[stanferder]

What if governments define every output to a mixer transaction to count as receiving stolen goods if any of the inputs are the result of criminal activity?

Apart from that, every option you suggested just hands the problem off to the next person. Eventually people won't want to transact at all because they don't want to receive tainted bitcoins.

[Jach]

Thus the concept of 'tainted bitcoins' isn't likely to last very long, if bitcoin is to continue to be used at all, especially when the creation of new bitcoins keeps going down. This is similar to nearly all paper currency having trace amounts of cocaine et al. on it. (https://en.wikipedia.org/wiki/Contaminated_currency#In_the_U...) If people no longer did trades involving cash with such traces, cash payments would go away very quickly.

[PeterisP]

If using mixers as such is made explicitly illegal (it's not yet anywhere as far as I know, but it could change), there's no need to have some particular BTC tainted forever because we can follow the money trail.

Let's suppose we see some nontrivial amount (so, not $100 but $100k) of BTC being cashed out to dollars or by buying some legal goods, and we see that this BTC recently passed through a mixer. KYC means that the exchange or merchant will identify "oh, that's Bob". And we can ask Bob - well, where did that money came from? And either he can provide some evidence that he got that money in a legitimate transaction from Charlie (who can then be processed in the same manner), or he can be convicted either of (a) using a mixer if he did so himself; (b) violating money laundering laws by doing large anonymous transactions if he did get money from some 'Charlie' that can't be identified; or (c) violating money laundering laws by refusing to disclose the source of these large cash-like payments.

It's not as simple and some particular nuances of the existing laws would need to be adjusted to make this process work, but that's something governments could and would do.

Not for small amounts that can obviously be laundered easily and nobody cares about that, but it would be quite plausible to ensure that no legit organization would touch a million dollars worth of BTC without ensuring a proper paper trail of how it got there; and anybody intentionally passing 100 BTC through a mixer would just make it difficult for themselves to spend those 100 BTC - because every recipient of large amounts will ask for a proper source for your funds, and a mixer is not one.

[newguy1234]

Yup. My theory is overtime people will start to realize the vulnerabilities of a public blockchain/public transactions and start using more privacy coins.

[protanopia]

I think this Wired article provides a good explanation for how stolen Bitcoins should be handled.

https://www.wired.com/story/bitcoin-blockchain-fifo-dirty-co...