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 1BTC != 1BTC. While coin histories can be somewhat ofuscated 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 goodwill 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 1XMR = 1XMR, 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: 25

Wasabi

  • A user’s Binance SGD account is frozen upon attempted withdrawal to Wasabi Wallet for mixing:
  • A user’s Paxful account is frozen upon attempted withdrawal to Wasabi Wallet for mixing:
  • A user’s Bitfinex account is frozen upon attempted withdrawal to Wasabi Wallet for mixing:
  • A user’s Bitstamp account is flagged months/years after withdrawal to Wasabi Wallet for mixing:
  • A user’s BitVavo account is closed upon attempted withdrawal to Wasabi Wallet for mixing:
  • A user’s Paxos account is frozen upon attempted withdrawal to Samourai Wallet for mixing:

Samourai

  • A users’s Bottlepay deposit is rejected/returned upon depositing mixed funds:

JoinMarket

  • A user’s BitMEX account is flagged months after withdrawal to JoinMarket for mixing:

All CoinJoins

  • Multiple user’s deposits are flagged by BlockFi upon depositing from a CoinJoin tool like Wasabi:
  • A user’s account is flagged upon mixing coins after withdrawal from Voyager:
  • Paxos official statement on handling of Bitcoin with a history of CoinJoin:
  • A user’s account is frozen due to 6mo-old post-CoinJoin transactions by Bitwala:

Tainted Bitcoin

  • A user receives tainted Bitcoin that cause two exchange accounts to be locked upon deposits:
  • A user is attacked by the media upon receiving a donation from a “far-right” donor:
  • Multiple user’s exchange accounts are closed after making a donation to a dark-net researcher:
  • A user’s account is closed by LocalBitcoins after sending funds directly to a DNM:
  • A user is worried about accepting donations from unknown sources because of a lack of fungibility:
  • 28 cryptocurrency addresses (including Bitcoin) are sanctioned due to alleged use to fund Russian operations:

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”:
  • 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:
  • Only “virgin” Bitcoin mined by state-sanctioned miners can be used in Iran:

General Fungibility Issues

  • A user’s account is flagged after withdrawing from BlockFi to a peer-to-peer exchange:
  • Luke Dashjr, Bitcoin core developer, blocks gambling sites as “spam” in a Bitcoin implementation:

Additional Reading on Fungibility

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 Twitter, Matrix, or email or open a pull request with the addition against https://github.com/sethforprivacy/sethforprivacy.com-content.

Credits