Re: Eventually the FUNGIBILITY issue of bitcoin will make headlines ...

I wasn't aware of that. I assume that only goes one level deep. In other words, if I have stolen coins (.5 BTC) and normal coins (.5 BTC)
and I send that to another address of mine, and then send you 1 BTC, you can't separate out the stolen coins from the normal coins.

that is true indeed.

You can separate them until the two are spent together, since they are separate outputs as explained in the last few posts. Once they are spent together, they can't be separated.

What I expect will likely happen in a system with widespread regulation and blacklist once they are mixed (spent) together is that you would then have to send the 1.0 to some government (or other third party service) address, along with your identifying information, and you would get the 0.5 clean back.

That would be the end of bitcoin, since there's going to be some amount of taint going on almost all the time. Can't see it happening.

Agreed, you will get people that are unlucky and receive coins from an exchange that did not support blacklisting, and then that user will have effectively lost money.

So effectively you are saying that if people using an unregulated exchange that is not compliant they will lose money, and therefore the end of Bitcoin? Is that really what I just read?

If I get Bitcoins privately from my friend Alice and her coins had some taint and I then used those Bitcoins to buy a T shirt on a web shop and then they tried to cash those Bitcoins out to their bank account with Bitpay and Bitpay told me I don't get my T shirt but if I send them a scan of my passport I can get half my money back, then either it would be the end of Bitcoin or it would be the end of people using payment services.