Should There Be Tainted/Trackable Bitcoins?

Q: Should There Be Tainted Bitcoins? Should bitcoins be easily trackable? [Should the bitcoin protocol be forked so as to allow the FBI seized bitcoins to be blocked or tainted in use? To block someone else’s stolen coins?]

A: No fungibility is critical to bitcoin.  Each bitcoin should be equal to every other.  In theory this is how the Euro works, although not in Cyprus in 2013.  This creates a type of blacklist.  It would be as if every U.S. Dollar that had been used by drug dealers would no longer be useable.  A 1994 U.S. 9th Circuit Appeals Court determined that more than 75% of all banknotes are tainted by cocaine or other drug. 2009 studies showed the number was near 90% in the US.  In the UK, the number is also around 80%.

Some other practical considerations:

  • Who decides which coins will be blocked?  A government? Think about if China tried to block some, Russia some others, the US different ones, and the EU others. That is unworkable.
  • A non-fungible bitcoin protocol change would cause a hard fork.  Most people would end up preferring bitcoins that can not be seized by a majority vote.
  • If this alt-coin were to be created, it would result in two copies of the blockchain at the point of the fork, many would sell the new coin to raise traditional government currency, probably resulting in the alt-coin crashing.
  • Bitcoin is apolitical, this would change that completely.
  • Do you often check the serial numbers of US Dollars, Yuan, or Euro’s to make sure they have not been stolen, lost, or used in the drug trade?
  • Money isn’t innocent or guilty.  Money is money, the users are innocent or guilty.
  • If you get a raise and your landlord can see that you did, do you want him to raise your rent?