That both does, and doesn't solve this problem. If someone pays for services with stolen assets the ideal scenario is that the criminal is apprehended, the service provider doesn't lose money, and the funds can be returned to their rightful owner.

Monero protects the service provider, but doesn't solve the other problems.

It's a curious question for the value proposition of blockchain denominated currencies.

There is a real possibility that in the future, all stolen assets will eventually be recovered and returned to their owners. There needn't be any limit to recovery given a universal, traceable, and non-fungible transaction log. Pretty soon payment processors/recipients would start maintaining blacklists of stolen coins which they refuse to transact in.

The value proposition of theft/fraud may be significantly curtailed in such a world.

That won't handle the case where some coins are stolen and used before they are marked as "bad". Some merchant will be out of luck once the transaction is reversed. Really that is no better than what we already have from credit card payment networks.

Also interesting: since the total number of Bitcoins is fixed, as more and more coins are used for crime and get blacklisted, the value of remaining coins will become inflated. Given a long enough timeline, there will be too few coins for the currency to remain useful.

(Though to be fair, people simply losing the private keys to their wallet also has the same effect. Not sure which phenomenon would, over time, result in more coin losses.)

Bitcoin is already not such a useful currency (although it’s currently a very useful speculative asset) due to the fact that it has been maxed out at a real world daily average of ~3.5tx/s for years AFAICT (half the often quote 7tps) as its blocksize is hard-capped (and if history has shown, will never be able to be increased). There are also minimums for value that are effectively spendable based on BTC/byte transaction fees, UTXOs (the set continues to grow dramatically) and price where a larger and larger percentage of the coinbase becomes un-economic to spend as price goes up.

Just as a point of reference, the current median tx price in USD is ~$12, next block confirmations currently cost in excess of 100+ satoshis/byte and the median tx size is ~250 bytes.

Not if the person behind the crime was caught - then their coins could be un-flagged.

I would actually like if there was a place where people could hack each other without repercussions. A fair game where all that matters is technical skill, not laws.

If your security is bad or you want the state to prosecute hackers in your defense, you can keep using traditional banks, Bitcoin, etc. If you want complete freedom and you trust your security, use Monero.

That's the price we have to pay in order to stop global surveillance. There should be limits to what authorities can know and do. It shouldn't be possible for them to analyze every transaction that ever occurred.