Bitcoin is Not Fungible
As the Bitcoin community flexes its maximalism, noting how absurd it would be to undo the recent Bitfinex hack via a hard fork or by bribing miners, it is saying that the fungibility of Bitcoin must be protected:
If the attacker can't spend their stolen coins we have a serious problem. #fungibility https://t.co/eLs39vMZSp
Peter Todd (@petertoddbtc) August 2, 2016
After having been kicked off of Coinbase for using their exchange too much, and off of Circle for selling them Bitcoins that came from somewhere they didn't like, I really started to think more about Bitcoin's fungibility.
Is it reasonable to claim that Bitcoin can have a public ledger, immutability, and fungibility at the same time? No, it really isn't. Every last satoshi has a permanent and transparent history, thus no two satoshis are alike. Public ledgers and fungibility are not compatible.
The transparency and immutability of Bitcoin's ledger provides each user with the assurance that the ledger is balanced and auditable.
If we were to introduce confidential transactions on the main network, or introduce anonymity somehow, would every user be able to audit its authenticity?
If we were to introduce confidential transactions on the main network, would government agencies and regulators humor cryptocurrencies and blockchains with the same tolerance as they do now? Would they see anonymity as the final straw?
Some things to think about...
UPDATE: I just want to clarify that this post is mostly just meant to get people thinking. I don't actually want Bitcoin to fork or for Bitcoin to have no privacy.
Nice @bitcoinerrorlog
Shot you an Upvote :)
Keep up the great work @bitcoinerrorlog
Upvoted
If regulated businesses break fungibility, then people just need to start using decentralized apps / services to go with their decentralized currency, then it won't be a problem because individual human beings aren't going to query the history of coins before accepting them - only big business.
Name some decentralized apps and services that allow people to lock in their Bitcoin value or exposure to volatility.
Tether USD over bitcoin protocol, Bitshares pegged assets if you don't mind moving off bitcoin. Anyway, even if what you want now doesn't exist, doesn't mean that it won't exist in the future.
Tether is issued centrally and extremely exposed to centralized authorities. Bitshares is not Bitcoin (though I don't know much about it in general).
They may be forced not to accept certain marked coins e.g. from a state published list.
Penalty could be criminal prosecution.
all coins are marked
Yeah. But certain coins may be marked as coming from illegitimate sources.
Upvoted
By definition it is fungible but fungible doesn't mean what most people think it means. Cash is fungible but it also contains serial numbers making each bill unique.
Is there a ledger which I can query to trivially track the movement of these unique notes?
fun·gi·ble
ˈfənjəbəl/Submit
adjectiveLAW
(of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable
Hope it helps someone else interested, but a novice :)
Upvoted
Nice @bitcoinerrorlog
Shot you an Upvote :)
Disclaimer: I am just a bot trying to be helpful.
It's still such a new thing that everyone including devs, users, and govs are trying to figure out the right mix.