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Bad Idea: Registry of
Tainted Bitcoins
What if someone were to create a public registry of tainted coins?
We’re talking about Bitcoin, of course—a fully distributed, peer-to-peer currency, with no authority, choke point or compulsory rules of engagement. But, the thing about any decentralized processes is that it defies authority. In fact, authority bastardizes the whole concept by threatening every advantage of a distributed mechanism.
One of my partners at Cryptocurrency Standards Association feels that an official list of tainted coins would be a valuable service, because it would effectively take undesirable coins out of circulation. That is, it gives governments or a trusted mediator the ability to take the profit out of criminal activity. Coins that are stolen involved in illicitly activity could simply be declared worthless.
Wait—The registry argument gets better…
If the registry is consulted for every transaction, why not add coins that are declared ‘lost’ by a wallet owner. Eventually, one can envision a mechanism for resuscitating the lost value with a replacement coin. After all, if a registry can invalidate a coin, it shouldn’t be difficult to create a sister registry of sanctioned ‘alternate’ coins. These coins don’t satisfy the mining algorithm, but they are blessed with equivalent value by right of their 1-1 substitution for coins that were decommissioned.
Something Rotten in Denmark
A registry—even a decentralized registry—guts the entire concept of a p2p currency. It substitutes agencies or politics for the decentralized democracy of a pure blockchain mechanism. It erases ‘inalienable rights’ from the Constitution and replaces it with committee decisions. After all, committees know whether you should be permitted to keep your money. Isn’t that why Satoshi created Bitcoin?!
When I point this out to my CRYPSA co-chairman, he stresses that accessing the registry would be voluntary. Just as with our own standards for real-time transaction verification or ID validation, parties to a transaction needn’t abide by the tainted coin registry. This is an unsatisfactory justification, of course, because a registry can only provide the value that he envisions, if it ultimately grows to be consulted before every transaction or redemption. After all, the goal is to make de-listed coins to worthless for any legitimate business. So, eventually, the registry would lock out some users.
In my partners view, tainted coins could continue to circulate, but they would eventually be marginalized to the dark web. They would be useless for legitimate business, commerce and taxes, because the ‘good’ guys will shun payments that contain any tainted component.
Can Gold Turn to Lead In Your Pocket?
By 2009, Amazon demonstrated that, for many readers, bits is better than ink. The Amazon Kindle reader began to displace the printed page. Sales of eBooks were reaching parity with the dead-tree editions. But one day in June, Amazon decided to withdraw several books that individuals had purchased and downloaded. Technology thwarted the owner, as property they thought was durable suddenly vanished from their pocket. Students not only lost books that they had paid for, they also lost annotations that they had added in the margin.
Amazon explained that there was a question as to whether the distributor had the necessary rights to distribute the book. (They conveniently sidestep the fact that Amazon was the distributor!). Ironically the book was by George Orwell, who predicted—decades before the Internet—that an overseer would cause books to vanish in the hands of readers; power wielded by authoritarian ideology.
Do we want to turn Bitcoin into an authoritarian power play? That’s what happens when we undermine the math and look to committees and lists to tell us what has value. Bitcoin’s value is bestowed by math. It can be mined, saved, traded or spent, but it is always validated by pure math. Math is more trustworthy than any list, because the math is like open source. Anyone can validate the facts. Let’s explore…
For the moment, let’s assume that a registry of tainted coins gains traction. That is, let’s say that major banks, retailers and creditors begin to compare transactions against this list of invalidity before agreeing that a payment was received or a debt settled.
Giving anyone or everyone the power to flip a valid coin from valid to invalid is notoriously bad idea. It generates a slew of bad things. In such a world…
1. Bitcoin is no longer a decentralized currency. It now has both oversight and a nexus.
2. It has a choke point. Therefore, it has:
3. Someone, somewhere will deduce a record of queries into the database, logging data like who? —and from where? That means an investigator could isolate and tabulate transactions did not query the database. Do you see where I am going with this?
4. But here is the real problem: A registry of tainted coins prevents mixmasters from serving the public interest (I call it the “One Bad Apple” theory): With a registry of bad coins in a p2p ecosystem, all transactions are effectively centralized, serialized and subject to government scrutiny. Bitcoin becomes bastardized. It becomes the providence of governments instead of the the people.
Suppose that 10 BTC are declared “stolen” by a verifiable wallet owner—and they are listed on the tainted coin registry. The 10 BTC was transmit to a mixmaster in Cyprus (perhaps before the date of reporting). The mixmaster wallet contained 100,000 BTC, and has since been used for 15,000 unrelated transactions (including the payment for a Pizza in New York by a school girl).
In this scenario, a tainted coin registry has
no meaning. My partners design schema suggests that all subsequent
transactions and coins (anything that was mixed in the opaque phase)
should be invalidated and subject to local laws. Do
we really wan’t to visit that world?!
Note to Self: Cherish Privacy
In summary, a registry decentralizes Bitcoin, even if the registry itself is distributed into the blockchain.
Bottom Line:
A registry of tainted coins is both a choke point and an avenue for
regulation. It cannot be useful.
Ellery Davies is co-chair of
CRYPSA. He writes the Bitcoin articles here at A Wild Duck and sits on |
We Need A Registry of Tainted Bitcoins
What if law enforcement and major banks had
Manuel Perez is a certified Anti-Money Laundering specialist and Co-chair of the Cryptocurrency Standards Association. He spent two decades overseas as an oil industry executive, before transitioning to finance and accounting—an ultimately to Bitcoin. |
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