first of all mr exaggeration for an agenda king
regulated exchanges cant and dont just confiscate coins for silly reasons
They can, which outside source actually checks the legitimacy of procedures? None, anything can be considered suspicious and anyone can file an SAR for whatever they consider suspicious. There’s no punishment for false flags. And in case they falsely confiscate your funds, good luck proving it and going up against an army of lawyers, for sums that are not even worth this much effort.
Legal tender laws make this easy, you have a right to have your bills accepted atleast at some point. But even fiat bills are not perfectly fungible despite being legal tender, higher bills don’t get accepted everywhere and cash can get refused by businesses, if there’s proper warnings in place beforehand(also depending one where you live).
That's different though. A business which refuses higher bills would quite happily accept that money if you first split your €500 in to 10x €50 bills, whereas (presumably) a business refusing a tainted output would still refuse that same output if you split it in to 10 smaller outputs first. Similarly, a business can refuse cash in the same way a business can refuse bitcoin altogether and I'm not going to complain about fungibility. In these cases the business is discriminating against the money itself, not making certain parts of that money non fungible.
True.