[kragen]

So far no such attack on Bitcoin's fungibility has materialized; it's plausible that the outcome would be that Bitcoin would become useless to everyone subject to US jurisdiction or treaty agreements. So it seems unlikely to happen without a major war, because that plausible outcome would result in enormous capital losses for many people who are influential in the US. Another plausible result is countries withdrawing from treaty agreements with the US, even if they don't care that much about Bitcoin as such.

[acdha]

You’re leaving out the possibility which matches what we’ve seen historically: the major players decide that the money from criminals and rogue states isn’t enough to give up on legitimate business and just block those specific transactions. Someone can have a ton of Bitcoin and simply choose not to accept transactions from the smaller set of addresses on a watchlist.

[kragen]

Oh, that's not a possibility. The part you don't understand is that in Bitcoin you can't tell which transactions are people giving money to themselves and which ones are actually giving money to other people. So if Coinbase wanted to block transactions from, say, medical marijuana dispensaries ("criminals") they couldn't just block transactions directly from the dispensaries' known addresses; they'd have to block transactions that drew coins indirectly from the dispensaries as well. That would mean that your transactions could get blocked by Coinbase even if you weren't a dispensary, but because you had sold services to a dispensary in the past, or to someone who had sold services to a dispensary.

To avoid this risk, you'd have to somehow get access to Coinbase's blacklist of dispensary addresses—maybe they'd publish it—and blacklist them yourself. Pretty quickly you'd find you couldn't accept coins from anyone who used a mixer or any offshore exchanges, because all of them would receive tainted dispensary coins sooner or later. You'd probably find that a lot of the Bitcoin you thought you already had was tainted, too, or would become tainted later as new addresses were added to the blacklist.

(Also, presumably any published address would become tainted pretty quickly; anyone could buy some tainted millibitcoins and send them to it, and people in the tainted economy would have an incentive to get as many Bitcoin owners as possible on their side of the fence. So everybody who accepts donations by publishing a Bitcoin address would get their donations tainted: camgirls, libgen, sci-hub mirrors, Electrum server operators.)

So basically this kind of attack on fungibility would destroy most of the value of Bitcoin for anyone who was participating in the attack. "Simply choose not to accept transactions from the smaller set of addresses" isn't a coherent alternative.

[acdha]

Not only do I understand it, that was my point which you missed: from the perspective of the people in the regulatory system, that’s a feature — putting Iran on the blacklist and go after everyone who works with them is a feature, not a bug, and Bitcoin makes that so much easier than the traditional banking system that it’ll have a stronger deterrent effect because it not makes it easier to block now but also provides full retroactive punishment for anyone identified later. Normally you’d only catch people with what they had recently done, not a full immutable ledger of every transaction they ever made.

I suspect this is also why there’s no concerted campaign against it: Bitcoin just hasn’t been a barrier to prosecution.