[ag56]

> Certainly they would not have been able to be sold on any legitimate exchange.

May I ask why? (Genuine, not a crypto expert). Do exchanges by default trace any bitcoins back and see if they were connected with illegality? Is there a list of tainted bitcoin addresses that are effectively worthless?

[jcrawfordor]

Many reputable exchanges and other Bitcoin service providers use anti-fraud/AML services which will flag transactions involving Bitcoin with an apparent history of laundering or other malfeasance. This is more or less mandatory in the US and many other countries via AML treaties. There are, of course, exchanges with no such scruples, but converting Bitcoin to currency does become more difficult when it has a known suspicious background, particularly if you want to deal with an exchange in a country with reputable financial regulation.

This is of course similar to the situation with conventional currencies. Banks will refuse to open an account if they suspect the money you're depositing is laundered. Bitcoin just makes this process far more amenable to automation, since detecting a history of laundering becomes a graph analysis problem.