How I understand it, please correct me if I'm wrong :

All transactions are visible, sure, but Bitcoin also enables mass dilution and mass money washing.

Let's say there is a bitcoin address A on which you have identified that 50% of the Bitcoins are legit, and 50% came from a suspicious flagged address B.

Now what? Do you also flag A as "suspicious". What if A also made thausands other payments, do you flag all the recipients as suspicious?

Let's say you are drastic and your external system only allows payments from the addresses with a 100% verifiable and clean history. Now all I have to do as an attacker is to make a payment to your address from a flagged address I own, and all your bitcoins are also now flagged for life.

You quickly end up flagging the whole address base as suspicious, because there is no way to :

  -  block deposit 
  -  differentiate Bitcoin X from Bitcoin Z

I guess something like smart contracts could change the rules, but that would be a completely new network and token

Or am I missing something ?