Topic: Exchanges not accepting mixed BTC, so is BTC no longer fungible? (Read 1018 times)

Bitpay was not the only crypto exchange site that used blockchain analysis to verified the healthy level of a transaction because Bitstamp, Korbit etc are also among the exchange that use the service. However, i think this will make government to trust that terrorists, dubious people etc are not using crypto and don't see that as something that will by any chance cause some serious problem for bitcoin and others cryptocurrencies if community still support crypto and the miners continue to mine.

This was not about blacklisting tumbler site but the mentioned exchange site actually want to build trust between them and the governments/institution and also make it easy to spot a crypto scammer. However, i believe some crypto to crypto exchange site won't use the blockchain analysis and aside there are various ways of making transaction not to look suspicious.

Youre Binance those make a huge impact in crypto exchange scheme but according to CZ every team of his exchange work independently thats every idea the core team did it was from the core team thinking not is. With that been said, if Binance dont make the change happen sooner or later another exchange site will come up with something.

Mixers was important part of btc history and now exchanges want to stop that. Not so good for network privacy. Thats why im a big fan of monero

As long as the miners continue to accept such transactions, Bitcoin will remain fungible in my opinion.

Majority of people that used mixed services for their bitcoin have potential of acquiring the BTC through shady means. You do not expect exchange platform to be queried or payed badly from something they do not know anything about. Many of this exchanges are operating and obey the government policy in country in which their business is. If they mistakenly taking mixed BTC from trader that stole public funds, What do you think will happen to them ?. The fall of e-currency such as Liberty reserve should remind you what government is capable of doing.

So Binance is being the tip of the spear for crypto's eventual disconnect from any sort of mixing services. At least the publicly regulated part of it. This won't change the fact that mixing/ obscuring is a major requirement for people with a lot of bitcoin. From an outsiders' perspective, I would say that volume and liquidity needs make these bigger exchanges the only source of fiat for those holders. (Are there any others?? Like some secret OTC services on darknet, no questions asked??)

Blacklisting mixers has another benefit for bigger exchanges. They will have a business opportunity to provide the typical "Swiss bank" equivalent service to its rich customers. You only talk to the banker and the banker talks to nobody. CZ is a clever businessman. He was the first one to see the huge opportunity in giving a platform of legitimacy to Alt-coins. Alt-trading wouldn't be where it is today if not for the marketing and support given by binance.

Then that's not a dex, that's a non custodial exchange.

Aside from Bisq, which has its issues too, I can't think of anything I'd call a dex but it's not an area I study.

The problem with them is that they'll become the guaranteed first port of call for anyone with questionable coins. If they're robust enough and liquid enough people may not bother attempting to mix or obfuscate questionable coins. They'll go straight there and hand the can straight to you. I can't imagine any dex bothering to question the origin of coins. It's your problem. And exchanges getting twitchier will drive that harder.

I seem to remember that happening to someone who exchanged Monero for some stolen BTC via a system like that.

They will probably go underground once they get banned almost everywhere. Users will not use them anymore unless they want to hide from something off the grid.. which is usually underground activity.

I have seen a few topics here and there on the forum and it'll become a widespread problem once more exchanges start applying the same thing (or the govs force them to). I am against the ban of them but we all should be aware that our governments never really cared about our privacy so they aren't going to start caring now.

do you think we'd be seeing dex going to follow all these regulations that they are also going to be asking KYC?

i remember some dex in the past was already asking kyc too. once this happen the users who wants privacy will have nowhere else to go but just dealing with someone in the forum. bad situation for crypto, the price of BTC didn't even rockets up to beat the ATH and no real adoption still.

I am not surprised we are seeing this happening, we will see exchanges rejecting coins which are deemed dubious and coins that are coming through mixers and there will be a time when we are not able to use those coins. We might even see the coins that are dubious might  be confiscated by the authorities and then auctioned off at a later time, in simple terms washing through the legal system.

It is impossible to overcome the legal obstacles and we will be forced to follow what the regulators set out.

They just follow the regulation since they are regulated, that is going to happen even in all exchanges as the regulators look at transactions that are possibly violating the anti money laundering law, mixers will not make transaction origin untraceable but it's hard for the regulators to trace such transaction, so they give the task to the exchange so regulators can carry their job effectively.

With this going to happen, what would happen to the mixer business?

But anyway, I don't really think too much of this as I don't see any complaints yet regarding this kind of transaction from a user, so there's also a possibility that it could not be implemented in the future.

this is what CZ said:


+1. people underestimate how much lack of fungibility can hurt exchanges. they know it too.

Companies like Chainalysis are doing different things:
- They have a good marketing towards the exchanges. However, they do not disclose in any way how they do their analysis and what the background for the level of taintednes is. They can claim anything - exchanges believe them.
- It is not clear yet how many information are being forwarded or made accessible to the government.
- They are using open source information. Some of the information may be wrong, some not.

And again and again, they claim that "regulation" requires this analysis. This is bullshit for most countries. If Bitcoin is going through a Wasabi-wallet. Chainanylis most probably flags the transaction. There is NO regulation to my knowledge asking for this.

The best way to counter this behavior, imho, would be to set up a community driven analysis tool which is doing exactly what the regulators ask for. Not more. Not less:

A database with addresses of hacks.

A tool which follows these coins.

If a part of this coin is in a transaction, the transaction is not tainted per se. It may be some Satoshis.

If the community runs this tool and offers it for free, firms like Chainalysis would soon be thrown out of the market.

This is the disadvantage of centralization. If all centralized exchange do same thing then likely use fiat will be more easier. Sometimes Bitpay act like they are preventing bitcoin adoption. Bitcoin should consider as bitcoin it isn't came from hackers. But unfortunately only hackers aren't using mixer, everyone who want to keep private their identity and secure their privacy they are using mixer. I really don't want to see such as action from reputed exchange. If they don't accept bitcoin from mixer and gambling then only way will remain use decentralized exchange even it's quite slower.

Binance made it clear this was imposed on them by the authorities in Singapore. I expect Coinbase is rather keener on the idea since they're actively pursuing surveillance. Whoever they are they'll have to make a decision on how far to take it. There comes an inflection point where it starts to hurt their business in a significant way.

For those who have a lot of bitcoin from early days, what other option do they have than to obscure the source before spending? Even if they want to do a small peer to peer transaction, nobody would like it be known that the addresses that can be traced to them contain 100s of BTC. It would be dangerous for their personal safety in light of the "five dollar wrench" attack.

The exchanges maybe choosing to do this not merely to comply to KYC. They have bigger interests. Imagine a future where you will have to provide proof of your BTC source as being non-mixed or non-tainted. In that case, exchanges can easily claim to be the only "legitimate" source of "untainted" bitcoin, much like a federal reserve on their own.

So coinbase, binance etc must be opposed in some way before this solidifies as an acceptable norm.

Same concern here,what will be the advantage of using Mixing service since this has been happening in some exchange?do we have to find another exchange to make our privacy still indeed?

Actually i support also this because we already know that bad elements are using Mixer to hide their activities but what about those legit that only wanted to keep private?


Exchange are now getting target of the government thats why they need to keep their company clean so maybe about regulation so this has been implemented?

I think exchanges are under the pressure of governments, governments want to control everything and want to have a centralization in everything and of course Bitcoin is the primary enemy of government centralization, what will make the exchanges care if the bitcoin is mixed or not? I think the governments are the reason as well as the reason to request verification by KYC.
But I have a question, are there no Bitcoin mixers capable of preventing exchanges from knowing whether Bitcoin is mixed or not?

In any case, if we assume that Bitcoin will be used by someone for criminal purposes, then such coins will always be under scrutiny and will be called "dirty." Indeed, the above actions of cryptocurrency exchanges that refuse to exchange or sell the so-called “dirty Bitcoins” are primarily due to the relevant rules of controlling structures that fight money laundering. Each exchange wants to work legally and without any problems, so they try to protect themselves in various ways. But the provision of KYC by users on the cryptocurrency exchange is the final character of recognizing the owner of the so-called “dirty Bitcoin”. in fact, there is no difference between these Bitcoins, but the situation is very similar to that when the dollars received for the sale of drugs or weapons are also considered dirty, but after confiscation and return to the State Treasury, they become clean again.

Isn't this the exact reason why exchanges implement KYC? I mean, more and more exchanges are asking for user identification. They are doing this in order to keep the user database clean. They are doing so that users don't launder money using their exchange. The KYC process helps them identify those who might be laundering money using their exchange and hand over the information to the law enforcement officers.

Bitcoin is phenomenon we have never witnessed before. It's something that has unique qualities in terms of trust, neutrality, level of globalization. At the same time it shares similarities with precious metals and cash. Those are money that perfectly fungible, no one trying to taint gold bars or banknotes. No matter where transactions happen, in legal or illegal environment, everything remains the same. We still use dollars that were stolen from bank. There are some reasons why regulation is being applied in case of bitcoin. It is relatively easy to track transactions in bitcoin network. They are transparent and thus give an ability to monitor every purchase. Just possible to track, but not to control, however that is enough to start applying some regulations. That is part of the reason why we are switching to a cashless society, everything needs to be controled and censored. Governments might think so. The second reason, why they are trying to regulate and tainting bitcoins is inability of governments to control the network in other way. There is no point of failure, no one in charge, let's discredit the network by calling it taint, used by criminals, etc. As long as participants of the bitcoin network rely on third-parties when trying to exchange bitcoins for trackable cashless world currency, we will keep facing such attacks. There should be no tainted bitcoins in a pure bitcoin economy, an economy in which no one controls every transaction.

you forgot to read my full comment. the problem with Coinbase, and many other exchanges, is not just the mixed coins issue outlined in OP.  there are a ton of other issues.
- lack of security and insurance for when they get hacked (not if, but when)
- selling user data to anyone that asks including government (basically betraying users' trust and privacy)
- in many cases specially among altcoin exchanges: manipulation of the market
- weak servers that go down when there is a traffic rise specifically during price rises that leads to a lot of loss for traders that rely on responsive servers.
- ...
does anybody care? no. they keep bitching about all these issues and more but they keep going back instead of seeking and improving the alternative and better solutions such as decentralized exchanges that could actually solve a lot of these issues.

It would be hardly practicable on the long term because someone can pay a legit person using mixed BTC.

One day most Bitcoins will be mixed and what then? Exchanges who won't accept them will lose revenue and all traders will move to exchanges that do.

It's stuypid to taint bitcoins. Normal users who will buy some coins from someone or sell a physical item will inevitably get some of those mixed coins and add them to their clean coins. What then? Will all their coins become tainted?

+1. i've primarily only read about coinjoin users being flagged and having accounts frozen/closed, and those reports are few and far between. however, sometimes exchanges (especially gemini and coinbase) don't tell customers why their accounts are being closed, and proximity to mixing services could be involved.

the OP didn't bring anything new to the table. exchanges have been hiring chainalysis type companies for years. anecdotally i haven't noticed much of a change in recent times. things have been pretty quiet outside of that one binance singapore incident where they froze someone's account for using wasabi wallet coinjoins.

Do you have any information or links on which may get knowing on what are criteria they are following to label some bitcoins as mixed or having bad history? If many all other services/business start copying such a practice that may lead to many unexpected consequences and one of them is end of mixing business.

I am not going to blame them for doing that if it’s all being done for the reason of not supporting hackers/scammer and for security purpose. There are lots of things going on in the cryptocurrency space, from hackers stealing from exchanges and scammers creating fake projects and stealing from investors. And these scammers would usually send the stolen coins to coin mixers so that they can’t be traced. That’s why these exchanges are rejecting coins that are traced to such, because they certainly have a bad record.

I’ve read about some particular cases, although I still don’t have the impression that it is anywhere close to it being a general trend, neither in terms of practicing Exchanges, nor in terms of the total number of impacted users.

It is an uncertainty though which people could do without, and there are some more adamant voices that pop-up every now and then, asking for this type of activity to be acted upon, and are at least drafting studies to elaborate future standards. Take for example the following EU study:
https://www.europarl.europa.eu/cmsdata/150761/TAX3%20Study%20on%20cryptocurrencies%20and%20blockchain.pdf

Now the aim of the above EU study is on money laundering and such, but the key is in seeing how far they can/will go, both technically and legaly, without treading on people’s toes. A person is conceptually entitled to obscure his BTCs (et al) for legitimate reasons (i.e. keeping nosy parkers at bay), and it’s not as if FIAT doesn’t have a trace of illegal activities on many of the paper bills. Reeling-in or acting upon pre-emptively on mixer users through chain-analysis, should have clear boundaries on just how many steps back can implicate you in some way, and how, alongside the layout ethics and presumption of fairplay (as opposed to foul play).

While I recognise and share the concern raised in this topic and also addressed in the above comment, I would like to point out that perhaps this extra level of policy on some of these exchanges is one which will not be incorporated into all the exchange platforms.

I fail to see how this type of response will be encouraged by the crypto holders, and while it is evident that some measures like this have been put in place to deal with crypto based money laundering, I don't think this is the way forward.

The reason for this is that BTC isn't the only crypto currency and if bad people take advantage of this technology they won't be limiting themselves to BTC, other coins will be at risk too.

Because of this I don't think that banning of BTC exclusively from some exchanges will be sustainable or solve the issue, and so failure to see this on the part of these exchanges will be detrimental to their business.

This was the case for a long time, for example exchanges refused were closing accounts of customers who made deposits from their crypto gambling accounts. This can be explained by the fact that crypto casinos are unregulated and can be used for money laundering, so coins that come from them might be dirty.

From a practical point of view, there should be ways to "clean" your coins. Maybe it's enough to just move them between your addresses to build up a bit of history after the mixing. Or maybe you can deposit it to some exchange or other service that doesn't care about mixing and then withdraw from them. It all will not work if you will be personally approached and requested to explain the origin of your coins, but it might be enough to avoid triggering the automated chain analysis tools.

It was completely predictable. Since all the exchanges usually ask users for KYC/proof of address and some other personal information such as SSN in US. They will need to answer the governments they asked them about identify of any user or source of the transactions.
If they allow users to use the mixed bitcoins none can track them easily for some security purpose in future in order to track drug/gun dealers and avoid money laundry. However, there are still some exchanges where you can easily use your mixed bitcoins without of any problem.

But the people can avoid using such exchanges as of now. There are many alternatives to these exchanges. Or the other alternative is to stop using mixing services which is a pretty good option if you ask me, or use privacy centered coins like Monero for moving funds and storing them later in bitcoins.

This is because majority of users don't use mixing services for their bitcoins and those do they already have other plans if they face these kind of problems. So you always have to be responsible for your funds or else there are many people in the market to who want to con you.

They want only "clean" coins haha! In other words, all that centralized exchange withdrawal limit and KYC stuff are inutile. It's not enough even though they really don't need all the personal information of their users.

"Merchants must be wary of their customers, hassling them for more information than they would otherwise need." - bitcoin whitepaper

I recently took part in a similar discussion, and we can think whatever we want, but if someone says that your BTC is not what he wants based on any criteria, then in that particular case that BTC is actually worth nothing. We all know that every banknote has a unique serial number, but when we pay something, the cashiers do not check every banknote to determine where it came from. Of course, it’s about the fiat being part of the system, while the BTC is just the opposite.

I share the concern of those who see this as a problem, because it can really happen that someone one day wants to use their BTC to pay for something or wants to sell them for a fiat, and everyone rejects it because coins are from some suspicious sources.

Here is something interesting about how BTC could be categorized in the future - > Classify coins (UTXOs) in several categories

centralized services will always do things like this and it will never have anything to do with fungibility of bitcoin. for example i can say that i won't accept payment from any address that starts with "123". that is my personal decision and won't change anything about bitcoin.

the reason that allows exchanges to do things like this and get away with it, is that people don't seem to give a shit! if whenever an exchange pulls some crap like this (or sells users information) they simply boycott that malicious exchange, the next time they are thinking about doing something like this they would hesitate.
look at Coinbase, have they lost any volume? no. so they will continue doing whatever they like.

I'd like to note that this is only really an issue because of exchanges. Bitcoin was meant to be peer-to-peer after all, and was actually designed in such a way that lets you avoid middlemen. It's fungible in essence, but using it in an unnatural way (i.e. exchanges) compromises that.


Yeah, this is why the policy is flawed. They're going to be asking you proof of financial capacity (like in this case with Binance), which is a problem because you're placed at the mercy of another person.

One important question to ask though, is do they automatically flag coins suspected of being mixed, or are they only flagging suspicious patterns? The case I shared above apparently mixed some of their coins directly post-withdrawal -- if they had sent it to a different address before mixing, would it have been flagged then? It's too early to sound the alarm, and blacklisting all mixed coins sounds a bit too draconian considering how easy it is for them to change hands.

We have to accept the fact that centralized exchanges can easily imposed regulations, restrictions and requirements for their users and there is nothing we can do but to follow them, otherwise the best thing to do is to find alternative platforms that can cater to our needs. I don't see this development affecting the fungibility of Bitcoin, at any rate. I am sure we still have (and more in the future) of platforms that do not care if you are availing of mixing services or not.
Centralized and government-approved exchanges have to be careful in all facets of their business because they don't want any agency of the agency taking notice which can surely affect their business and ability to be making big bucks.

I guess that's the way - seize mixed coins until the owner gives you the required information, if it's considered reasonable at all. Kinda sucks that you'd be using a mixer to earn some anonymity and they seize it and ask you for personal information and put you into some kind of interrogation, doesn't it? It's almost like these exchanges are becoming semi-authorities with some power you really underestimate when registering on their platforms


Mixing it once with a higher number of recipients is usually enough to anonymize your coins. But sending it to other platforms and then receiving them back to your wallet means trusting every platform you send to (especially as your coins'd come from multiple mixing and if the platform finds out you'd be even more suspicious than before) and then finally trusting the platform you initially meant to deposit on.

Now there's also a chance you might get screwed if the platforms you've used previously are going to notice the last one about the coin mixing you've done. Then you have fees. It's too much of a hassle. I'd just say don't use mixed coins on any third party platform.

They themselves may well be fine about it, what they have to worry about is whether the next place they pass it on to freaks out.

Exchanges must know that they're playing a questionable game. If it's continued to the stage where the only thing they'll accept is a coin that's either straight from a miner or has an unbroken trail of purity back to 2009 they're not going to have a business sooner rather than later. The entire thing will seize up.

At some point they'll have to nominate firm policies about this for their sake as much as ours and they'd better be pragmatic ones.

People are able to not rely on exchanges if they use bitcoin directly to pay for almost everything. There are many services or merchants out there who already accepted Bitcoin as a payment option.

For example, you can see the list on this site : 20 Major Websites That Accept Bitcoins [Pay In Bitcoins]
But it's just for example and I can't say that all of those sites are trusted since I haven't checked all of them yet.

Unfortunately, we still can't pay for primary needs globally in every country so we still need fiat for that. But we are also supposed to save some fiat so this is not really a problem.
Keep your BTC and fiat in good proportion and you don't need to trade it too much on an exchange.

But I still don't know if in the future merchants and service providers will not accept mixed BTC too  

I have open a thread about this issue before, Exchanges are now potentially banning btc sent to a mixing/conjoin services.

And far as I can remember, bitcoin's fungibility has been in question in 2015 when BlockTrail started to sell virgin bitcoin: BlockTrail Mint: Fresh Bitcoin Delivered From The Mines. But it seems that this offer have been discounted already.

I think it will be unfair to the user that just received btc from someone who did mixed his coins. And also, mixed coins are not only because someone is hiding illegal activity, there are other reasons why he opted not to trace the btc from somewhere else. Like for example in gambling, there are exchanges which do not accept if it is from gambling sites even though it is totally legal to some countries. So to avoid flagging their account, they just use mixer services to avoid potential loss of their funds. I believe exchanges should weigh things before they can implement such tight rule over allegedly mixed coins.

Regulation!

This is one of the reason on why they do need to be keen towards into those bitcoin that are tainted and since these platforms are
heavily centralized then they would really abide with the rules towards money laundering etc. ..

I can say that theres really an advantage for this one but theres also some disadvantages. I dont know if they can able to trace
if a certain coin would be mixed out several times and been passed on several wallets + sending on other platforms
then receiving back into your wallet then you do make a deposit.

In my opinion, it's a stupid move. Just like governments forbid the use of bitcoin without noticing that bitcoin is not controlled by any authority and can't forbid users to connect with blockchain nodes.
Why? Because users may have a legit money but received from someone who received it from a mixer. With chainanalysis, will they be accused of money lundering? I can't understand why exchanges do this. Are they forced? If yes, based on what? Are mixers forbidden to be used?
I am really interested to understand this !

So I guess the mixers would be useless now? or Exchanges who has this policy would be a lesser option for anyone who is using mixers to wash their bitcoins?

The move was quite good, since there are lots of stolen bitcoin that is being mixed/wash so it won't be tracked from the blockchain and they can continue using the same old address of them.

But I got to ask one thing, why would the exchanges do this? I know they are not all has this kind of policy.

I do think so, coz there is no way a business would turn their back to their possible profit, an example, let's say that the money from a person is from money laundering, government cannot blame them for depositing it through their platform right? So obviously this is a form of rule manipulation from one's government not the exchanges themselves. And for them, it is a continue operating or get reprimanded situation which they are left with no choice. The logic is simple behind this, there's no way that these exchange would implement such fool rule like this.

Exactly my point. There is no point for not taking a washed bitcoin, aside it is one of the advantage of bitcoin when it comes to traceability, it is hard to tracked once mixed.

I had some run ins with one major exchange about this, because they had issues with coins that was mixed just before it was send to me and then I deposited those coins into the exchange. I told them that I did not mix the coins and that Bitcoin as a currency would not work if they applied these rules and regulations on mixed coins.

You cannot help it if someone mixed coins before they send it to you... so how can they penalize you for that? It is something different if you mix the coins before you deposit it onto your account with a regulated exchange.

I don't think exchanges are doing it willingly! Most probably it's the government who is playing from background and forcing the exchanges to have such things implemented to reduce money laundering. It's no secret that mixing services are being used as a great tool for money laundering. Few days back I was reading a similar article in Medium on how mixer services are being used as a tool for laundering money and then goes to exchanges for liquidity and distribution. You can also read it below,

https://medium.com/tozex/how-do-criminals-launder-money-through-blockchain-dc66916b5d81

So I think the exchanges are just trying to stay clean. Because all exchanges are centralized business entities unlike bitcoin itself and it is important for them to save their business from government's wrath.

Yes, it is disturbing the fungibility of bitcoin as virgin and clean bitcoin has more acceptability than the mixed ones. But I think that's the way forward. If stolen bitcoin remains very easy to exchange for real money, the hacking incidents, frauds and thefts will not slow down. While privacy is important but it is also important not to support illegal things happening around us every single day!

Many exchange behave like their center of the wourld. But currently community has no other chance as use them.

I also hate these big exchanges using BTC legacy adresses for deposit messing the chain up....

...

I have been reading that many exchanges are using Chainalysis (etc.) to look at transactions, and refusing to exchange BTC (or even accept them).  I also know that BitPay is using such blockchain analysis to NOT accept BTC that looked like they were mixed or otherwise have a "dubious" history.

This looks like it is going to be an issue, probably getting to be a bigger issue into the future.

If we define "fungible" as satoshis = satoshis, then it looks like that some satoshis are more equal than others.  Does this mean that Bitcoin is no longer fungible?  

This looks like a problem for BTC and possibly all of crypto, in that crypto NOW has / will have to be "proven" clean, else hard to exchange for fiat, other crypto, or even for large purchases?

Please discuss.