So when you accept BTC, how do you know if you'll be able to pass it on again? Is there a blood coin list?

EDITED TO ADD:

Here's something interesting about tainted coins. The commenter took out a Blockfi loan on coins he's had since 2020. The person he bought them from used BISQ. Then Blockfi recalled the loan immediately.

https://old.reddit.com/r/CryptoCurrency/comments/skxpr7/bloc...

You hire a company like Chainalysis to do risk analysis for you.

yes because thats clearly how money should work.

Banks have rules to deal with money laundering indeed.

That's how diamonds and gold work. You wouldn't accept blood diamonds for example, it would reflect poorly on you.

You wouldn't accept diamonds, it would reflect poorly on you.

They are mostly a non-scarce fleecing operation backed by a marketing gimmick.

Diamonds are scarce. Manufactured scarcity still results in actual scarcity.

Let's say you happened to make a transaction with someone who you didn't know to be a criminal. He buys a nice ring for the girl on his arm and gives you $1K in marked bills (which are bills that have serial numbers recorded by some agency).

Now in that case, he's flashing around cash, which is not that uncommon say in certain locales (Las Vegas comes to mind). In that case, the cash you received doesn't lose any value. Though you may get questioned by the police.

Now ink stained bills and bills glued to each other should be rejected since they were likely from a bank or atm heist. But that makes it easy to spot.

Isn't that what BTC was trying to compete with?

I wouldn't accept diamonds at all, as they're not money like gold is (and definitely not fungible in either sense of the arguments).

"Diamonds are bullshit" and people only think they have value because of a De Beers marketing campaign in the early 1900s.

https://priceonomics.com/post/45768546804/diamonds-are-bulls...

Plus a ton of other discussion:

https://www.google.com/search?q=diamonds%20are%20bullshit

Well diamonds are fungible for any definition of the word you may choose and for the vast majority of the stones. Some of them are unique in that they're very large, very pure, have been worked on so much they are identifiable, have an IAG number engraved, etc. but the vast, vast majority of diamonds you can trade at any diamond shop in a very fungible manner, no questions asked.

Interesting. If I go to the website:

https://www.chainalysis.com/

Their big tag line is "Building Trust in the Blockchain". I thought BTC was above needing to do that.

Exactly. Any crypto system that doesn't have the ability to break the chain of custody of 'tainted' coins is doomed to irrelevancy. Think about it - on day 0 no coins are tainted. Let's say on week 1 5% of coins are tainted and effectively frozen, leaving 90% of coins in circulation. The illegal activity doesn't stop - it just taints more coins. Maybe week 2 5% of those remaining get tainted, week 3 5% of the remaining after that, etc... Eventually you asymptotically approach absolute uselessness. I think Monero and Ethereum have both thought about this and i'm sure others exist out there too. BTC is stuck in a development graveyard and can't think about things like this- it seems doomed to irrelevancy.

Aren’t the tainted coins cleaned by government seizure and subsequent auction? If you have a tainting and cleaning mechanism then all tainted is not inevitable.

The tainted coins are the same as lost coins. There's already a solution baked into bitcoin for that (divisibility).

The theoretical maximum number of satoshis in existence per person on earth is just short of 266,000. That's assuming all 21m coins are minted and that none are lost. I feel like this is already quite a small number if you want to represent a global currency, so can the system really afford to continuously burn away BTC at a relatively large rate?

You can always move the decimal point. It's all just software, it's all mutable if you can get enough people to agree.

(Not meaning to come off as a fanboy, I think bitcoin==beaniebabies. I just don't think the "bad coins" problem is actually a problem, even if you consider Gresham's Law. Physical currencies have been through similar things and survived).

Historically, BTC has not been willing to make changes like this. The community is culturally (and I would argue pathologically) opposed to even minor changes, which I think would be even more true when more divisibility would lead to potentially lowering the value of existing user's token by reducing scarcity. I'm not convinced such a change would be feasible given those constraints and if it's not the maximum divisibility of BTC is quite low assuming it becomes some kind of world currency - if I can only have ~250k 'units' of currency the smallest amount of 'money' I can spend becomes quite large.

It puts a hard cap on income inequality!

That’s not how it works. Income inequality is not just the “number” of coins but what it’s worth as opposed to something - with inequality it becomes everyday goods and services. The cost of goods can easily continue to worsen inequality. There’s only one real world soft limit - a revolution that resets the clock.

Once all coins are tainted (or even some large %) then none of them are tainted.

"All $ bills have cocaine on them, hence no one cares if your bills have cocaine on them" [1]

[1] yeah, I get this is likely an urban myth, but the analogy holds even if it is a myth..

That assumes taint can never get diluted.