Cryptocurrency: Bitcoin's Massive Fungibility Problem, Monero Doesn't Scale
grarpamp
grarpamp at gmail.com
Sat Feb 19 16:02:56 PST 2022
Crypto world must develop deploy and adopt lightweight
privacy enabled coins whose disk space is bounded by
number of addresses instead of unbounded-store-all-tx-forever.
https://github.com/sethforprivacy/sethforprivacy.com/blob/master/content/posts/fungibility-graveyard.md
Introduction
Bitcoin is often touted as a fungible and private asset and digital
cash alternative, when in fact it is technically non-fungible. Each
bitcoin in circulation has a distinct history attached to it ensuring
that 1 BTC != 1 BTC. While coin histories can be somewhat obfuscated
with tools like CoinJoin, the fungibility of Bitcoin remains
distinctly lacking.
Many Bitcoiners purport that fungibility can be gained through more
users mixing, or by peer-pressuring and boycotting exchanges and
services that flag or trace Bitcoin transactions. In theory this is
possible (suppose in another universe, everyone mixes), but why leave
it up to chance?
The Monero community sees fungibility as a basic safety feature. Good
tools should include safety features by default, strong enough to
withstand both governmental and social attacks. This is far preferable
to relying on the good will of governments and regulators, or the
peer-pressure of us as users to ensure fungibility of digital cash. Do
you really want your coins to be fungible only if your grandma
correctly follows a 50 page mixing guide?
Monero relies on privacy by default, for all users and all
transactions, to ensure that 1 XMR = 1 XMR, no matter what. Monero is
fungible today, not just in a pipe dream.
The Fungibility Graveyard
This concern isn't only a fun thought exercise, unfortunately, as
users of Bitcoin privacy tools are being harassed today.
Below is a list of sources confirming cases of flagging, denied
withdrawals, denied deposits, and censorship by services because of a
distinct lack of fungibility within Bitcoin. The list is broken down
by the tool or reason for the flagging or censorship.
Current confirmed cases: 27
Wasabi
A user's Binance SGD account is frozen upon attempted withdrawal
to Wasabi Wallet for mixing:
Twitter Source {{< tweet user="bittlecat" id="1207621591820951552" >}}
A user's Paxful account is frozen upon attempted withdrawal to
Wasabi Wallet for mixing:
Reddit Source
A user's Bitfinex account is frozen upon attempted withdrawal to
Wasabi Wallet for mixing:
Reddit Source
A user's Bitstamp account is flagged months/years after withdrawal
to Wasabi Wallet for mixing:
Twitter Source (deleted after this blog was published) {{<
collapse summary="Source Image" >}} {{< figure
src="/fungibility-graveyard/bitstamp_wasabi.png" align="center"
style="border-radius: 8px;" >}} {{< /collapse >}}
A user's BitVavo account is closed upon attempted withdrawal to
Wasabi Wallet for mixing:
Reddit Source
A user's Paxos account is frozen upon attempted withdrawal to
Samourai Wallet for mixing:
Twitter Source {{< tweet user="RonaldMcHodled"
id="1222172084610027523" >}}
Samourai
A users's Bottlepay deposit is rejected/returned upon depositing
mixed funds:
Twitter Source (deleted after this blog was published) {{<
collapse summary="Source Image" >}} {{< figure
src="/fungibility-graveyard/bottlepay_samourai.png" align="center"
style="border-radius: 8px;" >}} {{< /collapse >}}
JoinMarket
A user's BitMEX account is flagged months after withdrawal to
JoinMarket for mixing:
Twitter Source {{< tweet user="kristapsk" id="1374336620158140419" >}}
All CoinJoins
Multiple user's deposits are flagged by BlockFi upon depositing
from a CoinJoin tool like Wasabi:
Twitter Source {{< tweet user="ODELL" id="1234514628115341313" >}}
Response from BlockFi
A user's loan is closed while under water (causing a loss of 50%)
due to the previous owner of the coins using a mixing service or tool:
Twitter Source {{< tweet user="Bitfinexed" id="1489833237765660673" >}}
Reddit Source
A user's account is flagged upon mixing coins after withdrawal from Voyager:
Twitter Source {{< tweet user="sundaywar" id="1366854774864322560" >}}
Paxos official statement on handling of Bitcoin with a history of CoinJoin:
Twitter Source {{< tweet user="jehrenhofer" id="1235963248522006528" >}}
A user's account is frozen due to 6mo-old post-CoinJoin
transactions by Bitwala:
Twitter Source {{< tweet user="riccardomasutti"
id="1375507165151076353" >}}
Tainted Bitcoin
A user receives tainted Bitcoin that cause two exchange accounts
to be locked upon deposits:
Bisq Source
A user is attacked by the media upon receiving a donation from a
"far-right" donor:
Twitter Source {{< tweet user="sethforprivacy"
id="1370721319680155651" >}}
Multiple user's exchange accounts are closed after making a
donation to a dark-net researcher:
Twitter Source {{< tweet user="DarkDotFail" id="1359243753664303104" >}}
A user's account is closed by LocalBitcoins after sending funds
directly to a DNM:
Reddit Source
A user is worried about accepting donations from unknown sources
because of a lack of fungibility:
Reddit Source
28 cryptocurrency addresses (including Bitcoin) are sanctioned due
to alleged use to fund Russian operations:
Government Source
Compliant Mining and "Virgin" Bitcoin
Marathon Digital Holdings Inc. launches a mining pool "that is
fully compliant with U.S. regulations, including anti-money laundering
(AML) and the Office of Foreign Asset Control’s (OFAC’s) standards":
"We believe that such regulatory compliant mining will allow
us to produce ‘clean’ Bitcoin."
"On May 1, 2021, Marathon will begin directing 100% of its
hashrate to the new mining pool."
"By 2022, Marathon expects to have deployed 103,120 miners to
direct 10.37 exahashes per second, or EH/s, to the mining pool — equal
to roughly 6.4% of the Bitcoin network’s current combined hash rate."
"[Will] be the seventh largest bitcoin mining pool in the world."
News Source
News Source
First compliant block mined
List of compliant blocks mined by MARA Pool w/ block template
comparisons
Twitter thread with details on the first 10 compliant blocks
{{< tweet user="sethforprivacy" id="1393206480195788805" >}}
Blockseer launches compliant Bitcoin mining pool that only mines
approved and filtered transactions:
"Blocks posted to the Bitcoin blockchain by Blockseer’s pool
will only contain filtered transactions using Blockseer and
Walletscore’s labeling data, along with verified sources such as the
United States OFAC blacklist for crypto."
News Source
Bitcoin mined in China or via fossil fuels are not acceptable to
institutional investors:
"If you don’t want to own China coin—also being called ‘blood
coin’, which sounds like blood diamonds—you’re going to prove where
your coin is born."
News Source
News Source
Freshly mined bitcoin fetches a 20% (or "very large") premium from
large buyers, as this is the only bitcoin available without taint or
history:
News Source
Confirmation Source
Only "virgin" Bitcoin mined by state-sanctioned miners can be used in Iran:
News Source
Twitter Source {{< tweet user="Fatalmeh" id="1390338789462224908" >}}
General Fungibility Issues
A user's account is flagged after withdrawing from BlockFi to a
peer-to-peer exchange:
Reddit Source
Luke Dashjr, Bitcoin core developer, blocks gambling sites as
"spam" in a Bitcoin implementation:
News Source
Additional Reading on Fungibility
"How could regulators successfully introduce Bitcoin censorship
and other dystopias"
"Bitcoin censorship will most likely come, pt 2"
"Compliant Miners"
Bitcoin’s Attack Vectors: Fungibility
What is fungibility and why does it matter?
Fungibility - Moneropedia
Something Missing?
If you've noticed an instance of fungibility causing issues in the
real world with Bitcoin, please feel free to reach out via [Signal,
Matrix, Threema, or email]({{< ref
"/content/about.md#how-to-contact-me" >}}) or open a pull request with
the addition against
https://github.com/sethforprivacy/sethforprivacy.com-content.
Credits
Several of the sources linked above were pulled from an excellent
resource by @6102bitcoin on cases of CoinJoin flagging:
https://6102bitcoin.com/coinjoin-flagging/.
Many of the linked sources were provided by Monero community
members on Reddit and Twitter on threads like the below:
https://www.reddit.com/r/Monero/comments/mbn12q/i_created_a_new_blog_post_will_be_a_new_site_soon/
https://twitter.com/sethforprivacy/status/1374445921484689408?s=21
Thanks to the many Monero community members who contributed
sources privately or contributed wording and feedback on this page
itself.
Source Image Archive
Below are archived images of the original sources in case of the
source itself being deleted or taken down.
Where the source has already been taken down, see the "Source Image"
drop-down under the relevant item above.
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