e.g. 1. I pay you 1 BTC 2. Wait until I receive whatever I paid for 2. Now I tell you to send me 0.5BTC or else I'll report the entire 1BTC as ransom payment.
The blacklist is just a new and very powerful tool for additional fraud!
You could check the registry yourself before accepting change, but what if those bills weren't in the registry when you checked?
Such a system could be implemented for bitcoin but there are crypto currencies with stronger privacy guarantees for which this would be practically impossible (those guarantees could maybe be cracked in the future, people are working hard on both sides).
"When we receive our 96 BTC, we'll release your data."
Becomes:
"When we receive our 96 BTC without it being reported to the fraud registry, we'll release your data."
Take the 96 bitcoin, split it into 96 different addresses with 1 bitcoin, then mix those 96 individual addresses to multiple new addresses and then reassemble them elsewhere. This is a horrible explanation, but explains the general idea. You could also mix from Bitcoin to Monero or another currency and back again through various pairs.
There are lots of things out there to attempt to trace the bitcoins back to the source since every transaction is always logged, however if people keep rearranging coins on various addresses it does make it harder.
Having a blacklist registry of all bad/stolen coins would be great if implemented, however I don't know how feasible it would be.
A car with a stolen part does not, itself, become a stolen car, because there’s a clear division between the part and the car itself. The only thing the police would want to seize as stolen property from you is the stolen part—they’d get you to take it out of your car, and be on their way.
Cryptocurrency is less like car parts, and more like gold: putting the crypto through a mixer is like melting some (unknowingly) stolen gold jewellery into a batch of non-stolen gold, forming new gold bars, and then selling those. Is the whole batch of gold now “tainted” by the stolen gold? Does it all need to be seized as stolen property? If not, then what does need to be seized? An equal shaving of gold from each buyer’s new bar?
If it were possible to figure out which mixer recipient was the original jewellery thief, you could just seize their mixed assets, since those assets should be equal in value to the stolen input assets. But the whole point of a mixer is to destroy that linkage, such that you have no idea who any of the recipients are.
One, mixer output could be, by default, added to the registry as laundering proceeds. Or two, the subunits could be traced through the mixer, thus retaining their black marks.
You know how they say that every US dollar bill has a little cocaine on it? Using your suggestion, every dollar bill would be marked tainted as drug proceeds.
Let me put it this way: what would you do with your float if you run a convenience store in a bad part of town, and know that there are marked bills floating around in the local economy, and that the police might pop in at random one day and take them out of your till? Well, you'd probably deposit your float in your local bank at the end of each day, and then get new, guaranteed-unmarked bills from the bank. That's mixing! It's not money laundering, just mixing. You're removing the potential liability of being blamed for what your customers' employers' customers' employers did.
If someone buys a coffee with tainted coins, is the cafeteria now responsible for querying the registry to reject the transaction? Or it risks to have whole daily turnover, if spent together, end up tainted?
Ex: If half of the bitcoins used to buy a car were fraudulent, would you need to return half the car?
So a laundering service could specialize in buying tainted coins and to sell them off to other unsuspecting people, pocketing the difference. In return they could provide clean coins for their customers.
This risk would have to be managed by contracts, insurance, and/or quick exchange for safer assets.
"Given bitcoin traceability and the ease of getting an injunction, one can imagine that it might make sense for insurers, bitcoin exchanges, and over-the-counter traders to build some sort of private "ransom registry". The moment that an insurer pays a ransom to a hacker, that insurer simultaneously announces the offending address to the registry. A verified OTC trading desk can now protect itself from potential bankruptcy by always checking the registry to make sure that any bitcoins offered to it are "good" bitcoins. Exchanges too would likewise cross-check incoming bitcoin deposits against the registry."