Each bitcoin goes into a wallet, which contains an address. There's no connection between a person and a wallet, though, and it's not a 1:1 mapping, either.

> flagged as stolen

That would imply some sort of centralized authority to decide exactly what 'stolen' means. Even if a third-party service kept track, it'd be meaningless in short order, as mixers exist...

Also there is no connection between a wallet and an address except the wallet stores the address.

When the client sends the address the change is returned to a new change address, and the wallets are being designed now to never reuse addresses.

So it would become very hard to determine which of the outputs are change addresses and in the same wallet.

This is the wallet that the owner of Inputs.IO has claimed[1] is where the stolen funds were transferred:http://blockchain.info/fb/1emztw

Blockchain.info has tagged it as inputs.io hack. And a couple users have tagged it as well with public messages. But besides that, as far as I know, all anyone can do is watch it get drained.

[1] https://bitcointalk.org/index.php?topic=248803.msg3509247#ms...

In theory, each coin (called transaction output in bitcoin lingo) can be traced through a chain of transactions to its originating block. In practice, this is useless because there is no correspondence between bitcoin addresses and individuals (except in certain points like exchanges that require your ID)

In other words, each time a coin changes addresses there is a plausible deniability for the owner of the receiving address that s/he received the coin as a result of a legitimate transaction (sale of goods/services, donation, whatever)