If the government steps in to "de-anonymize" bitcoin, then people will simply begin using tumbling services. People don't use those services right now because there's no impetus to. But as soon as the trust inherent to the public ledger is violated by creating a large-scale effort to track the flow of bitcoin, then people will counter that action with tumblers.

If everyone launders their money in a deliberate attempt to circumvent government regulation, they'll simply impose broader and harsher regulations. If crypto currencies are going to take over the future, then Bitcoin is a huge win for governments because of this. Your anonymity depends on your actions as in the real world, except the paper trail is significantly improved. Central banks may be perturbed by all this but the IRS certainly won't be. The only way to get past this in the long run is either to A) be on the other side of the law or B) use an implementation that forces anonymity, in which case there is still the threat of it becoming illegal once it's considered to be a large enough target.

Yes, because tumbling services aren't designed to launder money or anything...

Just using Bitcoin for transactions doesn't eliminate legal obligations. I imagine that if they ever got popular, tumbling services would be the first things that would be regulated (or shutdown by the gov't).

...except that anyone can set up a tumbling service in any political jurisdiction. It is not practically possible for the US to shut them down; the best they could do is try to police domestic users of tumbling services, which is a much harder problem.

It is also difficult to tell the difference between a tumlbler service, and some other various more legitimate uses.

The level of regulation it would take to actually trace lots of tiny transactions between pseudonymous parties is next to impossible. How is me paying a friend back for half the pizza we shared to a new address of his going to be handled?

See my comment here: https://news.ycombinator.com/item?id=6204187.

It's pretty straightforward for the Government to come up with a scheme to defeat tumbling services. Just make it mandatory to only accept payments from whitelisted addresses. Banks and your average business are not going to go all cypherpunk and circumvent such laws.

Meet Zerocoin, the cryptocoin extension adding zero traceability transactions for the low low cost of a few extra bytes per transaction.

http://zerocoin.org/

Correct me if I'm wrong, but zerocoin is essentially a formal, decentralised tumbling service, right? It runs parallel to bitcoin and people on bitcoin can choose to use it or not.

Under my scenario, if you used zerocoin, and anybody else using the service wasn't whitelisted, you would be blacklisted, since there would be a chain of coins being sent from non whitelisted addresses to yours. So it would just be up to you not to use it.

The key is at what stage the Government becomes involved. If they implemented this sort of proposal right now, they would just say "if you're using zerocoin, you'll likely be blacklisted- tough luck". If everyone starts using zerocoin, including all legitimate businesses, and then they try to regulate it- then people would have more power.

> If the government steps in to "de-anonymize" bitcoin, then people will simply begin using tumbling services.

Well, yes. Of course, it's not like tax authorities haven't had to deal with money laundering before.

There is this proposed extension for anonymity, but I don't think it's very likely it will be implemented:

http://zerocoin.org/

>Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner (good luck buying stuff on SR using gold).

Alternative equivalents like litecoin work equally well.

That's why I think bitcoin is bound to collapse. There's no a priori reason to use one root over another, and given the choice, why would you pick the one where "satoshi" has already assigned himself 25% of the wealth?

Do you have any reason to believe that the wealth distribution of other coins (forked from Bitcoin) looks much different? With an deflationary currency you will always have early adopters that own a large percentage of the wealth.

I believe once a less deflationary alternative arises (which will surely happen sooner or later, there's no inherent reason behind bitcoin's "half every year" mechanism - I'm surprised if all the current alternatives just blindly copy that) it will win out over bitcoin.

Because that's the one everyone else is using. The current blockchain has significant momentum, so any alternative would be working uphill.

"Those saying BTC has no inherent value (as opposed to gold, for example) are completely overlooking the fact that BTC is the only kind of exchange that can be used for illicit activities in a relatively untraceable manner"

Really? When last I checked the overwhelming majority of criminals were using paper money. This is probably because the overwhelming majority of people in general use paper money and because criminals have to pay rent like anyone else.

Who did you check with? Jack Bauer? LOL

The biggest criminal enterprise is "outside money" vs. "inside money" and the scale is orders of magnitude larger than the folks peddling narcotics or paying for hookers.

Biggest criminal enterprise? You mean like Bernie Madoff and friends right?

Isn't BTC's public ledger public? (https://blockchain.info/)

While it's possible to generate a new wallet to mask who the user is, the transaction flow can be traceable. This seems easier to trace than the flow of money through our banking system.

Yes, the BTC can be traced, but they cannot be associated with physical people until they identify themselves. Your anonymity is limited by trustworthiness of the person selling you the coins and the person you are buying physical goods from.

People claiming BTC has no inherent value aren't talking about the general concept or code—they're referring to this particular blockchain.

However, BTC is just a great example that might find followers who will make it hmmmm... more anonymous.

Money has just two functions: (1) It has to maintain its value over time (2) People must accept it as means of setting payments

BTC seems to meet both.

It's not anonymous "enough", but I guess this could be fixed with another iteration. (another electronic currency).

It would be great for the world to have more currencies than the monopolistic currencies enforced by the modern states (fiat currencies). Just to own something that doesn't have its monetary base doubled in 4 years, would be awesome! (USD base rose two times from 2008 to 2012).

Full anonymity can be had with the addition zero-coin. Currently the bitcoin team doesn't feel that it has a place in the main protocol, but that may change in the future.