A lot of bitcoins associated with known crimes or sanctioned owners are flagged, and actually blocked by exchanges, for example there is an OFAC sanction list o

A lot of bitcoins associated with known crimes or sanctioned owners are flagged, and actually blocked by exchanges, for example there is an OFAC sanction list of bitcoin addresses. One problem with such approaches however is "dusting attacks". The owner of a blocked address could send tiny amounts to vast number of innocent addresses, thus tainting them as well. Seized bitcoins from crime have also many times been auctioned directly from authorities. So coins sold in that manner in some sense become 'legitimate' again. [1] In any money system, maintaining fungibility is really important. You wouldn't want the distant history of a bitcoin or dollar bills to be of concern to someone transacting with it. You could probably say something similar about dollars, for example there is the famous finding that 25% of US Bills have traces of cocaine on them [2]. This doesn't make me personally feel like by using dollars I am providing liquidity to drug cartels. [1]: https://www.cnbc.com/2021/12/19/what-the-us-government-does-with-its-secret-bitcoin-stockpile.html https://www.cnbc.com/2021/12/19/what-the-us-government-does-... [2]: https://en.wikipedia.org/wiki/Contaminated_currency https://en.wikipedia.org/wiki/Contaminated_currency