[giaour]

> But marking wallets as sanctioned, and threatening any wallets that transact with it to be either similarly sanctioned or subject to heightened scrutiny, would diminish the value of those coins relative to coins which can be freely traded with anyone

Doesn't this already happen? Basically any bitcoin that comes out of a tumbler or any wallet address that has transacted with tumbled coins is banned on KYC exchanges: https://sethforprivacy.com/posts/fungibility-graveyard/

[randomhodler84]

It’s why it’s so important to taint and mix the history of all coins. Given enough time, eventually all UTXOs are tainted, thus nothing is tainted. Most of the supply of BTC can be linked to SR taint from early 2010s. Doesn’t matter now.

Litecoin just introduced a sidechain called (mimblewimble extension blocks) MWEB, it permits “cut-through” transactions where UTXOs can mix. It looks like a single UTXO on the main chain. Very Fungible!

[giaour]

What if instead of normalizing money laundering you just didn't launder money?

[randomhodler84]

“What it instead of normalizing privacy, you just don’t have privacy.”

The problem is one of pragmatism. All money is dirty. All great fortunes are founded on exploitation.

Every dollar in your pocket has been used for crime many times. The system works because we choose to ignore this. If we could programmatically enforce rules, the system would be fail in a day.

So it’s not about money laundering, it’s about achieving some kind of pragmatic equivalence, while permitting the system to continue to function.

[giaour]

I guess the problem for me is that the immediate action being normalized is just too ethically suspect. The closest analog outside of the cryptocurrency space is a crime that is generally only committed to get away with another crime. That feels categorically different from, say, normalizing using HTTPS or encrypted messenger apps.

[randomhodler84]

It’s the dilemma of cryptography, in that you cannot have a secure system that doesn’t also allow bad guys to use it too. The only victim of weakening a system to fight bad guys are the good guys, as the bad guys will just use the original secure version of the protocol, etc.

My point is that eventually the major cryptocurrencies will have some fungibility enhancement mechanisms to deal with the practical limitations of taint and chain analysis. Tornado cash, Coinjoin, MW, etc. Its not about normalization of crime. It’s the default ignorant status quo.

[giaour]

> It’s the dilemma of cryptography, in that you cannot have a secure system that doesn’t also allow bad guys to use it too.

I hear similar things from the NRA about how we'd all be safer if everyone carried a concealed firearm. I just don't want the world to be a place where we all have to be armed and launder our money after every transaction.

There is always a balance that needs to be struck between privacy and accountability. Bob Woodward violated the privacy of the Nixon white house, but we generally believe the public interest there outweighs the privacy concerns at stake. I am always particularly skeptical of financial privacy maneuvers, since they are of considerably greater interest to the already rich and powerful.