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Author Topic: tainted bitcoins  (Read 5236 times)
CliffordM
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December 31, 2011, 02:17:56 PM
 #1

The MtGox behaviour over locking someone's account as it contained 'tainted' coins is going to open up a real can of worms.

Whilst it sounds like a regulator's dream, the ability to taint and blacklist certain coins as they wash through the system, will
create a continuum of coins, some good, some bad, and a desire to hold and keep the best, freshly minted coins.

Gresham's principle in Economics states quite clearly that 'bad money drives out good'.    This is a well known phenomenon,
and would suggest that if tainting became important,  you would expect to find people trying to slip you tainted coins rather
than good ones.

There's no reason why there would be a single blacklist,  governments and authorities might decide to keep their own and
this in turn would create an industry in the wallet-arena,  scoring and maintaining these lists, much like there are multiple
credit rating agencies, and virus-protection firms.

It would be horrible and divisive. Yet highly attractive to governments, as it would allow them to 'tax' coins depending on
their own opinion of their provenance.

Another nightmare is that the tainting tracing process might be horribly retrospective.  Today you are the proud owner of 100BTC
but in a week's time you discover that GovernmentX has listed them as tainted and only worth 80BTC. 

Given the delightfully open nature of Bitcoin, there's no real way to stop this sort of thing happening, and it's likely to split
a bitcoin economy, make things more complex for merchants and raise the spectre of transaction taxxing / reporting.

Rather like the drunk who has lost his keys and searches for them under the lampost (where it's light rather than where he probably
thinks they are), regulators might seize on the block-chain as their silver-bullet.

Careful discussion and thought at this stage might help prevent a knee-jerk regulatory action which would prove very hard
to unwind.


 




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December 31, 2011, 02:30:06 PM
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TL;DR,  and your point is... ?  MtGox is not very transparent so we can't start babbling like this without reason, go figure. Maybe they traced whole stolen amount of bitcoins passing from one wallet to another and then on to the exchange. That is a fresh taint of stolen bitcoins, just like a suitcase full of banknotes with their series reported as stolen, you would have to respond some questions.

I would like to see with my eyes what they thought it was suspicious but they seem more like a government institution than a community exchange in almost all of their actions, no transparency at all.

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December 31, 2011, 02:31:05 PM
 #3

At least Silk Road considers all coins the same  Grin

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December 31, 2011, 04:36:26 PM
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Coins are coins. I will change any coin for cash and vice versa. Mt.Gox can eat worms if they do that.

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December 31, 2011, 04:39:56 PM
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At least Silk Road considers all coins the same  Grin

No they won't.  Silk Road sellers only consider a BTC worth $4.64 (currently) because they can exchange them for $4.64 in fiat.  For coins that they can't exchange they will either not accept or will discount.
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Gerald Davis


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December 31, 2011, 04:41:21 PM
 #6

TL;DR,  and your point is... ?  MtGox is not very transparent so we can't start babbling like this without reason, go figure. Maybe they traced whole stolen amount of bitcoins passing from one wallet to another and then on to the exchange. That is a fresh taint of stolen bitcoins, just like a suitcase full of banknotes with their series reported as stolen, you would have to respond some questions.

I would like to see with my eyes what they thought it was suspicious but they seem more like a government institution than a community exchange in almost all of their actions, no transparency at all.

The point is they are acting outside the law.  Making themselves judge, police, and jury when it comes to the validity of coins.

If you paid me some coins and I "froze" them because my internal secret database determined they were stolen would you have equally no problem w/ that?
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December 31, 2011, 04:44:42 PM
 #7

At least Silk Road considers all coins the same  Grin

No they won't.  Silk Road sellers only consider a BTC worth $4.64 (currently) because they can exchange them for $4.64 in fiat.  For coins that they can't exchange they will either not accept or will discount.

I don't know about Silk Road that much, but to my understanding it "mixes" all the bitcoins inside it, like this kind of services usually do? And the sellers don't know what bitcoins they own before they withdraw their coins.

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December 31, 2011, 05:00:57 PM
 #8

In Bitcoin, an interesting characteristic of coins is that when a transaction combines them with other coins, those coins become indistinguishable from one another.  All coins emanating from the transaction are identical in every way, being part "these" coins and part "those" coins.  They are as good as melted together.

If someone made a mixing service that aggregated an enormous number of coins into a single transaction, maintainers of blacklists for coins would have to blacklist an ever-increasing percentage of the total coins in existence, or else stop blacklisting.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
CliffordM
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December 31, 2011, 05:17:02 PM
 #9

Yes but suppose I send 10 100% tainted coins to an address which already has 90 0% tainted coins, then you might consider that this new address now has 100 10% tainted coins.

Having worked in and with the UK regulatory industry for a long time it would not surprise me at all that building a large piece of machinery to track such trails would be high on their list of priorities.
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December 31, 2011, 05:23:57 PM
 #10

1. obtain "tainted" coins
2. send a small amount to every donation address you see
3. infinite griefing!

It is pitch black. You are likely to be eaten by a grue.

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December 31, 2011, 05:30:26 PM
 #11

this kind of thing is entirely possible as we have a record of transactions... But how far does the link go? If i recieve btc from a guy off silkroad that might not be a faullt of my own...

 But gov laundering laws never made sense anyway...

 It's like cash, but much more of a threat because the network is there for all to see.

Btc may solve the inflation problem but that's all. It's actually more useful for governments... Actually much less private don't you think
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December 31, 2011, 06:14:04 PM
 #12

In Bitcoin, an interesting characteristic of coins is that when a transaction combines them with other coins, those coins become indistinguishable from one another.  All coins emanating from the transaction are identical in every way, being part "these" coins and part "those" coins.  They are as good as melted together.

I thought this also for a long time but it is incorrect.  Sadly I wished BTC worked this way but it doesn't.

The network tracks each individual transaction.

Thus you have an address xxx with a balance of 0.
Someone sends you 10 BTC from adress abc.  Your wallet doesn't just record the balance.  It records the prior Tx Out.  (10 BTC abc -> xxx).

Now I send some "tainted" coins.  5 BTC from address xyz. Your wallet doesn't just record the balance.  It records the prior Tx Out.  (5 BTC xyz -> xxx).

So your address may have 15 BTC but nothing has co-mingled.  That address has two distinct entities.  When you send coins you don't just say 15 BTC from xxx to somewhere you specific THE PRIOR Tx Out.  Thus deliberate or not each transaction involves coins from a specific chain.

Sadly I have only become recently aware of how much privacy is loss via the transaction mechanism of Bitcoin.
casascius
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December 31, 2011, 06:19:08 PM
 #13

In Bitcoin, an interesting characteristic of coins is that when a transaction combines them with other coins, those coins become indistinguishable from one another.  All coins emanating from the transaction are identical in every way, being part "these" coins and part "those" coins.  They are as good as melted together.

I thought this also for a long time but it is incorrect.  Sadly I wished BTC worked this way but it doesn't.

We're talking about two different things.  Your example is correct the way you've described it, but I'm referring to what the client does when all the available coins (or TxOuts rather) are too small to satisfy a transaction.

Let's suppose someone sends you 10 BTC.  You have a TxOut worth 10BTC.

Suppose someone else sends you 5BTC.  (Doesn't matter if it's the same or a different address).  You have second TxOut worth 5BTC.

Then you go and send 15BTC to someone.  The transaction created by your node has two inputs (referencing both your prior TxOuts) and one output.  The coins have been combined into a single TxOut.

On another note, I have seen other threads discuss ways to derive keypairs from a single public key.  In other words, if you knew somebody's "A" and their "B" public keys, you could endlessly generate new addresses for them, for which they'd be able to figure out the private key, but nobody would know was theirs.

If such a scheme were implemented, one could send that 10 and 5 BTC onward to two different addresses belonging to the recipient, and nobody would know they were part of the same transaction.  We would just have a new problem, fragmentation and an increase in order of the exponential growth of the block chain.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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December 31, 2011, 06:33:05 PM
 #14

If you happen to know that some inputs are tainted, then the new "June" anon/"coin control" patch should help much. But if every client offered a 'random scramble' feature and numerous web sites offered to scramble multiple user coins, then coins could be properly laundered.

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December 31, 2011, 06:38:38 PM
 #15

I'll take some tainted coins!!!

Deposit tainted coins here: 1Ghg4qAnpSEwVYWfqLDVbi5p4nsasGfg27

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December 31, 2011, 10:14:44 PM
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Correct any erroneous facts, but Mt. Gox' site got hacked and coins were stolen.  I understand that there are limitations to any site and don't blame Mt. Gox for the problems they experienced.  However, their (alleged) decision to play cop is a bad one.  BTC are an anarchistic arrangement.  If you don't want to pay taxes, you can't complain if the cops or fire department don't come to your house.  I hate our tax system and want to opt out.  I won't go crying to the government if my house burns.  Likewise, Mt. Gox has no business acting as a frontier sheriff.  The coin holders that got heisted shouldn't have put all their eggs in one basket.

Mt. Gox isn't Chuck Schumer, Jr.
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December 31, 2011, 10:29:58 PM
 #17

http://www.bitcoinfog.com/
http://bitlaundry.appspot.com/

cant vouch for either.

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December 31, 2011, 10:32:05 PM
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I just saw a reference to this in the fungible thread as well.

Can anyone please let me know if this is indeed a new case, or if it's the old baron case.  And if it's a new case, can someone provide more details or a link to another thread?
casascius
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December 31, 2011, 10:35:05 PM
 #19


Likewise, Mt. Gox has no business acting as a frontier sheriff.  The coin holders that got heisted shouldn't have put all their eggs in one basket.

strictly philosophically, if Mt. Gox wants to question someone for coins sent to them that they recognize as originally being stolen from them, I don't see that the same thing as playing sheriff, no differently than if someone presents me cash as payment whose serial numbers I recognized as being stolen from me.  If you present cash to a bank for deposit and it happens to be colored with a spray of red dye (the kind from time-delay exploding dye packs given to bank robbers), you should expect questions and not be surprised.

I also don't believe that just because Bitcoin is cash-like and often anonymous, that laws are irrelevant.  In practice, Bitcoin certainly puts the law out of reach of a lot of things, but I don't think laws simply cease to apply in theory just because of that.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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December 31, 2011, 10:58:29 PM
 #20



strictly philosophically, if Mt. Gox wants to question someone for coins sent to them that they recognize as originally being stolen from them, I don't see that the same thing as playing sheriff, no differently than if someone presents me cash as payment whose serial numbers I recognized as being stolen from me.  If you present cash to a bank for deposit and it happens to be colored with a spray of red dye (the kind from time-delay exploding dye packs given to bank robbers), you should expect questions and not be surprised.

I also don't believe that just because Bitcoin is cash-like and often anonymous, that laws are irrelevant.  In practice, Bitcoin certainly puts the law out of reach of a lot of things, but I don't think laws simply cease to apply in theory just because of that.

In the case of a bank detecting stolen serial numbers or dyed notes, the investigation will be handed over to law enforcement - the bank's role is one of informant.  That's not quite the same thing as Mt Gox freezing someone's account for containing "tainted" coins.  It's possible that they're exceeding their legal authority in doing that, but it's also unlikely that anyone is going to launch costly international litigation in order to have that issue determined.  To a large extent, Mt Gox and the other exchanges can do whatever the fuck they want as long as it's not criminal because it's just not very likely that anyone is going to seek civil remedies against them.


All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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