Fungibility Fun!

There is actually a thread where this has been pointed out that the police for a long time have solved crimes without the need for digital tracking and still do. Recent questions about SAFE's societal implications and is still open if people want to discuss those things of safe and crime

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For an article entitled “There’s no such thing as tainted bitcoin”, this article does a pretty good job of demonstrating the opposite.

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This chainalysis blog article shows a screenshot of their “Reactor” analysis graph. Fancy, fancy.

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Discussion

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If you click on only one link in this thread, let it be this one. :wink:

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I hasn’t been interested in ‘fungibility’ topics . However, after reading the post, I thought that this seems to be a problem with centralized exchanges with user’s accounts, not with the bitcoin wallets. To me, bitcoin wallets seem to be fungibility.

However, since I was not interested in the fungibility, this may be off the point. Thanks @danda

The problem is with the design of bitcoin itself, such that links are visible between transactions which leaves a trail and enables exchanges to claim that some funds are “bad” while others are “good”. Always after they have accepted your funds of course. So it becomes a crap-shoot if you will get your money back or not. Some bitcoin wallets try to obfuscate the history trail, but even those wallets have real-world fungibility issues, as the linked page details.

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I’m so glad you’re here, @danda!

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Virgin bitcoins?

From the Bitcoin Fungibility Graveyard, linked above.


Marathon Digital Holdings Inc. launches a mining pool “that is fully compliant with U.S. regulations, including anti-money laundering (AML) and the Office of Foreign Asset Control’s (OFAC’s) standards”:

“We believe that such regulatory compliant mining will allow us to produce ‘clean’ Bitcoin.”

“On May 1, 2021, Marathon will begin directing 100% of its hashrate to the new mining pool.”

“By 2022, Marathon expects to have deployed 103,120 miners to direct 10.37 exahashes per second, or EH/s, to the mining pool — equal to roughly 6.4% of the Bitcoin network’s current combined hash rate.”

“[Will] be the seventh largest bitcoin mining pool in the world.”

News Source
News Source
First compliant block mined
List of compliant blocks mined by MARA Pool w/ block template comparisons
Twitter thread with details on the first 10 compliant blocks

Blockseer launches compliant Bitcoin mining pool that only mines approved and filtered transactions:

“Blocks posted to the Bitcoin blockchain by Blockseer’s pool will only contain filtered transactions using Blockseer and Walletscore’s labeling data, along with verified sources such as the United States OFAC blacklist for crypto.”

News Source

Bitcoin mined in China or via fossil fuels are not acceptable to institutional investors:

“If you don’t want to own China coin—also being called ‘blood coin’, which sounds like blood diamonds—you’re going to prove where your coin is born.

News Source
News Source

Freshly mined bitcoin fetches a 20% (or “very large”) premium from large buyers, as this is the only bitcoin available without taint or history:

News Source
Confirmation Source

Only “virgin” Bitcoin mined by state-sanctioned miners can be used in Iran:

News Source
Twitter Source

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Quote from 2019:

source

Here’s another great quote from Andreas:

The important thing we need to achieve in the base layer is not scaling; the important thing we need to achieve in the base layer that CAN NOT be achieved in the layers above is fungiblity and privacy with strong guarantees and simple primitives. And if we have privacy primitives and fungibility primitives in the base layer than we can do scaling in the second layer and we can do it securely. Otherwise, we have a privacy problem. And that privacy problem will get magnified as we go up the layers. If you can do analysis on the base layer, that gives a great degree of insight into what’s happening above.

source

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more from the fungibilty graveyard. I know some of y’all didn’t click the link. :stuck_out_tongue:

Tainted Bitcoin

A user receives tainted Bitcoin that cause two exchange accounts to be locked upon deposits:
Bisq Source

A user is attacked by the media upon receiving a donation from a “far-right” donor:
Twitter Source

Multiple user’s exchange accounts are closed after making a donation to a dark-net researcher:
Twitter Source

A user’s account is closed by LocalBitcoins after sending funds directly to a DNM:
Reddit Source

A user is worried about accepting donations from unknown sources because of a lack of fungibility:
Reddit Source

28 cryptocurrency addresses (including Bitcoin) are sanctioned due to alleged use to fund Russian operations:
Government Source


I think we can safely assume that for every person that publicly posts to social media about such issues, there are hundreds more that just deal with things privately.

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So a day or two ago, the german govt was auctioning off seized Bitcoin. These bitcoin were sold at a PREMIUM to market, i believe it was something along the lines of 5 to 10 % above “spot” price.

Why ?

Because these Bitcoin are not tainted and in fact they are provenly “clean” due to the govt auction.

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Can’t remember what price point Tim Draper got when he bought Silk Road coins. Might be another worthy example.

yes, it goes to show that the maintainers of the badlists (or goodlists) wield a lot of power. They are able to strongly influence the behavior of others. With real fungibility this lever of power is removed.

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~ $450 per BTC IIRC

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from slashdot today.

Binance Says It’s Trying To Hunt Down the Squid Game Crypto Token Scammers

Binance, one of the largest crypto exchanges, said on Thursday it has created a team of investigators to try and track down the Squid Game token scammers. The SQUID token which was inspired by the hit Korean-language series “Squid Game” on Netflix, rose from as little as $0.01 over the past weekend to almost $3,000 before crashing to $0 by Monday. The websites and socials that came with it also went offline, which indicated at the time that any potential scam was over.

The Binance team will be exploring options to support the community such as blacklisting affiliated addresses and “deploying blockchain analytics to identify the bad actors,” a spokesperson told Insider. Binance will also provide its findings to law enforcements in the relevant jurisdictions. “Our security team has launched an investigation – as a gesture of goodwill,” a Binance spokesperson told Insider in an emailed response. The scammers apparently fled with around $3 million.

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To highlight the transparency (and danger) of public ledgers, somebody made a site that scrapes twitter and reddit to find addresses associated with every username and then makes them searchable. There is also a rich-list.

This platform has been built to raise concern about the public transparent blockchains such as Bitcoin or Ethereum. Most people think crypto is private, but it is not. Just using a username, you can see their funds. The “What can I do?” section on the about page encourages the user to learn about Monero and use it.

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Tangentially related to fungibility…

Bitfinex is holding a customer’s approx $130k (USD equivalent) of BTC hostage because they wish to know the source for some funds deposited years ago. Only the latest example demonstrating that every deposit into a centralized exchange is a risk, fungible or not. not your keys, not your coins.

After bitfinex personally deleted all my posts on their page within 2 minutes I will try it here! It’s been more than half a year with headaches before I now decided to go public. Bitfinex has frozen my account after a withdrawal request of about 2.1 BTC in February. By my standards that is a huge amount of money. Money I would have never dreamed of when starting with crypto to be honest. Back in the days (my account is multiple years old now) I used to trade crypto to crypto only. I have never encountered any problems concerning deposits and withdrawals at bitfinex back then. I probably wasn’t anyone special to them because I was only juggling around a couple of thousand dollars a year (depending on the crypto prices).

Anyways, as we all know crypto prices rose immensely in the beginning of this year. That was when I decided to withdraw my coins. Upon request they claimed to have frozen the account because of an automated KYC procedure. As much as I understand it, you would only need to verify if you started trading fiat currencies. I did not do that. However, I thought it might just be some security feature to protect me as the account owner. After all, this wasn’t “peanuts” anymore and because it was (and is) so much money for me I happily agreed to verify.

Since then I ran through an odysse of providing documents and declarations of all kinds. Some of them were super private. They wanted me to proof my identity, which I did. The standard procedure with passport and proof of address.

After that they wanted a proof, where I got the very first coins from that I deposited many years ago. Those coins they never cared about for so many years while letting me do many deposits and withdrawals in the meantime. Since I originally bought those bitcoins 6 years ago together with my old roommate that was quite a task. We found the transaction and sent them all necessary files and transaction data.

But not enough. I now had to proof that he was actually my roommate, which was quite difficult too because we don’t live together anymore. Because of data protection regulations the landlord from back then needed a signed request from both of us in order to hand out the proof to me. (It’s no joke, GDPR is taken serious in Germany.) To clarify: I verified myself and my old room mate. I did not forge any documents and I did not lie anywhere throughout the process.

I finally send them the proof from the landlord. Not enough again. I now had to proof that I went to school with that roommate. So both of us had to send them our school certificates also. Not enough again. They suddenly started asking me about other withdrawals from 3 years ago. I proofed that I sold the crypto for cash and transferred the cash to my bank account a week later.

After that, they told me to wait again. That was almost 2 weeks ago. No reply.

I’m just so tired of this. Just angry, exhausted and worried. By now, they probably know more about me than most of my friends and family. Financially and in general. Plus they have copies of my entire identity from A to Z. At the beginning I thought it’s really just a way to prevent my account from getting robbed but after all I’m just worried about their real intentions.

To bitfinex: Please give me back my account and stop this shady practice.

To the community: What else can I do?

source

These centralized exchanges are out of control and best avoided entirely. Routinely freezing customer funds indefinitely “because we have to kyc” is such a sickening racket.

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I heard on a podcast that there are currently a couple coin mixers, one is called wasabi? that only allow denominations to increase the anonymity of the coinjoin.
Not sure if you happen to be aware of those @danda but it’s interesting to hear the anonymity set of denominations is being used to increase bitcoins poor privacy.

This is the crux of it for me. All else aside, humanity needs solid decentralized trading infrastructure.

At the end of the day a thief is gonna thieve. Only decentralized systems wherein there is a huge cost for theft are we going to be safe ultimately IMO.

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