Quote from: Peter R on May 19, 2015, 01:36:39 AM

Quote from: cypherdoc on May 18, 2015, 07:35:45 PM

to me, Bitcoin is fungible when you think in terms of UTXO's.

which half of 1BTC is tainted from joining 0.5BTC taint with 0.5BTC pure from 2 UTXO's? when you then split that 1BTC into two 0.5BTC payments, are they both uniformly tainted or is there a discrete 0.5BTC that is tainted? how do you distinguish?

yes, an address can be tainted if identified with a drug dealer. but that's not the same as UTXO's, which is where the real action is.

I think the mixing of UTXOs that occur during each transaction makes white- or black-listing unworkable in practice. Each transaction, the taint from the input coins mixes and spreads evenly across the outputs. Taint slowly diffuses across the UTXO set such that nearly every coin--even a freshly minted coin--becomes a certain shade of gray.

That depends on the rules. It may be that the taint is contagious. Coins mixed with black coins become black, or white coins mixed with non-white coins become non-white. It will be in your interest to avoid getting black/non-white coins mixed into your wallet, and certainly regulated participants will do that (by banning/reporting/freezing when it occurs).

At least to the point where having this mixing occur means you will be subject to greater scrutiny, hassles, and expenses (such as your Coinable account being frozen), which means you will want to try to avoid it even if the consequences aren't complete loss of funds or worse.

There is no "natural mixing" that occurs, really. Inputs to a transaction are all controlled by the same party, unless you are using a mixing protocol like coinjoin. If that becomes widespread and very effectively implemented (to avoid any distinctive signatures) it might provide some plausible deniability that the inputs are controlled by the same party, but that isn't the case now. Even so that doesn't address the issue people wanting very much to avoid undesired taint, which gets right to the matter of fungibility.

BTW, it doesn't really make sense for a freshly minted coin to have a shade of gray. Not sure what you are talking about there. Coins are either born clearly white/legal (mined via a legal, possibly-regulated process) or born black (mined otherwise). If you are in the former category it will be in your interest to avoid mixing your coins with less-white ones. Hence my example that I have zero interest in trading my clearly-legal self- mined coins for unknown coins. The logic of hoarding (reverse Gresham's Law) prevents the sort of graying/mixing you describe.

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So that means that there will be some threshold for how gray your coins can be before they are unacceptable for certain purposes. And if that happens, this just creates a market for "coin whitening."

That will likely be treated as intentional money laundering and raise something of an inconvenience and potential loss of some value to the level of criminality. Most people won't do that, and certainly businesses won't. Easier to just stay within the white system to begin with. It also doesn't fix fungibility because I won't want to accept darker-than-par gray coins at par. That's extra cost to me for whitening.