realnowhereman]

Mtgox can't do anything but "seize" them. There is no way to refuse to receive bitcoins and there is no way to be sure that the sending address is an appropriate return address, nor to identify the sender.

The only remaining options are to ignore tainted coins or to require a meatspace id in preparation for any potential legal investigation that appears in the future.

[gregwtmtno]

I think it's just like cash. If you show up at a bank with a ton of cash, you better believe they're going to ask questions. No reason Mt. Gox has to make it easier for people to move around stolen coins.

[tvbcof]

The first time I remember Mt. Gox locking users for having 'stolen' coins, it became immediately obvious that they got the coins in question from Tradehill.  I remember watching these coins move around in odd ways on Tradehill, and got some of them myself (or I should say, I bought BTC on dips caused by a large previous owner wanting badly to have cash instead of BTC.)

Whatever method Mt. Gox has for identifying stolen coins needs to be either refined or open-sourced for scrutiny by more competent persons as it is currently sub-standard and if probably only Mt. Gox with their near monopoly could get away with harassing their users on the basis of that quality of analysis.

Beyond that, I would have trouble classifying any BTC losses as 'thefts' on a philosophical basis.  In the case of various services (e.g., MyBitcoin, B7, etc) people willingly gave their BTC to someone who turned out to be not reliable.  In the case of allinvain, keeping that much value in a single wallet.dat on a Windows machine was at best unbelievably negligent, and there is always the possibility that the whole thing was staged.  There is no reason why I as a holder of BTC should be penalized or even inconvenienced by the poor judgement of others.

[Stephen Gornick]

Similar activity (Mt. Gox locking accounts and claiming bitcoins deposited were derived from stolen funds) allegedly occurring following the Linode hack (of wallets at Bitcoinica, Slush, Faucet / etc.):

Hi,

We have noticed you have deposited recently 7 BTC and have a reason to believe those coins may have come from the coins stolen from Bitcoinica (see the bitcointalk forum for more details).

MtGox Co. Ltd.

- http://bitcointalk.org/index.php?topic=67091.msg780420#msg780420

[Update: A related thread on an allegation that another exchange is the recipient of coins related to the theft:
 - http://bitcointalk.org/index.php?topic=67129.0
]

[Cosbycoin]

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.

Agreed. Stolen coins are stolen coins. If someone was dumb enough to get them stolen then they should be stolen.

In slush's case I can understand it wasn't his fault so then those are coins Mt. Gox should be trying to protect from being exchanged.

[reg]

to death and taxes,  I think you are right- deal with MtGox if you are prepared to accept their KYC rules and acept they are just like police in the system we are trying to get rid of.  I was just about to deposit cash to buy BTC on MtGox- but I dont think I will now! I will go somewhere else and there are other options bye-bye MtGox.  reg

[Andrew Vorobyov]

to death and taxes,  I think you are right- deal with MtGox if you are prepared to accept their KYC rules and acept they are just like police in the system we are trying to get rid of.  I was just about to deposit cash to buy BTC on MtGox- but I dont think I will now! I will go somewhere else and there are other options bye-bye MtGox.  reg

They free to inform about these coins.. but they can NOT reject them or expropriate it.

[Hawker]

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). 

Did allinvain get his coins back ?  When did that happen ?

[BadBear]

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). 

Did allinvain get his coins back ?  When did that happen ?

I don't think so, but I just meant that Mt Gox already locked accounts before for dirty bitcoins.

[k9quaint]

Stolen bitcoins should always be farmed OTC.
Exchanges exist to reduce counterparty risk, one of which is stolen goods which expose the buyer to legal consequences.
Don't like exchanges needing to know you? Don't use them.

[the joint]

I have never used Mt. Gox to this point except for a brief test where I had about 25 cents in there.  They ended up terminating my account and stealing the 25 cents -- at least that's what I assume as I can no longer log into my original account with a password that was over 20 random characters and symbols.  My linked email account has a similarly-complex password.

And, I plan to never, EVER use Mt. Gox after reading the dozens and dozens of horror stories on this forum.

My guess is that MtGox is simply comprised of a few greedy fucks who will not hire any more customer service reps because they want to keep their individual profits to a maximum.

DeathandTaxes hit the nail on the head.  Locking accounts and seizing funds is stealing, even if only temporarily.  In the event that Gox were to conclude that the deposited funds are stolen and thus permanently seize the funds, this is still stealing.

[marcus_of_augustus]

So if a bunch of the stolen coins go through the bitcoin fog

http://www.bitcoinfog.com/

and are mixed and bundled with 'worthy' coins and then deposited in the goxhole ... which ones do the goxes poach then?

Gox in charge of the hen house?

[k9quaint]

Stolen bitcoins should always be farmed OTC.
Exchanges exist to reduce counterparty risk, one of which is stolen goods which expose the buyer to legal consequences.
Don't like exchanges needing to know you? Don't use exchanges.

FTFY

Nice try. But you can do over the counter transactions with Bitcoin and you won't have to worry about an exchange seizing your bitcoins.
This is not a problem inherent to Bitcoin as you suggest. It is a "problem" with exchanges acting as middlemen.
Except that is the entire reason for exchanges to exist, to act as middlemen and make sure neither party gets left holding the bag.

[matonis]

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.

+1  Don't punish the innocent for the sins of the guilty; anyone can get 'bad' $20 bills in their change or even from an ATM.

[stochastic]

The question is, what happens when those stolen bitcoins are exchanged long enough that an unsuspecting person ends up with them and then deposits them into their Bitcoinica account.  Will they be confiscated?  I don't think Bitconica would do that but the thought is creepy.