Topic: Could Bitcoin's transparency be its downfall? (Read 478 times)

There might be some instances where it really cares especially if the amount transacted is too large. I don't doubt that the government are monitoring some wallets that has huge amount of bitcoin or other crypto. So yes, there's a possibility that you might get in trouble or be busted for tainted coins on your wallet. Also, Bitcoin and other crypto are already popular to various criminal activities such as Darkweb transactions not only today but also a few years back.
I suggest to try mixing your btc first if you will be engaging in large sum of btc where you do not know where it originated.

No one really cares that there are some illegal transactions in transaction history of many coins, not even governments care. You're not gonna get busted for having a tainted coin in this sense. What government might care is if Bitcoin becomes more and more popular among criminals - that would mean that Bitcoin became a loophole in the modern world of financial monitoring.

One thing I have learnt over time is that the Internet can adapt to the needs of the people. We know from past experience that governments will clamp down one illegal site (Limewire, Frostwire, Kazaa Lite, Gnutella, and BitTorrent) and the next moment you will see several similar sites popping up like mushrooms in it's place.

The same will happen when governments force KYC requirements on Crypto sites... because you will see a lot of clone sites popping up ...that will not require KYC requirements. (Mixer sites / Online casinos / Faucets ....etc) Those sites will be used to break the chain. 

1.I hate the concept of "tainted money" or "dirty money". Some lazy bureaucrats have invented this concept, so they could do less work trying to find criminals and money launderers. The lazier the bureaucrats the dumber laws and regulations we get.
2.The Bitcoin protocol isn't written on stone. The protocol could be adapted to the new conditions and it could be improved as well.
3.Why would Bitcoin's transparency be it's downfall? The "powers that be" (governments and central banks) like transparency(to some extent). They don't like complete privacy and anonymity. Do you think that privacy coins like Monero will ever become mainstream? I don't think so.

I think that if cash is still quite useful to criminals, there are often no requirements of providing any ID (especially for small sums) with, and a third of all fiat was used by criminals at some point, it makes no sense and is very unfair to target cryptos with all that AML stuff. Fighting financial crimes is important, and I think that starting with the biggest criminals (those laundering very big sums) must be the priority. This should affect cash, banks (through which billions are laundered till this day despite the KYC), and cryptos (but again, if we're talking at least about millions of dollars worth of them). Then, once we successfully fight that, we can move to smaller criminals. And anything below $1k is IMO not justifying imposing privacy violations on everyone.
And Bitcoin's transparency already makes it easier for authorities than when dealing with cash, for example. That should account for something.

I understand that there is a worry about the transparency and I understand that this could be used as a narrative against it. But at that point, you need to ask yourself, is fiat any better?

Obviously it is not that better but at the same time it is not going to be something that would be not followed neither, you are at the palm of the governments in that situation as well. Hence, we should not be really worried about the current situation and we should go with crypto and we would be a lot better and happy with it as well. That is at least what I think, maybe I am wrong but that is what I believe and fiat is always much worse than crypto.

But i could say that transparency is more off an advantage or pro rather than on its cons but i cant really deny about being like a blade on having two blades which risk is really there or talking about disadvantage.
If transparency was its cons or cause of its downfall then it should have be replaced by  something more private or something in opposite with its characteristics which we cant deny that there are alts who do
have this kind of qualities or aspects thats why i dont really believe on such talks about its downfall because the support of the community of the king of all crypto is something that cant
really be shaken off easily.

I think that Bitcoin has several pitfalls or disadvantages at the moment, which might be eliminated over time or fixed it a different type of cryptocurrency. Transparency is possibly the best thing that Bitcoin has going for it now and can actually be used to the advantage of governments if all the input / outputs of the system are properly governed. It's similar to saying are dollar notes tarnished because they are used by criminals or maybe for snorting cocaine? All the previous uses of the coins may be coordinated and tracked, which is what governments like having access to with conventional banks, but that doesn't necessarily tarnish the current owner of those coins - they might be required to account for the source if they are identified though.

That is 100% true. It might sound like some sort of conspiracy theory for some, however we all well know and have evidence for the fact that all governments are playing the propaganda game. Controlling thought is how you control people, and thats what they want. Control.

No matter how bad they paint a picture of Bitcoin, they might only achieve a slight slow-down of Bitcoin adoption. But the adoption itself is inevitable in reality. I think the governments of the world should know that by now.

However, never underestimate human stupidity...

There are certain countries where it can be a huge problem no doubt about it but then again we must understand that it's easier to do it in fiat which is something that is untraceable and at the same time more used by the illegal businesses and bitcoins can be tracked once you have a hold of the whole thing which am sure not many people in the government sector do. Fiat goes on and off in many ways and I also know people who keeps gold in their houses and evade paying taxes, they also sell it to various businesses so that they are not targeted also they can use other people to do that as well, with Bitcoins it's much more complex and the acceptance starts from knowing that it's not that private, it's trackable

Bitcoin transparency is a two way sword, to some extent it has some disadvantages and largely its transparency is beneficial, as bitcoin trail is actually more identifiable than fiat. There is a need to understand that bitcoin can't be used for illegal activities or corruption in most legal entities. Which actually constitute the major chunk of corruption. Also it is always easier for government agencies to track more efficiently than fiat. On contrary bitcoin allows us to reduce cost of financial transactions, streamline financial management and allow better control over Realtime managements of funds.

Just because the State legislates, doesn't mean everyone will obey. Bitcoin works with or without their blessing, it was designed thinking it would be outright banned worldwide, and turns out, it wasn't. Who decides what is tainted or not? That is not in Bitcoin's code. The moment you introduce any form of discrimination, the coin loses its value. That is why Bitcoin has remained strong, despite countless altcoins wishing otherwise. No centralization, no discrimination.

Sorry for misquoting - wasn't intended!

I wholeheartedly agree with this. As I said before, someone trying to define taint and starting to censor certain transactions, should be cut out of business by all its users, just like people would stop going to a store that suddenly defines some of their paper bills as tainted and stops accepting them. I mean, it's a major inconvenience at least; going shopping, with all the stuff in your basket and being denied at the cashier, due to handing a dirty, old bill or one that has microscopic amounts of cocaine on it. Nobody would be interested in that; so they'd go to another store.
We need to see the same thing in Bitcoin and 'Bitcoin taint freaks'.

This wasn't my point. My point was that if an entity perpetually brainwashes everyone and tries to create a bad picture of bitcoin for their own benefit, you shouldn't bow your head and admit you're doing things wrong. For example, if few politicians state that bitcoin wastes too much energy and advise against its usage, don't try to change the code; the problem isn't into the code. We've spent hours on this debate, and we've debunked it.

Same goes for KYC. There's no study that reveals less criminal activity due to this undoubtedly extravagant requirements of personal info. Pretty much the opposite, it's extremely dangerous; it encourages identity theft, scams and helps scammers stay undetected. The reason the governments want it, and exchanges often intentionally add it, is control. It makes mass surveillance work more easily and effectively, it's moneymaking from the CEX's perspective, it's advantageous for chain analysis which brings even more money etc., all these entities cooperate for control.

So, when a CEX imposes KYC or some other arbitrary rule, such as "tainted coins", don't try to figure out a technical solution, such as improving privacy on a protocol level with cryptography. Just don't use the exchange.

Well, it would be foolish of us to think that BTC would gain real adoption without having to change anything about it. And when it comes to transparency, it will just have to tweak it to fit the government's needs. So it will have to be transparent for their needs, but maybe not transparent as we would like it to be. It's all a game of give and take if we really want mass adoption. I would say some of those gives would be beneficial, while some might undermine the foundations of crypto.

That's definitely happening: Lobby groups and governments do already pay millions to paint Bitcoin in a bad picture. It seems like a last-ditch attempt at stopping people from buying and using Bitcoin, which is very telling.
We have a topic here where they try the old 'Bitcoin == climate change' falsehood which cost them a ton of money and I believe it has achieved nothing:
"Change the Code, Not the Climate" FUD campaign coming next month

But to get back on topic; if Bitcoin's transparency was going to be its downfall, all these weird attempts and mental gymnastics to somehow make Bitcoin seem like a bad thing for people, wouldn't be needed at all.

My point is that the government do not care if their claims are legit they care about convincing the others which are not yet using btc that is is bad. This is something I think will be a problem even if a lot of people do not share the same opinion here.

They do track spending of notes I think that is what the other member was saying but I know that bills that have been taken by a heist have been tracked in the past. I do not think they can send you to jail for spending on of them they are just tracked to give them a lead other evidence would be needed.

Oh I highly doubt that Bitcoin ATMs check for serial numbers on bank notes. Pretty sure that if they're slower, it's just since they use different hardware (probably lower quality). But I'm sure there are different brands, different models and what I saw so far, was just as fast as a normal bank ATM.
If they were to reject certain serial numbers, we would also definitely have heard about it on the internet.

The problem, as you alluded to, is that we can evade all kinds of laws with software and technology, but in the end we live in a society that has rules, like not to launder money. Sure, technology can be written and improved to make it more easy to launder money, but it doesn't make it legal.
So if you own billions in XMR and one day you suddenly want to buy a private jet with it, it will be very very hard to do. And there's no technological solution to this issue to be fully honest.

You can't close or monitor a P2P exchange running over Tor without centralized servers (like Bisq), though. That's like saying 'they will ban people from P2P selling their old phones on the street'. It's not possible.
Why do you think KYC will be necessary? Necessary for what?

This sounds odd. The point made by me and others was that all cash has traces of drugs, so nobody cares about it. You're trying to say that they convicted someone for having a dollar bill with traces of drugs, but then they could arrest everyone. That's exactly the point; since all fiat has drug traces, you don't normally get punished for paying with such bills. Therefore, when paying with some 'tainted' Bitcoin (used for illegal purpose in the past), it should also be accepted without issues as well.

When Bitcoin attracts the attention of the authorities, you either comply with the law or you follow some of the examples here that do it illegally. Bitcoin gives you a choice, that's the good thing about it, but it's up to the person whether they want to break the law. I think in the real world we don't have to worry about that. KYC will be necessary and P2P exchanges will probably be closed to monitor who and why people are buying bitcoin, but I don't think what you are proposing will happen in the real world

Yes, I think I read that in some countries this was used as evidence to put someone in jail. They didn't find drugs, but they tested the cash they were carrying, which I think was a large amount for someone to be carrying, and found traces of drugs on a lot of it. This was confirmed in court and they were put in jail. I can't find the link, but I'm sure I've read about it. I think OP has a similar point, we all use fiat, but will that be used against us in the future? Maybe, but I think most people will be fine with it and there will be examples like this where it was used against certain people. Only those that they have suspicions of but have not found solid evidence on.

Why do I have a feeling that this is the wrong path? I agree with all you've said, and bitcoin can, indeed, become more private overtime, but answering with "let's just write a better code" implies that what's causing this taint propaganda is the code.

I sort of agree with this:

Bitcoin solves no political problems, but only practical and technical. And we're seeing this everyday. I can move millions of dollars for a nickle (practical) or move money across the world anonymously (technical). But, there's no such mechanism that can give a solution to the abrupt rise of KYC. No, decentralized exchanges don't. They mitigate trust, same as with bitcoin, because things work more properly that way; because trust costs. But, both solutions are apolitical.

See monero. It's, supposedly, more private than bitcoin. What has happened? Most CEX's have blacklisted it, less and less merchants dare to accept it, people beyond the crypto space are constantly brainwashed etc. Is the problem in the code?

Forced? No, I don't think we are there. Not yet. At least not in my country.

I don't know. I just noticed that banknotes are processed very slowly by some Bitcoin ATMs, that's a lot faster in a typical bank ATM, where you can put a lot of cash, and everything is counted very quickly, like 10 banknotes per second. I wonder if that delay is "by design", if they check them more carefully, or are they trying to trace them by reading serial numbers? I don't know, I can only guess, but 10 times slower counting is suspicious. The currency is the same, all banknotes has the same shape, so I wonder why banks can count them faster. I wonder if banks have better hardware, or if Bitcoin ATMs use more advanced tracking, just to comply with some local law of preventing money laundry.

Really? Do you have an example (country / region) where all stores and businesses are forced by the government to check serial numbers of bank notes? The fact that it's technically possible is indisputed; in fact we bring this up to show that you could define 'taint' on fiat bills just like some entities are trying to do now with Bitcoin UTXOs, but that nobody cares about 'taint on fiat bills'. That was actually my whole argument.

If someone were to check serial numbers of bills entered into Bitcoin ATMs - why should they do this just for Bitcoin ATMs but not enforce it in any other business / store / you name it?

That's a great way to put it - I'm going to write it down!

I can consider with high certainty that most of the gold and fiat currencies are more tainted than Bitcoin will ever be, but it's not easy to track gold origin if you melt it and create new bars.
It is well know facts that dollars are mostly used for criminal activity and most of them are covered by drugs, but I don't know many people are complaining about this.
There is nothing bad in Bitcoin being more ''tainted'' over time, in fact if all bitcoin becomes ''tainted'' there will be no more reason to talk about it, and it's almost impossible to ban it globally now.

This is something unrelated with Bitcoin, there is global trend of crazy regulations, tracking and surveillance everywhere, and problem is that not enough people is complaining about that.

Talk about it, raise awareness about this problem and explain masses how important privacy really is.
Best way for governments to enslave more peopleis to start a new war, so that people can accept changes easier and be more obedient.

Ring signatures sacrifice a lot of scalability (namely having a UTXO set that's much smaller than the set of all TXO) as you no longer know when outputs are spent. This is exacerbated by the large size of the rangeproofs included for every output of confidential transactions.

As said in another post, most (or all?) fiat has traces of drugs.

"Tainted" is widely subjective. Indeed, at some point most of the circulating inputs will be tainted at some degree, if you are 100% purist. But services already consider coins tainted only if there are problems somewhere in the last few transactions back. I think that in the future this view will be adopted by everybody, there's no other choice.

Downfall? Au contraire, mon ami
Imho the fact Bitcoin transactions can be tracked on the blockchain makes them being seen as acceptable/okay by the authorities.
They will understand that it's better leave us with our bitcoin than give us ideas to move to Monero and give them even worse headaches

"What statist cucks call "tainted" are actually clean coins: with no dangerous link to your fiat identity. What they call "clean" are actually dirty coins, tainted with dangerous links that will be used against you by kidnappers, taxmen, haters, blackmailers, business competitors."

- Giacomo Zucco


If bitcoin becomes the mainstream currency used by everyone, including criminals, there will be a huge increase in the number of bitcoin transactions. Also, with the increased number of people wanting their transactions to be included in a block, there will be an increase in the fee value because people have to pay miners to incentivize them to pick a particular transaction. Miners will take the fee and convert it back to a "virgin" state by including it in the coinbase transaction, which means a small part of each "dirty" transaction will automatically become "clean" once again due to the nature of the mining process. The more transactions we have, the faster they get laundered in the miners' laundry. If governments all over the world really want to get rid of dirty coins, they should make all miners refuse to accept profitable transactions or ban mining completely, convincing everyone to switch to a different consensus algorithm that is more susceptible to government regulation, proof-of-stake, for instance.

Silent payments will do just the trick for anonymity of payments, as Taproot does to some extent (and is already erged into the protocol).

Now it's just an issue of get all the wallets to support Taproot addresses in the same way we got them to support Segwit addresses. Bitcoin Core is a good start (anyone know whether the GUI lets you create taproot addresses?)



I don't think governments will get that specific in details when trying to ban something. They will either ban the entire protocol in their country [starting from exchanges and payment processors], or just leave it alone and issue "warnings" about it.

TBH even China cannot ban nodes running in their territory (particularly if they are ran over TOR).

I guess reading serial numbers is already implemented (just because it is technically possible). Rejecting banknotes is a matter of time. Especially in Bitcoin ATMs, where there is some delay and each banknote is processed separately, one second per each or something like that. I have no proof, but I guess their serial numbers are stored somewhere, it is too slow processing to just count them, something else must be also checked somehow.

The only challenge that bitcoin has ever faced was that how it works is new and different (decentralized with a cap instead of unlimited and centralized). Newbies (that includes governments) come in and are confused about these differences so they try to treat every aspect of bitcoin differently. But the fact is that only some parts are different while others aren't.

Bitcoin is money and like any other form of money it is used by every group of people for different purposes. Now remove every "bitcoin" word in your post and replace it with fiat and your topic is still true! Why? Because there is no difference between bitcoin and money.

For example if you run a supermarket you have definitely received "tainted" money. But would you care at all about that? No. Simply because you are used to fiat system and nobody is spreading false information about an arbitrary thing such as "taint". But if you receive bitcoin and someone is spreading lies about "taint" then you suddenly are concerned!!!

This made me wonder how would the government or people or services react if someone ran a "fiat analysis" (like blockchain-analysis) service and somehow services were forced to use it, like in case of our supermarket the owner was forced to first check the serial number of the dollar bill they received with this service for "taint" then accept or reject the payment!

As more coins become "tainted", the significance of being "tainted" is reduced. Ideally, all bitcoins would become equally tainted.

Excuse me, what happened to "Verify, don't trust"?

Bitcoin's transparency is one of the main points of Bitcoin. Which is why it already has something that fiat does not: Transparency. This does not mean no anonymity though. If you wanted to buy or obtain Bitcoins anonymously, you could do so. Easily. So don't doubt Bitcoin too much, as you might miss out on chances because you have started believing your own doubts.

I am in full faith on Bitcoin. Basically because I know how it works and why its unstoppable. Feel free to try to prove Bitcoin wrong.
 

It's worth looking at fiat and cash and think about if this money is 'tainted'. You're right that all money (no matter which form of money: cash, fiat, crypto, whatever) is going to be used for some sort of activity that in some countries violates some law. This doesn't make it any worse than before this activity, so it continues to be used just the same.

For example:

Another one:

So as you alluded to, basically 'if everything's tainted, nothing's tainted'.

What we can do?
Run our own nodes, hold our keys, accept any Bitcoin and refuse any random arbitrary party's definition of 'taint'. Otherwise an economy doesn't function. Nobody checks a dollar bill's serial number or the substances found on it. Everyone just accepts it and uses it, certain that it will be accepted.
If someone were to start differentiating which bills they accept, they would be cutting themselves out of part of the economy; we should treat those who try to have this attitude on Bitcoin, the same way. Stop making business with them if they don't want our coins, instead of trying to convince them our coins are good (by sending KYC documents or whatnot) - so they understand they're cutting themselves out of part of the economy, not the other way round.

The argument is largely on whether Bitcoin is fungible or not. That is a perfectly valid concern and has been discussed thoroughly quite a while back at the height of MARA's censorship.

IMO, the solution as I see it is precisely as what you've said, all of the Bitcoins will eventually have some degree of taint. The basis of this 'taint' is often quite unfounded, without any concrete proof that the current owner of the coins is in knowledge or have any connections with the prior owner. There will be a problem of trying to determine what threshold does a service intervene and report to the government. If this were to be too low, then most of the users would determine Bitcoin to be unusable, and resulting in the services being unable to operate at all. There will be significant pushback from the community and these regulated services in this case, and only serves to further push these services to operate off the regulations and underground. It would just be a tradeoff between how much you want to regulate or not; an over-stringent policy doesn't benefit any party in this case. Regulations are okay, it just means giving Bitcoin more legitimacy, and if people don't want to comply with them, then more people would trade OTC and not rely on these regulated services.

There are of course services which has started to use taint as a basis to close accounts, but those are cases where the user have a direct and clear connection, ie. withdrawing straight from an online casino to their exchange account.

1. It is technically possible to hide things. Monero can do this, their features can be implemented by Bitcoin if needed.
2. People can mix coins. When more and more coins are mixed, then censors have to reject all coins (or accept all coins, in the same way as they accept cash).
3. Taproot can hide the number of participants. You never know, how many users are behind a Taproot address.
4. If Taproot will be banned, then we could use homomorphic encryption on verified public keys and do the same thing, by using more complicated math, but it could still work.
5. Lightning Network can mix coins by default. Many clients will give you different coins, when you close your channel, and will leave your previous channels as opened (for example Phoenix wallet).
6. If censorship will be common, then "validation as a service" will be created. You will pay someone for doing validation on your behalf, in the same way as people use fake IDs or SIM cards registered to someone else. It would be even easier than with physical items, because it can be done remotely, just by writing some software and using maths.
7. If nodes will be banned, then we will start connecting outside TCP/IP. Bitcoin Core is trying to get there by supporting more and more protocols, see changelog of version 23.0.
8. There is more. We can invent new ways when needed, some people are working on that.

So, I think we know how to protect Bitcoin from censorship. My answer is just "we should write a better code".

Serious question I am not anti Bitcoin do not get the wrong impression and I have grown a deep hatred for our fiat system that is exploitative and ill natured.

When we compare Bitcoin to fiat there are a couple of differences which I think could impact us in the future:

1. Bitcoin's will become more tainted over time

2. This pushes governments to become concerned and impose more KYC requirements

3. Eventually most Bitcoin will be tainted to a degree. If we look at this research concluded by economist Rogoff[1]:

34-39% in fiat currency is a huge of money. Bitcoin is further limited by its cap of 21 million which means that if Bitcoin becomes the mainstream currency used by everyone the share of tainted money would be higher because of the cap with fiat more money is printed in the fiat currency which reduces this amount.

We already know that governments require anti-money laundering evidence for many transactions outside of cryptocurrencies such as buying a house requires proof that the money was earned legally and not through illegal activities. Exchanging money on exchanges requires identity which they probably look at your salary reported by the government.

We have seen that in the last couple of years governments have started to require KYC more, and I believe that as the share of tainted money increases, government regulation and intervention will also increase.

I am not saying it is a problem of Bitcoin because I think it is unfair and most of us have probably touched money that has been used in criminal activities without knowing it. That is the nature of cash but cash cannot be tracked as easily. Blockchain works against us in this way, providing an easy way to discover tainted coins. The government could use this as propaganda if it wanted to and convince people that cryptocurrencies are bad because a good portion of them are used in criminal activities but not just this because they can prove it and further convince others that btc is "bad".

How do we prevent this type of propaganda attack or invasion of privacy?


[1] source: https://www.independent.org/publications/tir/article.asp?id=1289