The potential lack thereof?
There haven't been many or any legal precedents set so far. When they do it'll either be reassuring or there'll be some good old panic. The fact that each jurisdiction can't decide what it actually is isn't helping.
Topic: Eventually the FUNGIBILITY issue of bitcoin will make headlines ... - page 14. (Read 10590 times)
September 25, 2015, 03:37:02 PM
September 25, 2015, 03:32:18 PM
Eventually the FUNGIBILITY issue of bitcoin will make headlines and will be in article titles in the press. <--------------- Smoothie Prediction
Just a fun prediction I'm making before it happens on a much more apparent scale.
Right now the focus is "BLOCK SIZE"....that will change...
edit:
and hours later this shows up on reddit
https://www.reddit.com/r/Bitcoin/comments/3mea6b/bitpay_is_blacklisting_certain_bitcoins_rejecting
edit 2:
https://www.reddit.com/r/Bitcoin/comments/374ss5/the_problem_with_bitcoin_that_everyone_seems_to/
Edit 3 - posted days later
http://www.coinfox.info/news/3205-mexican-government-places-bitcoin-and-cash-on-the-same-footing
Just a fun prediction I'm making before it happens on a much more apparent scale.
Right now the focus is "BLOCK SIZE"....that will change...
edit:
and hours later this shows up on reddit
https://www.reddit.com/r/Bitcoin/comments/3mea6b/bitpay_is_blacklisting_certain_bitcoins_rejecting
edit 2:
https://www.reddit.com/r/Bitcoin/comments/374ss5/the_problem_with_bitcoin_that_everyone_seems_to/
Quote
My thesis is that the transparent nature of the Bitcoin Blockchain leads us to the path of (nasty) government regulation.
This won't be some long theoretical opinion about technical Bitcoin flaws, I will provide you with some clear practical examples. People who love to have extensive government regulation, please move on and ignore this post.
What is exactly problematic about a transparent blockchain? Well, every UTXO has a history. This means mainly 2 things:
1) people who receive a transaction can see this history
2) miners who put transactions into blocks can see this history
Let me be clear. The issue we are talking about here isn't anonymity, it's fungibility.
You can try to hide your coins as much as you want, if you tried to mix your coins using a mixer, coinjoin or another type of "anonymity enhancing feature", we will at least be able to detect that you did. We maybe won't know who you are, but those coins can be flagged as "possible suspicious activity on the blockchain".
So what's the big deal about that? Well, this gives governments the possibility to regulate BTC transactions. Let me explain: Basically it comes down to these 2 possible scenario's: blacklisting and whitelisting
Government could on one hand through “whitelisting” obligate bitcoin users to identify themselves when they purchase bitcoins (this is already happening: KYC and AML) and ask them to whom they are transferring these bitcoins (Coinbase is already asking this for some transactions).
In the future this could lead to a situation in which only “identified” bitcoins would be spendable at regulated payment processors. Every business that accepts bitcoin in a certain jurisdiction would need to use a certified payment processors that only accepts "whitelisted" coins.
As a result, your anonymous bitcoins would only be spendable if you match them to your identity through a regulated authority (exchange, wallet service or directly through government). If you try to spend other coins, the payment processor could send them back you you (best case) or send them to a government wallet (worst case) and maybe you can claim the coins after you identify yourself (at least you have your coins back...)
A more aggressive approach is “blacklisting”. This is a system whereby the government makes it illegal to process certain blacklisted UTXO's.
Of course you would say that no miner would comply... But think about it. Would a large mining farm operator risk going to jail for "money laundering" or will he comply? After all, he has electricity bills to pay. The profit will be more important than the ideology.
This kind of regulation leads to a loss of fungibility. Bitcoin isn't fungible anymore if one bitcoin is accepted for payment or isn't mined anymore and another isn't.
If you are thinking that i'm exaggerating because there are a lot of jurisdictions and there will always be places where there will not be this strict regulation, you are right.
But it gets worse...
Not only governments but even companies will start to apply regulation by themselves as a form of self-censorship, because they fear government crackdown on their business:
We already saw the "whitelisting version" with the deposit of the Evolution coins to BTC-e. Those coins weren't allowed by an exchange that is pretty anonymous themselves! The reason is that they don't want the CIA and Europol on their doorstep, so they decided not to accepts possible money laundering activity.
And what about the blacklisting by the miners? I'm sure there will be ideologically motivated miners that will keep processing blacklisted UTXO's.
But there are far less pools than there are individual miners. The regulation will slowly affect this. I see a 5 stage system:
A. there will be some pools that voluntarily adopt the regulations, because they fear government crackdown (same situation as BTC-e with the Evolution coins)
B. some miners fear the government, so they ask their pool operators if they will comply with the regulations. If not, they move to a "regulated pool". It will slowly become a disadvantage for pool operators to not comply. If one uses mixed bitcoins, the transactions will start to suffer from delays because of less miners processing them.
C. the regulation will become more harsh. Building on a block that contains blacklisted transactions will become illegal. This will lead to more pools censoring themselves because they fear they will loose the block reward if they don't comply
D. the "illigal block depth" will become larger (f.e. not building on a chain which 3 blocks "deep" had a blacklisted transaction; more pools start to comply
E. almost everybody now complies and blacklisted UTXO's won't be spendable unless they pass through a regulation authority.
In essence this could lead to three kinds of bitcoins:
1. White bitcoins: bitcoins that satisfy the identification regulation.
2. Grey bitcoins: bitcoins that are not yet identified, but which are not actively anonymized. transactions are allowed, but not spending them at a certified payment processor.
3. Black bitcoins: bitcoins that are banned by miners. Processiing them is illegal. Maybe even owning them...
The consequence?
Bitcoin will not be fungible anymore: you can’t just use a grey or black bitcoin to buy something from a webshop. If the government is able to discover that you possess black bitcoins or process blacklisted type transactions, you could even be seen as a someone committing a crime.
Eventually Bitcoin will become a fast payment system without counterparty risk but with full government control.
Is that what we really want?
And if you think these are all unlikely scenario's then well... we will talk again in 5 year's time.
This won't be some long theoretical opinion about technical Bitcoin flaws, I will provide you with some clear practical examples. People who love to have extensive government regulation, please move on and ignore this post.
What is exactly problematic about a transparent blockchain? Well, every UTXO has a history. This means mainly 2 things:
1) people who receive a transaction can see this history
2) miners who put transactions into blocks can see this history
Let me be clear. The issue we are talking about here isn't anonymity, it's fungibility.
You can try to hide your coins as much as you want, if you tried to mix your coins using a mixer, coinjoin or another type of "anonymity enhancing feature", we will at least be able to detect that you did. We maybe won't know who you are, but those coins can be flagged as "possible suspicious activity on the blockchain".
So what's the big deal about that? Well, this gives governments the possibility to regulate BTC transactions. Let me explain: Basically it comes down to these 2 possible scenario's: blacklisting and whitelisting
Government could on one hand through “whitelisting” obligate bitcoin users to identify themselves when they purchase bitcoins (this is already happening: KYC and AML) and ask them to whom they are transferring these bitcoins (Coinbase is already asking this for some transactions).
In the future this could lead to a situation in which only “identified” bitcoins would be spendable at regulated payment processors. Every business that accepts bitcoin in a certain jurisdiction would need to use a certified payment processors that only accepts "whitelisted" coins.
As a result, your anonymous bitcoins would only be spendable if you match them to your identity through a regulated authority (exchange, wallet service or directly through government). If you try to spend other coins, the payment processor could send them back you you (best case) or send them to a government wallet (worst case) and maybe you can claim the coins after you identify yourself (at least you have your coins back...)
A more aggressive approach is “blacklisting”. This is a system whereby the government makes it illegal to process certain blacklisted UTXO's.
Of course you would say that no miner would comply... But think about it. Would a large mining farm operator risk going to jail for "money laundering" or will he comply? After all, he has electricity bills to pay. The profit will be more important than the ideology.
This kind of regulation leads to a loss of fungibility. Bitcoin isn't fungible anymore if one bitcoin is accepted for payment or isn't mined anymore and another isn't.
If you are thinking that i'm exaggerating because there are a lot of jurisdictions and there will always be places where there will not be this strict regulation, you are right.
But it gets worse...
Not only governments but even companies will start to apply regulation by themselves as a form of self-censorship, because they fear government crackdown on their business:
We already saw the "whitelisting version" with the deposit of the Evolution coins to BTC-e. Those coins weren't allowed by an exchange that is pretty anonymous themselves! The reason is that they don't want the CIA and Europol on their doorstep, so they decided not to accepts possible money laundering activity.
And what about the blacklisting by the miners? I'm sure there will be ideologically motivated miners that will keep processing blacklisted UTXO's.
But there are far less pools than there are individual miners. The regulation will slowly affect this. I see a 5 stage system:
A. there will be some pools that voluntarily adopt the regulations, because they fear government crackdown (same situation as BTC-e with the Evolution coins)
B. some miners fear the government, so they ask their pool operators if they will comply with the regulations. If not, they move to a "regulated pool". It will slowly become a disadvantage for pool operators to not comply. If one uses mixed bitcoins, the transactions will start to suffer from delays because of less miners processing them.
C. the regulation will become more harsh. Building on a block that contains blacklisted transactions will become illegal. This will lead to more pools censoring themselves because they fear they will loose the block reward if they don't comply
D. the "illigal block depth" will become larger (f.e. not building on a chain which 3 blocks "deep" had a blacklisted transaction; more pools start to comply
E. almost everybody now complies and blacklisted UTXO's won't be spendable unless they pass through a regulation authority.
In essence this could lead to three kinds of bitcoins:
1. White bitcoins: bitcoins that satisfy the identification regulation.
2. Grey bitcoins: bitcoins that are not yet identified, but which are not actively anonymized. transactions are allowed, but not spending them at a certified payment processor.
3. Black bitcoins: bitcoins that are banned by miners. Processiing them is illegal. Maybe even owning them...
The consequence?
Bitcoin will not be fungible anymore: you can’t just use a grey or black bitcoin to buy something from a webshop. If the government is able to discover that you possess black bitcoins or process blacklisted type transactions, you could even be seen as a someone committing a crime.
Eventually Bitcoin will become a fast payment system without counterparty risk but with full government control.
Is that what we really want?
And if you think these are all unlikely scenario's then well... we will talk again in 5 year's time.
Edit 3 - posted days later
http://www.coinfox.info/news/3205-mexican-government-places-bitcoin-and-cash-on-the-same-footing
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