Bitcoins are not, in practice, fungible

[disclaimer201]

IS MtGox going to decide just how tainted coins must be in order for them to be seized? 90%? 50? 20? 10? 1%?

This is messed up. As I've mentioned in another thread about this topic, I believe we need a network/community consensus or this may become a case that will either confuse many people and keep them from further- or ever start using BTC (forget a widespread BTC usage in the future if things get so complicated that I have to know how to verify coins let alone do it with every transaction) or it may split up the users in favor and against such tracking measures. The latter would be bad, too b/c there is already some fuzz going on what should be implemented officially and what not.

Some people claim tracking and tainting is going to be inevitable even b/c of the way bitcoin is created - we should make clear to everyone that we don't want tainted Bitcoins to be seized and returned to their original owners, who were sloppy with their security precisely b/c it will undermine the system. So, this is not a question of technical doability but one of politics. In any way, the recent theft has made quite an impact already, enough to get me thinking whether it could be a coordinated attack from someone having had enough time to find bitcoins weakness and/or the "community's" weakness (namely separation and disillusionment). Let's hope the thieves were really just greedy bastards.

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[marcus_of_augustus]

... or we could just accept that due the fundamental of the design, bitcoins are just not that fungible.

Of course, a more fungible cryptocurrency than bitcoin would also be more anonymous and private (by corollary?).

The poor fungibility is related to what makes bitcoin only pseudo-anonymous with further layers being required to achieve strong anonymity with the bitcoin scheme .... however it is difficult to imagine a pattern of bits that is indistinguishable from another pattern of bits and yet can be issued in only limited amounts ....  double-spend and fungibility are not easy to satisfy simultaneously it seems ... makes gold look like good money ... we need some way to be able to "melt-down" tainted bitcoins so they can be like fresh minted again ...

[marcus_of_augustus]

we need some way to be able to "melt-down" tainted bitcoins so they can be like fresh minted again ...

Transaction fees. 

Care to elaborate on that ... ?

[Polvos]

we need some way to be able to "melt-down" tainted bitcoins so they can be like fresh minted again ...

Transaction fees. 

Care to elaborate on that ... ?

Yes please, explain how.

[realnowhereman]

I can't quite remember; but I believe this to be correct.

Transaction fees are paid by making the inputs of a transaction be larger than the outputs.  The miner is then entitled to add that difference to their coin base transaction.  Note: the coin base.

The coin base is not directly connected to the input transactions in the block.  It is the creation of new coins.

You can therefore convert old coins to "new" coins by paying the whole value of a transaction as the fee.  Of course you've given their value to the miner, so there is no real reason to do it.

[Soros Shorts]

You can therefore convert old coins to "new" coins by paying the whole value of a transaction as the fee.  Of course you've given their value to the miner, so there is no real reason to do it.

Is there any reasonably way in which someone can make these transactions get picked up by their own miners when they solve a block?

[Polvos]

¿Can a large mining pool owner act as a Bitcoin launderer not broadcasting a fake all-fee-transaction and including it in a valid block mined by the pool?

[muyuu]

This is a problem that, within Bitcoin, can only be solved collaboratively. Either exchanges should be pressed to explicitly accept all BTC from all origins and make this contractual, or we should run a big P2P coin mixing system including a big enough % of users that exchanges would have to submit to it.

[Lupus_Yonderboy]

You can still track where those fees came from. It is a bit harder, but not impossible. Besides, if you start doing really large transaction fees with the intent of attempting to launder coins, people can simply consider those coinbases to be tainted as well.

There will be a time in the not so distant future where somebody will add the functionality to a client which allows the user to specify a tainted transaction, block, or address with which they do not want to receive coins from. The client will then allow the user to segregate those coins from the rest of their clean coins to do dispose of how they see fit. It is already a part of the protocol to be able to specify exactly which bitcoins go into a transaction, allowing the user an interface to do so directly simply gives them more fine grained control over their money.

It is my right to do business or not do business with a person or business based upon my personal criteria. If that criteria includes not receiving stolen goods/property, and I can reasonably determine that to my satisfaction by examining the blockchain, then I don't see a problem.

[Polvos]

But more complexity layers in the Bitcoin client may scare new adopters

[muyuu]

A big mining pool could take tainted coins and pass them to all miners with a premium, and give the newly-mined coins to a third party.

[Lupus_Yonderboy]

And honest miners who want their coins kept clean willl simply not mine there anymore. Businesses that purposefully deal in stolen property should not be surprised when they have customers that no longer want to do business with them.

[disclaimer201]

But more complexity layers in the Bitcoin client may scare new adopters will scare potential users and existing users.

[amencon]

And honest miners who want their coins kept clean willl simply not mine there anymore. Businesses that purposefully deal in stolen property should not be surprised when they have customers that no longer want to do business with them.

Most likely almost any business that deals in cash has at one point or another accepted payment of cash that was stolen at some point in time.  I've never heard of anyone ever griping about a business due to these practices. 

The truth is there is a good chance that tons of coins that have been stolen and never reported.  You'll never know if the coins you are receiving were once stolen or not.

As time goes on it'll be increasingly likely that most coins you encounter will at least in part have been stolen at some point, who cares?

[muyuu]

And honest miners who want their coins kept clean willl simply not mine there anymore. Businesses that purposefully deal in stolen property should not be surprised when they have customers that no longer want to do business with them.

LOL. Miners will go wherever they perceive they can make the slightest bit more, all the remaining considerations be damned.

Actually, caring about the future of bitcoin I would immediately support such a mining pool even at a cost.

Honest miners   is there such a thing as a dishonest miner?

[Lupus_Yonderboy]

Honest miners   is there such a thing as a dishonest miner?

Ones that willingly support attempts at laundering stolen money

[muyuu]

Honest miners   is there such a thing as a dishonest miner?

Ones that willingly support attempts at laundering stolen money

How about when the choice is that or the doom of bitcoin? because that's exactly the case.

[hashman]

Honest miners   is there such a thing as a dishonest miner?

Ones that willingly support attempts at laundering stolen money

You might as well say the miner willingly supports the (insert your favorite crime here) because the transaction included in the block was payment for (insert stuff you don't like here). 

Getting miners to look for money laundering attempts is like getting auto manufacturers to avoid making getaway cars. 

[DeathAndTaxes]

I can't quite remember; but I believe this to be correct.

Transaction fees are paid by making the inputs of a transaction be larger than the outputs.  The miner is then entitled to add that difference to their coin base transaction.  Note: the coin base.

The coin base is not directly connected to the input transactions in the block.  It is the creation of new coins.

You can therefore convert old coins to "new" coins by paying the whole value of a transaction as the fee.  Of course you've given their value to the miner, so there is no real reason to do it.

Unless you ARE the miner.

1) Create a transaction involving tainted coins w/ a hefty transaction fee.
2) Don't submit it to the network
3) Include it in the next block you are mining.
4) Tada all transaction fees are now "taint-free".

Rinse and repeat until all principal is in the form of transaction fees.

[DeathAndTaxes]

And honest miners who want their coins kept clean willl simply not mine there anymore. Businesses that purposefully deal in stolen property should not be surprised when they have customers that no longer want to do business with them.

1) Miners have no clue what their hashes are being used for
2) No reason you can't pay miner in "clean coins".

Offer a 105% PPS pool.
Include a transaction the pool OP wants cleaned w/ hefty fee in the transactions (fee will go right back to the pool op).
The "tainted coins" are slowly laundered into transaction fees.
Since pool owns the input address, output address, and coinbase address the funds go right back to the pool OP.
Pay miners in clean coins from totally unrelated addresses.

Got an answer for that?  Starting to see the futility of these stupid and increasingly complex schemes to track coins.

For all you know 105% PPS pools might be doing this right now. 

Note: Miners in pools aren't paid the transaction fee.*  The pool's wallet it.  Miners are paid by pool operator.  That is a subtle but real difference.  * The exceptions being p2pool and Eligus where miners are included in the coinbase directly.