Topic: Bitcoins are not, in practice, fungible - page 5. (Read 9555 times)

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.

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.

I believe this is a continuation of this case:
https://bitcointalksearch.org/topic/mtgoxcom-has-blocked-my-account-with-45-000-usd-in-it-3712

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

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.

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

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.

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...

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'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.

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.

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

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.

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.

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". 

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.

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.

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.

OK makes sense.  Another reason to dislike mtgox.

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

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.