Bitcoin's fungibility graveyard
sethforprivacy.com
sethforprivacy.com
It makes no sense to me how bitcoin is still number one cryptocurrency despite it's garbage fundamentals. Failed at everything it was supposed to do.
The argumentation of typical crypto fan is like the motte and bailey fallacy mounted on a helicopter rotor, constantly oscillating between some noble goals (decentralisation, freedom, privacy, anti-inflation, anti-fractional banking) and the "have fun staying poor" snark.
There's simply a real discovery problem, because of the aforementioned gold rush. Participants have too many incentives to bury accurate information that speaks against their investment, spread misinformation that embellishes it, suppress information about projects they want to invest in but didn't yet, ...
Appreciate this thorough analysis of problems with cryptocurrency.
Disclosure: crypto owner
Oh, and NFTs as well. Another worthless crap just to create more Ethereum transactions. Why worthless? Because ... Ethereum is just one of multiple crypto currencies/block chains and tell me again why your particular NFT on top of Ethereum is worth more than the same object on another blockchain? And how many times can the same object be (re)sold on all other blockchains? Do you need to own all of them? Or Ethereum NFT is somehow better?
> pump and dump crypto currencies
Aztec has been in development since 2017, and has solved some real problems in cryptography in order to accomplish their goals. Besides, it doesn't have its own token, so there's nothing to pump.
> Solves nothing, serves no purpose
It allows Ethereum users to transact in private.
> but increases the demand for Ethereum transactions which ultimately drives the cost of Ethereum
It does the opposite, since it's a rollup - the transactions happen off-chain.
Or, you know… gold
As BTC price increases, more mining is still afforded, but this does not result in an increased supply and stabilized price, only in unmitigated high price and more energy spending.
To answer your question, what I've read about Lightning it sounded convoluted. The need to have a watcher keeping a channel open, invoices, just seems overly complex. I have tried receiving sats from online Lightning faucets and that part was impressive.
Ethereum's L1 growth and improvements seem more logical to me.
Is there a good place to go to track the adoption of Lightning?
"Block’s Cash App adopts Lightning Network for free bitcoin payments" https://techcrunch.com/2022/01/18/blocks-cash-app-adopts-lig...
When I checked the numbers, it was 4% cheaper, but the convenience factor wasn't there.
[1] https://www.reddit.com/r/nanocurrency/comments/nuz7f8/nano_a...
All the other cryptos are created after Bitcoin and learned from its shortcomings to build something better.
Your downvotes are invalid.
I don't own and never have owned any btc, or any other crypto, and at this point wouldn't touch btc in particular with a 10' pole for several different reasons.
But the very concept of a distributed ledger that may actually be trusted is both revolutionary and proved.
It's collossal despite all the current degenerate uses and wasteful implementations.
In the meantime, I'll leave it to the opinionated pissants on both sides to continue acting like they understand anything about what's to come from a system with so little precedence.
It hasn't failed at not being controlled by people which fiat currencies have failed completely. Do you control the inflation rate? Do you control how much currency is being minted? And tons of other things.
Bitcoin has proven to be a worthless dollar inflation hedge. It’s more correlated to the stock market than any real dollar.
Agree on the mechanics. Equities are a classic inflation hedge. But the reality is that if three people, in the last year, attempted an inflation hedge, one with TIPs or Series I bonds; one with equities; and one with Bitcoin, the last gained little over the middle. Both likely lost value relative to the first.
If your inflation hedge loses value during inflation because the Fed will raise interest rates because of inflation, yes, there were external factors at play, but no, they’re not to blame, you hedged badly.
Exchanges are essentially banks. They offer bitcoin loans, essentially creating new coins out of nowhere. Fixed money supply is utterly powerless before the inflationary power of debt.
If you let people manage your coins in their wallet, they can pretend there's more of them, but they can't actually trade that many
You don't control any of that with bitcoin.
If you're living in a democracy, you do get a say in those things or at least in selecting the people who decide those things, along with all the other voters.
Automated exchanges like Uniswap have Monero.
edit: Uniswap has Wrapped Monero, not actual Monero.
Wrapped tokens are facilitated through a bridge. The bridge contract(s) lock the tokens on one blockchain, and re-issue wrapped tokens on a second blockchain. At a 1:1 peg.
That way the wrapped tokens can be used in Defi or Dapps on the second blockchain, and later (if desired) sent back through the bridge to be “unwrapped” into their original form, on the original blockchain.
I'd love to learn more about this, does anyone have relevant links or info?
It's worse than this.
Coinbase, for example, will close your account if you use you Bitcoins for things they don't approve of AFTER you withdraw them.
I most certainly don't.
But the hordes of clueless users who continue to flock to the platform are blissfully ignorant of that fact.
Worse, the fact that coinbase is behaving in a way that's completely violating the spirit of Bitcoin while profiting from it doesn't solve the problem that what they are doing is possible because of a severe limitation of the platform.
I am a big and very long time fan of Bitcoin, but the traceability / fungibility issue has bugged me from day one.
I really wish the dev. community would focus on introducing a fork with an technical solution to this problem instead of polishing the turd with minor stuff no one really cares about like taproot.
It doesn't matter that bitcoin failed in everything it set out to do (and more) because people don't "hodl" bitcoin for the things bitcoin set out to solve. They do so because the want to go "to the moon". If your only interest in crypto is speculative investment, then you aren't interested in the fact that bitcoin is broken beyond belief: The important thing is the market-recognition since that maximises the chance for high demand, which induces hyper-deflation, which sends you to the moon.
Nobody, or very few people, care about crypto for any of its features and the people that tell you they do probably "hodl" substantial amounts of crypto and hope to drag you into the pump.
There's not a single problem crypto solves without inducing a new party with equal amounts of leverage (i.e. you don't need VISA, but you do need exchanges) because at the end of the day, crypto is built to change the people that control the money rather than remove control structures entirely because that's impossible: there are always going to be people that facilitate the interaction of the blockchain with the real world and these interpreters/resolvers are the powers in crypto.
However, that doesn't matter: nobody buys crypto the currency, they buy crypto the investment and from that POV bitcoin is still the non-plus-ultra in speculative hyper-deflations.
Yep, crypto is a revolution being staged to replace the establishment (central banks and traditional finance) with a new one (crypto/defi founders and adopters). The goal is to use the new marketing to draw people to the new system and become the new rich. The earlier and more you buy into it, the more incentive you have to spread the word.
This is why it makes sense to rebuild everything in crypto despite it being less efficient. It needs to be done, so that the new system (that replaces all parts of the old) is ready for people to be drawn into it.
to me, its that even if what is happening is that some new ruling class is being established, the difference is that the new ruling class won't be able to fundamentally change the rules anymore. Currently our monetary system is managed by rooms of Very Smart People that can change things at a whim and the cracks are starting to show.
but yeah, things are interesting though.... there is a recent upswell of proof of stake, which is just central banking all over again. So the new system might end up looking the same as the old system if these PoS coins become more common. The difference is though is that bitcoin is unstoppable. Like, its price could be 40k, its price could be 400k. The protocol will still work. The old system has no choice but to adapt or whatever.
> A single actor would need to own huge amount of resources and then essentially burn the coins. To purchase such a dominant stake the price would rise very quickly... making it very unlikely to be feasible.
You are assuming here a single-sided market where the existing majority holders are not interested in realizing profits on their holdings. For many cryptocurrencies this is not the case, especially the hyped VC-funded ones.
Those avenues are not really available for PoW chains... if an attacker gets the necessary hardware, there's not much you can do. You can try changing protocol, changing algorithms, etc. but this has obvious consequences of its own (making all mining hardware so far near worthless)... it's a bit scary to be honest.
Yeah it's not a good currency but many design goals were reached.
First it was supposed to be digital cash, but then suddenly it's gold and now "digital property".
When it became apparent that it's very wasteful they said the only thing hard money can be backed by is pure entropy.
Peer-to-peer, permissionless, trustless (i.e. not controlled by any one entity), known issuance schedule, fixed maximum supply, and unyielding consensus parameters all still hold up today. Seems to be doing just fine at what it was "supposed to do".
On the other hand bitcoin is shitcoin. That is a fact anybody shills bitcoin is possible scammer. Anybody says bitcoin is future is retarded.
Fungibility does not mean non-unique or non-traceable.
Fungibility means that a given asset is legally identical to all other instances of the same thing.
For example, every $20 bill and every share of Apple stock has a serial number that uniquely identifies it, but that uniqueness is legally irrelevant. You broker has no obligation to give you a specific share of stock nor your bank a specific $20 bill. Financial securities are fungible.
Bitcoin is fungible.
== Edit:
Commentators are confusing fungibility and traceability. They are very different concepts. Non Fungible Tokens are just as traceable as Bitcoin, but they are non-fungable.
I wrote a detailed article about this [1] a few weeks ago if you want to gory details.
[1] https://www.disruptingjapan.com/what-three-card-monte-can-te...
The fact that no broker cares about which instance of the stock or dollar you own but can track it anyways proves that those things are effectively fungible. In Bitcoin it is obviously not true that exchanges don’t care in the same way - plainly obvious from the source material you are responding to.
When different bitcoin have different value by virtue of not being exchangeable at the largest liquidity pools, and your definition of fungible fails to capture that fact, you have the wrong definition.
But let's pretend we're talking about cryptocurrency, which does claim to be fungible. Bitcoin forked and so now you have BTC and BCH. One is more accepted, and the other lost value. But regardless of the relationship between the two, each individual currency is still fungible because you can still exchange 1 BTC for 1 BTC. Fungibility is an intrinsic property of a single currency, it says nothing about it's relationship to other currencies or it's place in the economy.
Because of serial numbering some dollar bills can be worth more than others; certainly there seems to be a 'market' for that.[1]
So, in the end it is more like: every "satoshi" is intended to be fungible but through its transparent chain can offer additional information which can be used to discriminate against ... or who knows maybe in the future bitcoins from some special address or with a special tx history are worth more ...
[0]https://whale-alert.io/transaction/bitcoin/77ad70fadfbbad519...
The government can raid your house if someone sends you dirty/darknet/terror money and you deposit it on Coinbase. Bitcoin is absolutely not Fungible.
There are a number of bitcoin addresses that the United States has blacklisted. If you interact with them (including receiving bitcoin that once passed through those wallets at any point in the past) those assets are subject to seizure.
https://home.treasury.gov/policy-issues/financial-sanctions/...
No, I think the commentators and the author of the article are making a valid point that you’re missing: They may be fungible if you ignore everything else about the Bitcoin ecosystem and focus only on the blockchain ledger, but you can’t divorce the Bitcoin balances from their history. As regulations mount and exchanges become more active in recovering stolen coins, the practical reality of Bitcoin will mean that they’re not entirely fungible depending on the history.
I think many people in the comments are in such a rush to declare Bitcoin as fungible that they’re missing the point of the article.
To use the recent parlance, can my money be "cancelled" by popular opinion?
You might notice the person at the 711 register isn't scanning bills to check their legitimacy.
So how is this different from, say, using a tumbler? The crux of TFA's argument is that Bitcoin is tainted with sin.
And yes, a million dollars of stolen cash is worth strictly less than a million dollars because (leaving ethics aside) it takes a nontrivial amount of time, money and risk to launder it before you can safely spend it.
You may be using cash once used to buy drugs or hire an assassin, but it doesn't get tainted and diminish your ability to spend it.
Restricted Bitcoin literally cant be used for transactions making the Bitcoin itself worthless even if it wasn't you who committed the crime that got it restricted. That doesn't happen with cash.
A million dollars of stolen cash is worth strictly less than a million dollars only because those bills cannot be exchanged for another million dollars. It does not mean that the dollars those bills represent is worth strictly less than a million dollars.
Think about it this way. To launder your million bucks, you pay someone $10k. Does that mean the million is worth less? No- because the $10k you paid someone to launder it is still worth $10k! It's just not yours!
One bitcoin is, in theory, interchangeable with any other without a loss of value. However, bitcoins with a dubious history of transactions can, and apparently are, being refused in some circumstances. Clearly some bitcoins have less utility, less value, than others.
The traceability of a bitcoin leads to it possibly being rejected in some transactions, not because ant given bitcoin is (again, in theory) no different than any other, but because one bitcoin’s history may be tainted.
The “blood diamond” analogy seems appropriate - such a diamond remains a diamond, and is technically no different from a comparable “clean” diamond, but reputable dealers and customers will avoid them. Effectively rendering these diamonds of less value than others.
In theory bitcoins are fungible. In practice they are not.
EDITED TO ADD:
Here's something interesting about tainted coins. The commenter took out a Blockfi loan on coins he's had since 2020. The person he bought them from used BISQ. Then Blockfi recalled the loan immediately.
https://old.reddit.com/r/CryptoCurrency/comments/skxpr7/bloc...
"Diamonds are bullshit" and people only think they have value because of a De Beers marketing campaign in the early 1900s.
https://priceonomics.com/post/45768546804/diamonds-are-bulls...
Plus a ton of other discussion:
They are mostly a non-scarce fleecing operation backed by a marketing gimmick.
Now in that case, he's flashing around cash, which is not that uncommon say in certain locales (Las Vegas comes to mind). In that case, the cash you received doesn't lose any value. Though you may get questioned by the police.
Now ink stained bills and bills glued to each other should be rejected since they were likely from a bank or atm heist. But that makes it easy to spot.
Isn't that what BTC was trying to compete with?
Their big tag line is "Building Trust in the Blockchain". I thought BTC was above needing to do that.
(Not meaning to come off as a fanboy, I think bitcoin==beaniebabies. I just don't think the "bad coins" problem is actually a problem, even if you consider Gresham's Law. Physical currencies have been through similar things and survived).
"All $ bills have cocaine on them, hence no one cares if your bills have cocaine on them" [1]
[1] yeah, I get this is likely an urban myth, but the analogy holds even if it is a myth..
The ramifications are the important part. If 10% of bills are essentially fake money, you have to verify every bill you handle, adding significant friction.
maybe you know all this i dunno. if you do, slap me around a bit. if you don't, i hope this makes sense.
It's important to distinguish between fungibility and tracibility because fungibility is an extremely important property for a currency to have, and without it it's all but useless.
Theoretically, if the US were to go to an all digital dollar, we would functionally have a blockchain (assuming all these transactions were reported centrally somewhere). This would not have changed the fungibility of the dollar, because the dollars you get in your paycheck are still the same as the dollars you get back as change or the dollars someone Venmos you for cocaine. Once they're in your bank account, there's no way to separate out which dollars came from which source. Now, you could pay someone to give you money with a "clean" history, but you're not paying more money for those dollars, you're paying someone for the service of giving you dollars with a clean history.
1 NFT isn't the same as any other NFT. They're deliberately non-fungible.
Specific Bitcoin outputs have histories associated with them. While you dismiss this as related to traceability (which is also true), it still stands that one output with a favorable history is preferable to an output that was known to be mined in North Korea.
For these differences, as evidenced by the specific exchange action examples in the linked article, show that different output histories allow companies like Chainalysis, CipherTrace, TRM Labs, and Elliptic to add specific risk scores to outputs. Those with lower risk scores are worth more than those with higher risk scores. This is a breakdown in fungibility.
For example, if someone robs a bank and they know the bank knows every serial number of every dollar bill they got then those dollars aren't worth as much as other dollars since there is risk with using them. So those dollars are non fungible with "clean" dollars. You're probably going to want then covered to clean dollars ASAP and it won't be a 1 to 1 exchange. Therefore it's the traceability that makes them non-fungible.
Well they're not because they're traceable. Your comment is so oddly conclusive yet so insubstantial
No, it means it is practically identical (that is, for any potential exchange partner in the marketplace, any unit of the thing is indistinguishable in trade from any other unit.) Being legally identical is a powerful aspect of practical equivalence for anything primarily exchanged in legal markets, but not the whole of it, and pretty much irrelevant to trade in illegal markets (e.g., items which are legally in the same category of contraband and undifferentiated in law may be very distinguishable and different to the people trading them.)
Bills are not traceable like bitcoin is. They have a serial number so they are identifiable, but only at the point you receive it so not very traceable and in practice impractical to identify in most cases. You can bet if the feds could feasibly blacklist bills that were stolen from a bank or held by a cartel or terrorist group, they would. But they can't. This non-traceability and difficulty to identify is what underpins their fungibility. Bitcoin's traceability is what causes its non-fungibility.
Bills are not traceable like bitcoin is.
Legality is irrelevant...if you are brave enough to take your freedom and actually use crypto (no kyc).
Fungibility is possible if the transaction history is hidden.
Monero and Gold are fungible.
Bitcoin is not fungible.
----
BTW also be aware of security risks if anyone can see your balance and transactions.
But that’s always a simplification that breaks down in edge cases, not a 100% mathematical truth.
For example, I worked on a software project where the goal was to trace a perfectly mixable material through a production chain to analyze the impact of slight contaminations that were found after the fact. The material in question would be considered fungible in most markets, but not for this specific purpose.
The introduction is wrong but overall the problem is exactly what you have described. Some Bitcoins are not legally identical to other Bitcoins.
Not if your Bitcoin comes from a sanctioned entity, then it is equivalent to 0 BTC because you can't use it... which is exactly the point of the article.
fungibility means that two units are interchangeable/equivalent. Legality doesn't enter into it.
anything that makes unit A perceptibly different from unit B can cause humans to value unit A more less than B.
Some units may be perceived as "better" than average and carry a premium. Others may be perceived as "bad" or "tainted" and trade at a discount.
Such differences are generally considered undesirable in a money.
For its initial block download, a node must download and verify rangeproofs for all outputs, not just the unspent ones.
Wallets must be able to sample decoys from a large fraction of all historical outputs.
This makes Monero much more bloated than Bitcoin.
A more detailed comparison between Monero and Bitcoin can be found at https://gist.github.com/phyro/ec37d8bfedd36102b0ea5824580d06...
How many transactions is that, however?
Edit: here's a good comparison chart https://moneroj.net/percentage/
Would you call bloat something that is essential for privacy?
While the author of this article makes some mistakes, here's an example of that weakness: https://medium.com/dragonfly-research/breaking-mimblewimble-...
Grin developers said in response:
> The Grin team has consistently acknowledged that Grin’s privacy is far from perfect. While transaction linkability is a limitation that we’re looking to mitigate as part of our goal of ever-improving privacy, it does not ‘break’ Mimblewimble nor is it anywhere close to being so fundamental as to render it or Grin’s privacy features useless.
Hiding addresses and amounts is certainly better than Bitcoin, but the transaction graph privacy offered by Grin is significantly weaker than Monero. It's not the same.
We present a coin shuffling proposal with the following properties:
Users submit self-spends throughout the day. No interaction needed for shuffling.
Shuffling is performed at the end of the day by a set of mixnodes that cannot steal any coins.
Invalid self-spends are automatically filtered out. No need to abort or restart the shuffling.
As long as at least one mixnode is honest, then no one learns the input output links.
The size of the shuffle is limited only by blocksize and could easily be over a thousand.
Each shuffle only grows the chainsize by a small constant (~100 byte per mixnode), thanks to MW cut-through.
Widespread use of the protocol would leave the transaction graph mostly obscured.
It's a technical solution to a social problem. It won't work. You can always move value in, but out is another matter. Trading your Monero (or whatever) for legal-economy assets or currency may be criminalized any day.
What you're thinking of is the "current" aspect of currency. That when I take payment for a bagel in my shop, I don't need to worry that the money used to pay me was stolen, I still get to keep it.
But this is a social, legal concept, not a technological one. Calling it a currency won't make it current. Fungibility doesn't make anything current either (if I was stupid enough to take payment for a bagel with a barrel of oil, I WOULD have to return it if it turned out it was stolen. I should have known there was something fishy!). No amount of cryptographic cleverness can force society to treat it as current.
(Well, in my jurisdiction. Source: family member is a lawyer)
I believe it still works that way for bagel-level money in most parts of the world. If it's higher amounts, I'm not sure - you certainly have a lot of due diligence obligations, and if you didn't do them you certainly lose it (and you will be in trouble, too).
It primarily comes from the Latin currens which means to run, or flow.
It's monetary sense comes from that, as money can be thought of as flowing throughout the economic system. The temporal sense of "current" comes into play only as denoting something like "the present day medium of exchange" not "immediate". Bank notes and checks for example are both forms of currency but are not immediate.
The immediacy of cash-- separate from its status as a currency-- does not confer it special rights. To use something less trivial than a bagel, think of a car. If the dealership is notified that it received stolen cash for a car, it now knows that it is in possession of stolen money. It cannot legally keep money it knows was stolen. The exchange it entered into with the thief was itself not a legal transaction. The cash goes back to the rightful owner, the dealership gets to fight it out with their insurance company to get its own money back.
Fungible items can be used as a commodity, for instance: if two people buy cereals, they may use the same silo to spare on warehousing costs.
Fungibility is always true within a limited context, though. Examples of failed fungibility include Amazon comingling genuine products with fakes, or, to draw from the previous example, cereals from different areas will likely have different gluten or humidity rates, and while producers from an area may share a silo, the buyer may keep the same cereal from different geographic areas separated. Another example is electricity, with power being fungible in terms of who puts it in, but absolutely not when it comes to when power is provided.
That's a pretty good example of introducing artificial fungibility "to spare on warehousing costs". It goes without saying that this also leads to risk for customers; there's no way of knowing if an order for some given SKU will be fulfilled by a genuine product or a fake. It's nonetheless true that you can arbitrarily mix orders without changing their fulfillment properties, so a kind of fungibility is indeed present.
Indeed. Monero uses ring signatures: every transaction is signed by 11 users and it's impossible to know which signature was responsible for the transfer.
https://www.getmonero.org/resources/moneropedia/ringsignatur...
https://www.getmonero.org/resources/moneropedia/ring-size.ht...
> You can always move value in, but out is another matter.
The ideal outcome is we start using Monero for everything. There should be no need to ever move value out.
which would never happen as many economic actors (including gov'ts) will ask to be paid in dollars.
It's not even a good investment since it doesn't increase in value as fast as bitcoin but gets slaughtered whenever the market goes down. Would be nice if it stabilized in the $200 range.
I get the optimism there, but I just can't see how the incentives possibly give way to each other there. Just have to ask kindly that those manipulating the platforms for profit stop?
Now if they had a cute dog mascot maybe you could get Elon Musk to tweet about it...
I think this combination of looking like tech but being a financial instrument makes it hard to talk about on tech forums because we don’t have anything with close to that level of conflict built-in. If you were a PHP developer who switched to Python, the value of your past experience wouldn’t drop to zero (often it goes up); if your Rails app was bought by a Node shop it wouldn’t be seen as worthless and they’d probably keep it running for many years. The closest comparison I can think of for weak fiat currency like Bitcoin would be Flash after Adobe threw in the towel and everyone knew they’d need to migrate, and even there the value had a higher floor because you had working code and a path to HTML5.
That said, the article is pretty much a list of links so not as much credibility is needed.
*this: edit - this being a disclosure that they do or don't own Monero
Disclosure: I own crypto but not Monero
Running a node is not the same as mining. You are not rewarded financially, and you don‘t need to hold Monero to run a node. Nodes just maintain the ledger and transaction pool.
Running a node supports the network through decentralization and participation in consensus.
Mining creates clean BTC, anything else risks tainting them. I expect that the ratio between prices in tainted / clean BTC will grow if the set of tainted coins increases compared to clean ones.
I don't. I expect the absurdity will become more clear and make the whole attempt to flag them irrelevant.
for example, after a national or municipal government seizes bitcoin under some semblance of due process or even an actual criminal charge and reauctions them, we are supposed to pretend those bitcoins are magically clean? do all the exchange softwares update to know that? they still have the transaction history from the event that flagged them to begin with. the answer is easier when it involves a government you respect like when the US Marshalls auction off a drug kingpin's seized bitcoin. but what about a government you don't respect? welp a sovereign nation seized it so they're clean now. If so, some random jurisdiction with some level of sovereignty can just become the bitcoin washer as a service, if not then exchanges are acting too arbitrarily and are going to lose business for no legal reason. Exchanges flag bitcoin to stay within an imagined impending compliance burden of being able to prove they don't accept dirty money. If they flag bitcoin with the clearest outcome of having been seized by the state and reintegrated into the economy, then they have made a hopeless error. People with ambiguously acquired bitcoin already have a dozen ways of getting it into bank accounts and cash, and will have even more in the future. So it's just the merchants and exchanges that have to make sure they are attracting business. For those reasons I don't see a separate exchange rate forming, its an average of fungibility that leads to the same result.
Seems if you can't go to exchanges, going to private corps or individuals who don't follow the ban lists would likely work, makes it their problem.
Of course, scale matters. Buying a couple of rigs off random sellers willing to take BTC should be trivial, but if you need a warehouse full of them...
which is how you launder money today! And dirty money is certainly worth less than clean money.
I was responding to the question of "how would it work?", not "is it worth 100% of the same 'clean' funds?".
Different circumstances and market conditions will make the discount variable.
Exchanges are using software that assigns a threshold to each address' inputs or funds. You can easily trick the threshold.
UTXO model, or a derivative will win out when it comes to distributed blockchains that can scale way beyond current distributed blockchains capacity.
Now that's a different universe than what OPs lives (just by the fact Bitcoin goes up and down in fiat value would be enough to make it "non-fungible" by that logic), but I can assure you many of us exists.
And I'm not even mentioning how Lightning Network fixes this as well, making coins very hard to impossible to track.
This article is alarming to me as a normie user. I'm curious about going off the big exchanges and using my coins. What if I receive crypto through OpenSea that Coinbase deems soiled?
Although I don't like it, I could see private verification service popping up for P2P. "We make sure the coins are good before the transaction goes through".
Makes me wonder how much of a "walled garden" Bitcoin is. Sure, hold it on exchanges all you want, but don't try to use it or we lock your account.
That being said, those outputs will simply become someone else's problem later on, in limbo created by the uncertainty on whether them being held by an exchange clears their past history or not.
Paper money has serial numbers, but likely nobody record them during the criminal transactions. Even if they KNOW which serial numbers are involved in a crime (maybe they robbed the mint), there's no database that tells them I have that note now and no infrastructure to catch someone from spending it.
(Of course perhaps the money is clawed back because there's text messages on the criminal's phones about buying the couch. But that's another story)
If I understand correctly, “dusting” is only useful for empty addresses, when you want to track who owns them, because if they remain empty forever, you have no means to know.
When my pile of $20 bills with serial numbers on them gets converted into $100 bills with other serial numbers, and my $100 came from some place that collected $20s from other people, is this not exactly the same mixing?
I feel like there are people in all governments who are thinking all day every day "Yes, and we are working on this insane hole in our control as hard as we can and the day is coming close when we can finally outlaw cash."
Scale also matters because it’s hard to ramp up businesses: the mafia can’t claim that their restaurant is doing $100M/year in sales so there are going to be more people involved (i.e. chances for the police to find an in) and they can focus on businesses which do tons of anonymous transactions.
From what I can tell, this is what "Central Bank Digital Currencies" are all about.
It will continue to have a role and prosper next to Bitcoin though. We need both. One to decouple from government control, and the other to evade surveillance.
It’s a well-known secret that you can change your Bitcoin to monero, then the Monero back to Bitcoin to “wash” your Bitcoin. Also, with enough time, all the Bitcoins would be dirty.
P.S. don’t bother responding if you are coming from the privilege of never having lived under a terrible government.
Why? How are they going to keep it down?
I will keep talking about it and trying to use it. Actually managed to get paid with it once. Ironic that the one coin that's actually usable as currency remains obscure.
This isn’t shadowrun, the digital realm isn’t one entirely separate from reality
Another possible solution is to somehow get influential people to buy into these systems. That way, they won't want to stop it even if they could.
What would they do? We still use address systems based on groups owned by the governments. I’m not even protesting that fact. I’m just amazed that a large group of people think they can have a direct dependency on someone else’s property, and pretend that they are completely independent.
Also, exfiltrating value via crypto is not sufficient for most people in oppressive countries. The overwhelming majority need to be able to spend the crypto locally as cash, which isn't possible in any oppressive country except El Salvador.
It's the same way everywhere really. Technically Elon Musk is supposed to have his twitter activity supervised as per agreement with regulators. I don't think that's happening but somehow nobody cares
For crypto as currency, this is effectively a death sentence. If most people are afraid to hold or trade it, you can't use it locally.
It would only be useful to people hoping to exfiltrate value and then leave the country, which is not a majority of people.
The other person at Bisq would simply wash his bitcoins through monero - and that would be that.
Not only its good for Chinese citizens, it is very good for western democracies to funnel money to opposition figures in hostile countries (or plain old spies). In a world where the digital Yuan reigns supreme (where everything is monitored), would the US want to pay a Chinese spy in paper USD, washed bitcoins, or digital yuan?
When I need to make an unapproved transaction (donating to a Muslim charity if you are a Yighur for example). I go through the hassle of using Bitcoin, either directly or after changing to USD by P2P exchange.
Who's buying yuan from you in exchange for Bitcoin?
Who's selling you yuan in exchange for Bitcoin?
Given that yuan is tightly controlled... How is Bitcoin hiding anything in this process?
I'm wondering if somebody who spends all of their highly-controlled digital yuan in cash every month, and not on anything detectable, will draw suspicion.
I live outside China and I am baffled about how you get a VPN that you trust. A VPN is a third-party who shields you and that you trust.
Everyone on HN recommends Mullvad because of their track record. Do you know that Mullvad is not compromised?
If you lived in China, how would you find a VPN that you trust?
The locals know what to use. Also, you don’t need a non-monitored VPN. Just one that’s not monitored by your own government.
Monero is getting to the point where it will not need permission.
It will soon be added to the decentralized exchange Thorchain. On top of that, the Haveno project is making great progress and will be a Monero version of Bisq.
Thorchain will be swaps that don’t require specific orders, much higher liquidity. Haveno is the traditional platform where someone puts out an order and someone buys that exact amount.
Oh and I almost forgot about regular atomic swaps which also exist today.
If you're interested in actually using your currency for anything in the real world other than swapping it for other cryptocurrency you'll always need permission.
If I want to go to the supermarket and pay with Monero that will require that legislators deem Monero a legitimate currency.
A lot of people use giftcards. That's what people do with bitcoin too.
Completely irrelevant to this conversation.
It's just a risk of self-custody of keys and it's a good reason for the industry to push forward better key management solutions (multi-sig + shamir secret sharing, etc)
You're still a single point of failure, aren't you? Apply wrench until you've given up all the privacy coins you have access to
Until wallets gets smarter and safer, and these smart/safe features are so mainstream that even muggers understand it, this will always be a risk
The problem with cryptos with public balances is that attackers can know your net worth in advance, and thus know whether you're a valuable target, and exactly how much they can ask of you. And this is the reason why privacy technology likely won't be outlawed: high networth individuals use them constantly.
Not really... a mugger can read people well enough to know that they have more than $100. More than $1000, etc. A random person older than 30 can likely give you a lot more than $2000 even.
So this goes back to wallets needing to be smarter all around. I expect there to be companies/services that spring up specifically around this need.
However, one thing that I predict in the next 5 years is that people will simply stop having crypto wallets on their phones. They will either not have mobile access to their savings accounts at all or they will use something like a SatsCard that only has like $100 on it https://getsatscard.com/
In many countries, kidnapping and torturing someone for $2000 is not worth the risk for anyone. But for amounts 6 figure and up, it makes good risk-adjusted sense to many people.
Given how few people have a proper security setup, cryptocurrencies with KYC'd accounts and public balances are lists of juicy extortion targets.
As long as governments begin to accept Bitcoin, it becomes trivial to accept altcoins because they're often easily exchanged for Bitcoin.
Governments of small countries, maybe... but Bitcoin is already banned in China.
There are talks about a ban in Russia (Putin seems to be satisfied with taxing mining more harshly, though):
https://www.reuters.com/business/finance/russian-cbank-propo...
It's not a case that it was first China, and now Russia (which is in the top 3 for mining).
In the top 3 for mining there's also Kazakhstan, and their recent crisis was also caused by energy prices, so I can see them tolerating bitcoin only in the short term.
That leaves the US, but that country is too corrupt... And it has too many bitcoin billionaires to allow the value of bitcoin to tank. But no one knows how long this will all last.
Bitcoin continues to thrive despite their bans.
A huge portion of many countries' economic activity happens outside the reach of their governments. This is the present reality, not some anarchist dream.
In this context, people are free to use the currency they prefer.
A US controlled internet currency is going to do better than any of the cryptos
I've heard about XHV and Monero being added to Thorchain a year ago, described as coming soon. Somehow it feels more like marketing than a real thing.
Mixers with Tornado.cash
At first the argument was that BTC is transparent which means it's better than the banks. Now it's transparency that is the problem. And now we can't freely debate it on a forum like HN.
Money laundering for "good" is still money laundering, and that's what your advocating. And money laundering enables all the "bad" things like bribery, human trafficking, arms sales, drugs, and then nation-state sponsored terrorism.
E.g. I keep asking myself, would organizations like NAMBLA like this technology?
It would, I think, be a shame for all the "good" you're hoping to create instead ends up causing far more harm for the people you hope to free with it.
If you can’t see the problem with governments controlling and monitoring transactions and being able to confiscate private property, then cryptocurrency is not for you. It’s simple - you don’t have to use it and you can call your legislators to ban it. Luckily, it’s permissionless, so no one cares.
I feel like the crypto arena is conflating the fact that they are small enough to not be worth actually stopping with the idea that they can never be stopped.
Remember, you can say it’s useless (for you.) and harmful. That’s all fair. But, it’s a verifiable, indisputable fact that there are Bitcoin nodes operating in China despite the government ban[0]. You can’t ban Bitcoin, which why the free market deems it valuable.
Smart governments know this and move to tax it heavily(India), or move it to work within the state-regulated banks (Russia). But, no you can’t shut the network down without shutting everyone else internet.
Ergo, a government would just need to go after the exchanges. Nobody wants BTC, they want something more stable.
That implies bitcoin, and I am making an assumption that all cryptocurrencies are in the same boat, is worth as much as the rest of the internet.
If crypto markets start threatening fiat currencies, I will be heavily surprised if ISPs choose to protect crypto markets instead of shutting them down when the government threatens their ability to do business.
Crypto is only dangerous to fiat in crypto bros minds right now. They 100% can shut down crypto once it stops being a novelty
So you can't see the harm in money laundering support human trafficking? Because that's real tyranny. Not by governments, but by criminals who can project power to bribe government officials to look the other way with anonymous transfers.
Debate is what happens in a free society. If you can't debate it, you can't promote it in a free society.
Trust us. We know what’s good for you. The world is bad, and only us can fix it. /sarcasm
Ironically, that is exactly what you're saying.
It have been you taking the weird authoritarian take of “we must ban a tech because some bad people may use it”. Which is literally true in every technology ever invented.
If you're calling me an authoritarian for espousing views on why a particular technology that allows easy money laundering is bad, then I guess by a variation of Godwin's law, I win by default.
Please don't tell me whether or not to respond. If you want to point out that the question has much more salience for those who have to deal with terrible governments then I think that's a very important point to make and I appreciate you pointing it out. But I come to Hacker News to hear from everyone with insights -- NOT just the subset who happen to live under terrible governments.
It’s not the same everywhere though!
Closing debate on any topic is not a free society.
Otherwise we wouldn't have had two full years of central bank-fueled upwards wealth redistribution almost everywhere in the world.
I agree with you in reality though. The average person have 0 input in the monetary policy in America or Europe.
This is a misconception. Coins are only associated with the last identified node. So for example if I sent tainted BTC to Coinbase, sure Coinbase would investigate my account obviously. But the coins can be used from then on as "clean" Coinbase coins, until they hit the next identified node by blockchain analysis companies.
If you sent funds to Coinbase's provided address and they wanted to refuse/refund it for some reason, your new owned output would likely be marked as clean and from Coinbase.
This may vary across circumstances of course. And they may decide to refuse to issue a refund.
I lived under an even worse government than you, and find this attitude offensive.
By whom? There's nothing like that here https://github.com/bitcoin/bitcoin https://bitcoin.org/bitcoin.pdf
> and digital cash alternative
That was the case from the beginning but it hasn't worked out.
> Each bitcoin in circulation has a distinct history attached to it ensuring that 1BTC != 1BTC.
What? The value is the same. Paper bills also have a distinct history.
> While coin histories can be somewhat ofuscated with tools like CoinJoin, the fungibility of Bitcoin remains distinctly lacking.
What? How's 1 BTC is not fungible [to another BTC] unless you're wanna hide your bitcoin transaction history? Is this what it's all about? Sorry to break it to the author but he seems to imply that Bitcoin is a privacy oriented electronic currency. It has never been "private". The whole ledger is public. If you don't like it, don't use it. You have Monero, Dash and Zcash and Bitcoin mixers if you wanna deal with ecurrencies without anyone being able to trace you.
I think you’re deliberately ignoring the entire point that the article is making. The fact is that tainted transactions are becoming a thing as exchanges realize that they need to do something about addressing theft and fraud.
It’s not even about your own transaction history. Assets acquired illegally, including Bitcoin, and and will be seized even after they change hands several times.
Unless you mined the Bitcoin yourself (not through a pool, literally generates the block yourself) then it has a history attached that involves other people.
well if we're going this abstract then everything everywhere involves "other people".
Pragmatically mining, even through a pool does not show who you are or who you are associated with as no one can associate you with anyone if they can't associate your coins with you.
This idea that exchanges will stop handling coins from flagged addresses is nonsense - DEXes already solve that problem anyways, so an exchange will be willingly giving up business for legit customers who may have happened upon a coin with a less-than-legit history and they'll do nothing to prevent money with illicit history from making its way onto their platform.
Those who enforce money laundering laws don't mess around: If your money is clean, you're just shooting yourself in the foot by erasing the record of how you got it.
Guilty until proven innocent is an untenable practice if you want to run a profitable business. The market will sort out any ridiculous practices that makes you prove you haven't laundered in order to participate in a market and as I've said, the alternatives already exist.
edit: as for DEXes that's my whole point, you trade a crypto with "bad history" for a crypto without bad history and just like that even the strictest exchanges will happily give you an off ramp into fiat
Even in your jurisdiction, you may soon have to. From the linked article, you can infer that you got lucky - your attempt to cash out might have been stopped by an exchange, if you did it a little later or with a little dirtier coins.
> and if I had really wanted to I could have traded into fiat via direct trades using sites like localbitcoin.com or similar
Good luck meeting random strangers and trading BTC for cash with them safely AND anonymously. You're lucky if you get even one of those two.
> Guilty until proven innocent is an untenable practice
Tell that to financial crimes investigators, whatever they're called where you live. As I said, they don't mess around. They're not reasonable. The price for operating in the legal economy is that you have to be able to account for your assets. The exchanges don't do this because they want to, but because they have money laundering cops breathing down their necks - and you will too, if you're silly enough to try to cash out significant amounts through localbitcoin or similar.
and as I've stated, using a DEX to trade from dirty coins into clean coins is cheap and simple. I think this whole thing is just paranoia, but in the event it actually does become an issue for law abiding citizens (such as myself) the market has already accounted for the nonsense and given me an avenue to continue to operate effectively and legally.
> Good luck meeting random strangers and trading BTC for cash with them safely AND anonymously. You're lucky if you get even one of those two.
I've done both frequently and with nothing but success - I'm wondering if you've had experiences otherwise as I know plenty of people who use that site and have had nothing but success.
> if you're silly enough to try to cash out significant amounts through localbitcoin or similar
I'm sorry, what are you talking about? Legitimate services with legitimate clean money is not silly.
Cheap, but not free. You're paying a premium. Which illustrates the article's point.
As exchanges are reined in, and off-the-record bitcoin for cash trades are cracked down on (google "localbitcoin arrests" to get an idea - that should also answer your two other lines), this premium will grow, and it may well grow enough to make the whole thing impractical.
Who is on the other side of that trade? If it's an identifiable DEX then doesn't that only work until cryptocurrencies from that DEX are defined as "bad"?
Gold has a real world trace that can be found out by simply asking intermediaries and numerous other means, Bitcoin has a digital trace, it's not that different.
It's very difficult to make sure that the history of where that gold you got came from and to whom you sold it to is 100% erased.
Gold is literally untraceable. Nobody can stop you from smelting and selling it as you like.
Once a person trades coins at that exchange (perhaps even into a different cryptocurrency for additional obfuscation), then in the eyes of the other exchanges those coins will become disconnected from the activity they are trying to hide.
Once that happens, why would exchange X take your BTC, or any other people exchange other crypto for BTC there, if they can’t circulate it?
Gold is very traceable, because it leaves a trail of people behind. It's very heard to disconnect your identity from your gold sale, because you have to make that sale in person, so there are always witnesses, cameras, paper trails.
If you want to put in a middle man, you also need to know him to trust him not to run away with the gold and he becomes a liability, because he knows your identity.
That's why this is the maximum fungability you get, be it with bitcoin or gold, none of the two have the upper hand here.
And no, I don’t see how you can compare gold being “traceable” through detective work, to a ledger that literally stores every transaction in history, publicly.
No they don’t. Nobody records the serial numbers of each bill they receive and pass and who they got it from and gave it to, in a publicly accessible ledger.
By hyperhopper, for one: https://news.ycombinator.com/item?id=30156253
I think it's a pretty widespread belief amongst people who haven't yet learned about tainting (as i myself only did a few weeks ago).
Nope. It's impossible to cash out a tainted bitcoin since it cannot be deposited at exchanges. Its value is essentially zero.
> How's 1 BTC is not fungible [to another BTC] unless you're wanna hide your bitcoin transaction history?
Every bitcoin can be distinguished by its transaction history. If you try to use a mixing service, that fact will be known and the resulting bitcoins will be tainted. Exchanges will assume they are laundered funds.
No it's not. It's worth a bit less than face value, but you can cash it out by swapping to other cryptos.
To you, you might be trying to break your link with a Bitcoin mixer by wrapping those bitcoins and uniswapping them for a different asset on Ethereum.
To me, I simply went to Uniswap and bought some wrapped bitcoins, then deposited them on a traditional exchange.
Given the limitless number of cryptocurrencies coupled with the limitless number of exchanges, there will always be some series of hops that someone can make between cryptos such that by the end, there is no amount of algorithmic analysis your exchange can perform that will automatically connect the coins and block them. Manual intervention would be required, by a privileged law enforcement expert who is personally tracking that value across novel and disparate networks using domain-specific knowledge.
Please don't lump in Monero with Zcash and Dash.
I chose to buy some Monero because they didn't backpeddle like Dash by claiming they're not more private than Bitcoin and CoinJoin when the coin was removed from an exchange, or have a developer that tweeted that Zcash can be made traceable.
https://old.reddit.com/r/Monero/comments/kp8jws/after_years_...
Need to read more about that. Thanks!
Sending them through a Lightning Channel would make them disappear without a trace, right?
For Bitcoin these are UTXOs which are easy to trace, but not so for Ethereum and its tokens which just rely on accounting not UTXOs. Right?
No.
> Let's say I send you $100 USDT and Osama Bin Laden sends you $100 USDT. Then you send Justin Beiber $100 USDT and keep the remaining $100 USDT.
That's a misconception, you can do that exact same thing with Bitcoin and you are left with the same question. Bitcoin outputs can be combined into a single output (and they routinely are). See this diagram: http://syskall.com/bitcoin-notes/svg/transaction.svg
Even Ethereum's rationale acknowledges that Bitcoin's UTXO model provides a higher degree of privacy: https://eth.wiki/fundamentals/design-rationale
For example, paper money has serial numbers. In theory, it could be tracked. ATM's could record serial numbers with accounts for any cash they give out. Stores could scan all the money they get for serial numbers, looking for counterfeits. Maybe they could share data to discover interesting trends?
In practice, it would be hard with banks and stores acting as mixers as part of ordinary business. It's easier to track things with Bitcoin.
Take a stolen $20 bill, deposit it in your bank account with "clean" money. Now withdraw $20. Is it clean, or stolen? How much is stolen? 100%? Less?
It’s a strange thing, because I always thought of Slush as a great guy who understands the importance of fungibility (and he was the main reason I bought Trezor instead of something else), but the company changed over time.
For those reading, the title says "Trezor Ditches a Controversial KYC Feature, Plans Features to 'Cut Off Regulatory Overreach'"
Apparently Trezor added a KYC system called AOPP. Then backlash. Then they said they would roll it back (as of the article).
Have they rolled it back yet? They said it will be rolled out in February. Edit: Trezor blog post about the rollback here: https://blog.trezor.io/a-decision-on-aopp-789540c2930b?gi=f3...
I always wondered what Trezor's fundraising plan is. My guess is once they started to see the money come in from taking fees they started to say "we'll be the next Coinbase!!!".
Do you have any more analysis of this addition to Trezor? As a Trezor user, this reminds me of Apple's push for on-device scanning. That Trezor even added this feature temporarily has me looking for alternatives. Anyone have suggestions?
The only problem for me in practice was that the red light was blinking instead of the green, which shouldn't have been happening (I reflashed the software on the device in my multisig setup, which I decreased the trust somewhat). If I would have been more patient, I would have sent back the device for a replacement.
Seems like Trezor "blinked" here and tried to keep everyone happy. I wonder if Block/Square is going to eat Trezor's lunch by providing a badass wallet for people that don't care about KYC. And then ColdCard will be for users that are strictly anti-KYC. And Trezor gets stuck in the middle and goes out of business.
There are lots of features in Bitcoin that are important and not addressed by mixed wallets because of the lack of development time, so these two types of wallets are getting separated by the market (which I see as a good thing both for Bitcoiners and mixed-coiners).
edit: thanks!
edit: in fact that AOPP thing appears to be just a thin layer on top of signmessage. https://gitlab.com/aopp/address-ownership-proof-protocol/-/b...
Even if it's just a thin layer, if it's implemented, it's destroying years of work of improving Bitcoin fungability.
Bitcoin simply does not have fungability. The emperor has no clothes.
My issue with Gofundme isn't that they aren't politically neutral, it's that they took the money first, and then just decided to hold it hostage. Had they not accepted the trucker's money, or just refunded all the donors, or disbursed the funds to the org and then refused to accept anymore, any of those things would have been fine. But what they are doing here is tantamount to theft, and that I do believe brokers should be compelled not to do.
Here's a post from Stripe on this issue:
"Behind the scenes, we work closely with payment networks (such as Visa and Mastercard) and banking partners across more than two dozen countries. Each institution has strict legal regulations that govern them and specific rules about the types of businesses they do and do not work with."
According to a few sites, Visa shut them down. After that Hatreon didn't (yet) get another payment processor setup. Their homepage [1] says: "This site's services were suspended by VISA in November of 2017."
Kicking alt-right people off platforms is a band aid solution. A storm is forming that will explode at some point. You can't just silence people like that an expect good outcomes long term.
I imagine the next big wave of cryptocurrency use will be by alt-right users. They're coordinated, resourced, and tech savvy enough.
Crypto-enabled Spotify, crypto-enabled Patreon/Kickstarter, Crypto-enabled YouTube...basically writes itself at this point. I wonder if there's an alt-right HackerNews out there already.
Also the founder is the 3D printed gun guy!
https://arstechnica.com/information-technology/2021/03/gab-t...
Also is there any way to check for whether funds from a certain address are likely to be "tainted" or if I am going to use a dApp that would taint my own funds?
In other words, if an exchange every refused a particular bitcoin UTXO, I could simply swap it to Monero and then back and try again with these fresh new bitcoin UTXO’s.
In fact... I made an NFT on this basis (the non-fungibility of US Dollar Notes) a while ago, here's the blog post about it
http://mikewarot.blogspot.com/2022/01/whats-all-this-nft-stu...
Now, if person A then wants to send Bitcoin to another address, person A has to reference the ledger transactions where they received the Bitcoin (so the transactions that say person A received C Bitcoin and any other transaction where person A received X Bitcoin) as proof to the Bitcoin system that person A has enough. The used transactions are basically crossed out on the ledger after that and if person A didn't want to use all their coins from the crossed out transaction, person A will make 2 outputs on their outbound transaction -- one amount marked to a recipient's address and another marked back to their own (with the "change" they want to give themselves). Now we can discuss the feature of fungibility within this context.
Imagine a scenario where person A only has C coins to their name. If person A were to send Bitcoin to someone else, then you can imagine that any Bitcoin received from Person A directly came from the C coinjoined coins. But what if person A also had another transaction on the ledger giving them X amount of coins? If person A wanted to send less than C amount of coins, let's say C-1, person A could technically reference 2 transactions (the one giving person A 'C' coins and the one giving Person A 'X' coins) and it would be impossible to tell from the ledger which pile the recipient is receiving coins from. Thus there's no surefire way to track an amount of Bitcoin from person to person. What an institution can do is blacklist any transactions received that reference a coinjoined transaction, but it's very easy to make sure one doesn't directly have Bitcoin from a coinjoined transaction.
One simply has to send Bitcoin to another address they own and reference 2 transactions, the coinjoined one and another "legitimate" transaction. Using the second address, it now becomes obscure how much of the money they received came from the coinjoined amount and impossible to distinguish any amount they send as being part of that source. Companies can still blacklist accounts that have received coinjoined funds and any direct accounts they've transacted with, but when does the fan-out stop?
Conducting business this way would be detrimental to any Bitcoin-based business. From the examples I see in the linked post, exchanges are only rejecting coinjoined transactions as deposits and withdrawal requests to accounts used to create coinjoined transactions. I'm still against this of course, but I wouldn't say this threatens the overall fungibility of Bitcoin).