Quoting concerns in the comments section:
Rik Wisselink 1 hour ago
Isn't there a large risk of punishing innocent people? If you sell a hotdog to a maffioso and let him pay with bitcoin, should your money be voided?
I posted this example in 2015 (I still use it):
A more concrete example:
Let's say Alice sells a painting on OpenBazaar that is bought by Bob. Alice assumes Bob is a law abiding citizin and thus sends her BTC to Coinbase to exchange them for US dollars. However, what Alice didn't know is that Bob isn't the law abiding citizen that she thought he was. That is, Bob occasionally sells some illicit stuff on the darknet markets and used his proceeds to buy the painting. As a result, Alice gets flagged by Coinbase for trying to sell "tainted" coins.
A salient issue of Bitcoin's lack of fungibility is that law abiding citizens can be implicated fairly trivially, as shown by aforementioned examples.