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The coins are fungible, right? So the notion of a “a coin” doesn’t even make sense to me — they’re just numbers in a database. Let’s say we send 1 clean BTC to

The coins are fungible, right? So the notion of a “a coin” doesn’t even make sense to me — they’re just numbers in a database. Let’s say we send 1 clean BTC to address A and 1 dirty BTC also to address A. Are both those coins now tainted? If we then send 1 BTC from address A to address B, and 1 BTC from address A to address C, who has the dirty coin? Is it B, C, both, neither?

bradleyjg 3y ago
I didn’t think they were fungible but it’s a long time since I read the paper.
- lxgr 3y ago
  "Coins on the chain" (i.e. unclaimed transaction outputs) are non-fungible, but you can combine multiple of these as inputs into a single new transaction, and in that sense, all transaction inputs are fungible, and by extension their outputs will be too. So while there are technical differences between the "account" and the "UTXO" models, I doubt it would make any sense in an enforcement context.
  - bradleyjg 3y ago
    Interesting. I bet there’s case law on this (imagine bags of wheat instead of bitcoins) but I don’t know what the rule is.
    - lxgr 3y ago
      I would imagine so too. Intent probably matters; mixing your money through a service that has been widely known to be used to facilitate and obfuscate financial crime is probably not the best look if you end up with tainted coins and their legitimate owner comes knocking on your door. On the other hand, I don't even know how this works in detail in the traditional banking system, i.e. whether stolen money can be clawed back even if it's already moved across several accounts/transfers, the last of which completely oblivious to its source.
      - bradleyjg 3y ago
        So money is specifically different than goods, which was my original point. But money isn’t based on the properties of the item it’s just defined to be, well, money.
        lxgr 3y ago
        That's what I've been wondering about for a while now: I know about stolen cash having special status in many jurisdictions, but how does this work when it comes to to bank transfers and account balances? These make up almost all of modern "money".
        bradleyjg 3y ago
        That’s even easier because they are technically fungible as well as legally. It is possible to say this $100 bill was once stolen so we are going to seize it from you even though you are perfectly unrelated to the crime and just happen to have ended up with it. The law treats money specially and prevents that from happening, but otherwise it could. It can happen with something like jewelry or a car. With electronic money you don’t even have a practical option even if there was one legally. There’s no specific hundred dollar bill to seize. Banks don’t track with that kind of granularity.
sp332 3y ago
Each transaction points to inputs and outputs. If you make a future transaction with part of the dirty transaction as input, then it is dirty. If you make a transaction that only has the clean one as an input, then it’s still clean. The coins are fungible, but they don’t get mixed up until they share a transaction.
- TrapLord_Rhodo 3y ago
  You can't have "dirty bitcoin" from a mixer, because btc only has opcode and cannot run mixers natively. The base chain for tornado is etheruem. Now the mixers can hold various wrapped assets, like (Wbtc) which i can trade back to real bitcoin at some future time. But the concept of a mixer is i go in with an assets, and i come out the otherside with a pool of other assets and the keys to a random set of wallets on the otherside. Do you understand the amount of computation and data analysis you would have to do to determine if a coin is "Tainted" or not.
  - lxgr 3y ago
    That's absolutely possible with Bitcoin, just not trustlessly: You need to trust the mixer to not run away with everybody's (or just your) coins. But if there is a trusted mixer, the operation is simple: Every participant in a round of mixing tells the mixer (out of band) where they will be sending coins from, and where they want output coins to be sent to. Everybody then sends all of their coins to the mixer, who then takes all of these coins as inputs, and the out-of-band communicated addresses as outputs. Now if 10 out of 100 input coins are tainted, the question is: Which of the 100 resulting coins are tainted? All of them? None of them? Or exactly 10 of them (but which ones)? "All of them" would effectively amount to a ban of mixers (which I consider to be quite likely, if hard to enforce). "None of them" means legitimizing mixers, and I doubt that US and European regulators have a lot of appetite for that at the moment.
    - TrapLord_Rhodo 3y ago
      now using a "Trusted mixer" is how you get your door kicked in. None of them is the answer. It's different if you are using a protocol. I am free to execute code as I wish. But an entity "pooling funds together, and distributing them" is obviously a KYC trigger. If said entity is violated KYC laws, they can be punished under international money laundering laws.
godelski 3y ago
They're exactly as fungible as a dollar is. A dollar with a unique serial code except every person who's had possession of this dollar has logged that serial number into a publicly visible log, even if they don't put their name next to the entry. But you can spend it like any other history tracked serialized dollar.

bradleyjg 3y ago

I didn’t think they were fungible but it’s a long time since I read the paper.

lxgr 3y ago
"Coins on the chain" (i.e. unclaimed transaction outputs) are non-fungible, but you can combine multiple of these as inputs into a single new transaction, and in that sense, all transaction inputs are fungible, and by extension their outputs will be too. So while there are technical differences between the "account" and the "UTXO" models, I doubt it would make any sense in an enforcement context.
- bradleyjg 3y ago
  Interesting. I bet there’s case law on this (imagine bags of wheat instead of bitcoins) but I don’t know what the rule is.
  - lxgr 3y ago
    I would imagine so too. Intent probably matters; mixing your money through a service that has been widely known to be used to facilitate and obfuscate financial crime is probably not the best look if you end up with tainted coins and their legitimate owner comes knocking on your door. On the other hand, I don't even know how this works in detail in the traditional banking system, i.e. whether stolen money can be clawed back even if it's already moved across several accounts/transfers, the last of which completely oblivious to its source.
    - bradleyjg 3y ago
      So money is specifically different than goods, which was my original point. But money isn’t based on the properties of the item it’s just defined to be, well, money.
      - lxgr 3y ago
        That's what I've been wondering about for a while now: I know about stolen cash having special status in many jurisdictions, but how does this work when it comes to to bank transfers and account balances? These make up almost all of modern "money".
        bradleyjg 3y ago
        That’s even easier because they are technically fungible as well as legally. It is possible to say this $100 bill was once stolen so we are going to seize it from you even though you are perfectly unrelated to the crime and just happen to have ended up with it. The law treats money specially and prevents that from happening, but otherwise it could. It can happen with something like jewelry or a car. With electronic money you don’t even have a practical option even if there was one legally. There’s no specific hundred dollar bill to seize. Banks don’t track with that kind of granularity.

sp332 3y ago

Each transaction points to inputs and outputs. If you make a future transaction with part of the dirty transaction as input, then it is dirty. If you make a transaction that only has the clean one as an input, then it’s still clean. The coins are fungible, but they don’t get mixed up until they share a transaction.

TrapLord_Rhodo 3y ago
You can't have "dirty bitcoin" from a mixer, because btc only has opcode and cannot run mixers natively. The base chain for tornado is etheruem. Now the mixers can hold various wrapped assets, like (Wbtc) which i can trade back to real bitcoin at some future time. But the concept of a mixer is i go in with an assets, and i come out the otherside with a pool of other assets and the keys to a random set of wallets on the otherside. Do you understand the amount of computation and data analysis you would have to do to determine if a coin is "Tainted" or not.
- lxgr 3y ago
  That's absolutely possible with Bitcoin, just not trustlessly: You need to trust the mixer to not run away with everybody's (or just your) coins. But if there is a trusted mixer, the operation is simple: Every participant in a round of mixing tells the mixer (out of band) where they will be sending coins from, and where they want output coins to be sent to. Everybody then sends all of their coins to the mixer, who then takes all of these coins as inputs, and the out-of-band communicated addresses as outputs. Now if 10 out of 100 input coins are tainted, the question is: Which of the 100 resulting coins are tainted? All of them? None of them? Or exactly 10 of them (but which ones)? "All of them" would effectively amount to a ban of mixers (which I consider to be quite likely, if hard to enforce). "None of them" means legitimizing mixers, and I doubt that US and European regulators have a lot of appetite for that at the moment.
  - TrapLord_Rhodo 3y ago
    now using a "Trusted mixer" is how you get your door kicked in. None of them is the answer. It's different if you are using a protocol. I am free to execute code as I wish. But an entity "pooling funds together, and distributing them" is obviously a KYC trigger. If said entity is violated KYC laws, they can be punished under international money laundering laws.

godelski 3y ago

They're exactly as fungible as a dollar is. A dollar with a unique serial code except every person who's had possession of this dollar has logged that serial number into a publicly visible log, even if they don't put their name next to the entry. But you can spend it like any other history tracked serialized dollar.