What if there was a way to tag bitcoins as stolen and declare them null and void? Would this not disincentivize thieves? Could we prevent abuse of such a system?
What burden does this place on users to be certain that they're receiving "legitimate" coins?
If you want the BTC network itself to reject stolen bitcoins, there's no need to stop there: if you had community agreement, you could just as easily reverse thieving transactions and make the victims whole.
It's like adding a new rule to how a piece moves in chess. You could easily imagine some of the advantages caused by a change, but not all of the consequences.
The question is whether that's a meaningful thing to measure. If you have bitcoins that are more valuable than normal, because they're shares of stock, then you'll make sure they're not mixed with "normal" coins. That's the idea of the Coloured Coins project. But if you have bitcoins that are less valuable than normal, because they're stolen goods, then you'll try hard to disguise that fact. You'll immediately spend them on goods or currency, or deposit them into a Coinbase account and then withdraw them later (so you get different coins back), or just throw them into a mixer with the other coins that need to be laundered.
The person who ends up holding the tainted coins could be perfectly honest, and have acquired them from a perfectly honest source, who in turn acquired them from a perfectly honest source. Is it fair to tell them that their money is suddenly worthless, when they had no way of knowing anything was wrong?
Now, what you propose though, is against the freedom bitcoins is assumed to stand for (on the ethics side).
On the technical side that's very possible, as of today, if everyone plays along and I mean literally everyone, especially mixers.
How could one track down bitcoins flushed into public mixers? I guess they could do this as well, if the BTC were tagged and thus refused by the mixers or even worst hold captives and resend them to original issuer. However, you only need 1 TOR hosted mixer to lose track of the wallets.
On the other side imagine the practical chaos: I make a huge transaction of non-tangible goods in a situation where you can't prove that the service/product was delivered. Then I just tag these bitcoin that once belonged to my wallet as stolen if the other party doesn't give them back :-) you see where this is going right? :-)
Actually, unlike any commodity or any currency with a physical representation. What makes other currency not traceable is the notes and coins, not the fact that they are fiat or not.
side note: has "fiat" now become synonymous with non-crypto currency the same way hacker has become a swear word ?
You can track dollar bills by their serial number. It's basically the same thing as what's going on here, except that few people record the serial numbers of their bills.
How many people/authorities can do that with FIAT? Not to count the impossibility of actually tracking down FIAT that has not been used by a bank or authority that CAN actually control the unique number :-)
So in case 1 it's very easy to do, in second case is almost impossible outside very well defined scenarios (police trying to frame drug dealers, etc.)
> What if there was a way to tag bitcoins as stolen and declare them null and void?
But I think this idea has many technical and psychological problems . You essentially need to fork the Blockchain and convince the “51%” to use the new fork where these Bitcoins are illegal.
Doge recently changed some details of the mining procedure using a hard fork, but they have a strong central organization and they pretend that Doge is not a serious coin. An equivalent change in Bitcoin would be much more difficult.
Of course, if you melt it in a top-notch facility, they'd probably be able to heat out the contaminants (or remove them chemically?), but people trading in stolen or otherwise "hot" gold probably don't have access to such facilities.
Let's suppose that this gold is Nazi gold, taken from Jews. You know that Nazi gold will be traced to you(because each gold atom has an address). Would you still accept that gold as payment?
I'm not an expert on bitcoin though, so my analoy could be way off.
It would both disincentivize thieves and honest users.
It was decided in a legal case over 300 years ago in Scotland that it would ruin the point of money if stolen money were - like all other goods - the property of their original owner: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2260952
I think it makes sense to apply the same principle to bitcoins.
At best you could flag wallets, and any wallets who've made transactions with those wallets, etc., etc. which is basically what the people on reddit are doing to "trace" the coins. But, as many have mentioned before, it is not a very accurate way to trace the transactions especially if a service like a tumbler is used.
Who would declare them null and void? What's to stop any movement from declaring non-stolen bitcoin as null and void?