Bitcoin Thieves Yet to Spend Stolen Hoard

In China, Korea, Singapore, and Japan, virtual goods are considered property to varying degrees.

EDIT: reply to discountgenius since there was no reply link. One of the functions of government is to create laws protecting property. There aren't any laws in the U.S. that treat virtual goods such as bitcoin as property. In the U.S., at least, courts have proven extremely reluctant to extend property protections to virtual goods, i.e., MMO items, because the state of the law and underlying technology is still too much in flux. At best, virtual goods are treated as licenses. However, licenses are not property that can be stolen (and this has been litigated in non-virtual contexts).

In Japan and Korea a few years ago, some courts ruled that in-game purchases were considered property for specific purposes. I do not know if their respective courts followed those cases.

It's a relatively new protocol. There may be laundering methods that nobody's thought of yet.

There are some issues with the idea. Some of them are subtle:

The first thing to realize is that bitcoins do not exist as independent trackable entities, in the system. So there are no individually identifiable bitcoins that you can 'mark'.

Instead, address balances exist. So, you might say, lets just mark the address balance as 'hot'.

This has some merit. It violates what appears to be a design assumption of Bitcoin, which is that bitcoins are meant to be fungible; but it has some merit.

If someone tries to pay you with a transfer from that address full of stolen coins, you can just say "Im not accepting that as valid payment. Take your business elsewhere."

But, what happens when somebody - lets say an anonymous mixer - accepts, say, 100 stolen bitcoins, into an address that has 900 bitcoins already in it.

Now, you have an address with 1000 bitcoins. 10% of these bitcoins are dirty - but which 10%? How do you deal with this scenario? What if someone tries pay you 100 coins from that address? Do you say that transfers from that address are only worth 90% of the value they had before? What if that address goes through a mixer again? You can keep track of percentage 'contamination' but its going to start making things complicated.

If you accept dirty bitcoins, that weren't dirty when you got them (lets say you are a mixer and get a transfer before people realise there has been a theft), what happens? Also, who gets to say which bitcoins are dirty? A centralised authority? That sort of breaks the design goal of fungibility - if you have to ask a central authority whether this is a real bitcoin or not, why not also just have the centralised authority issue them in the first place, and dispense with all the complexity?

I'm not sure whether a marking system would work; there certainly seem to be some reasons its tricky. I've seen discussions about this on the bitcoin forum; plenty of people there who have thought about this a lot.

For example, after the Linode hack the stolen coins were moving around and there were reports, from people who had bought coins from cryptoXchange or had paid with paxum, that mtgox was freezing those deposits because they were connected to the stolen funds.

So, how can they ever be truly laundered? Because eventually someone is going to want to convert them to cash, and at that point, they're traceable right?