"Coin Tainting
Given that Bitcoin transactions basically consist of a chain of digital signatures, the expenditure of individual coins can be publicly tracked. This enables any entity to “taint” coins that belong to aspecific (set of) addresses and monitor their expenditure across the network. The literature features a number of proposals that cluster Bitcoin addresses, and gather behavioural information about these addresses.
Coin tainting is currently used to achieve a degree of accountability in the Bitcoin network; if an address misbehaves, then Bitcoin users can decide to stop interacting with the address (i.e.,not accepting its coins), thus deflating the value of all the coins pertaining to that address. For instance, following a theft of 43,000 BTCs from the Bitcoin trading platform Bitcoinica, the Bitcoin service MtGox traced the stolen BTC and locked accounts that were receiving the tainted coins.These incidents show that powerful entities in Bitcoin can—rightfully or not—deflate the value of BTCs owned by specific addresses.  If these entities were to cooperate with the handful of developers that have privileged rights in the system, then all Bitcoin users can be warned not to accept BTCs that pertain from a given address (e.g., using alert messages).
Even worse, developers can hard-code a list of banned Bitcoin addresses within the official Bitcoin client releases, thus blocking all interactions with a given Bitcoin address without the consent of users. Furthermore, while coin tainting can be used to “punish” provably misbehaving addresses, it could also be abused to control the financial flows in the network subject to government pressure,but also due to social activism. This empowers few powerful entities that are not necessarily part of the Bitcoin network, such as governments and activists, to regulate the Bitcoin economy. Even if all Bitcoin decisions and operations were completely decentralized—which they are not—coin tainting presents an obstacle to a truly decentralized Bitcoin.
Coin tainting can be especially detrimental if coins are not widely exchanged among Bitcoin addresses. This enables entities to damage only a specific set of addresses, without alienating other addresses in the system. Other users are then also likely to “boycott” the tainted coins."