Very simply. They don’t allow coins with that lineage. There are so many people ignorant of the reality of bitcoins fungibility problem it amazes me.

If sent such tainted bitcoins, do the exchanges send them back, or seize them?

Coinbase won't let you sell tainted coins but will let you withdraw them. No exchange will seize them.

> ignorant of the reality of bitcoins fungibility

This is not an issue with bitcoin, but of exchanges. That's why I specifically asked if exchanges cared if taintedness was transitive.

I have to be blunt but this is a very basic property of the blockchain, which by design keeps an entire history of every single transaction (source and destination address) that is ever made.

This type of lack of understanding is rife. Makes me quite bullish on Monero when people realise how little privacy Bitcoin and crappy forks provide. Might see a signal type movement to Monero.

I don't think that irrational retail investors understand, or care to understand, Bitcoin or Monero implementation details. Bitcoin's valuation has little to do with its technical merits. It's all just internet money to most people.

Yea I agree right now.

But even showing a few newbie friends how I could see their balance and transactions after they sent me BTC or shared their address with me, baffled them, they couldn’t believe it.

People will start to care as they become extorted, or embarrassed. Privacy is a fundamental requirement of good money.

I think people will learn this over time and gravitate towards a better money for the internet.