All bitcoins are created equal. But in the eyes of blockchain forensics firms, some bitcoins are more equal than others. If these companies are to be believed, coins that have been used in criminal transactions are ‘tainted,’ destined to be forever linked with nefarious activity. The reality, however, is far different, for ‘taint’ is solely in the eyes of the beholder – and most beholders aren’t Chainalysis.
Tainted Coins Are All in Your Mind
It’s long been known that freshly minted bitcoins can command a premium because there is no transactional history attached to them. If you want true onchain anonymity, mine some coins and then lock them away. The fewer times those coins turn over onchain, the fewer clues there are pointing to their current owner. The notion that coins might acquire taint, however, that makes them undesirable – or potentially even unlawful – to receive is a wholly subjective phenomenon. It’s one thing to flag a particular wallet address as being associated with phishing or hacking, as many block explorers do, but quite another to flag assets that pass through such wallets as being indelibly associated with criminality.
Just as offense to a risqué tweet is taken not given, the same is true of ‘taint’ when applied to coins. It is an interpretation rather than an inherent characteristic. Despite this, blockchain forensics firms and their surveillance partners are desperate to advance a narrative that certain UTXOs are sullied through their past association with illicit deeds. By the same reasoning, that $20 bill in your wallet is tainted because three transactions ago, it was robbed from a 7/11.
Blockchain forensics software can map the number of ‘hops’ a transaction is removed from one suspected of being criminal, such as an exchange hack. Proving that those coins are still in the hacker’s control, and haven’t been sold to an innocent third party, however, is virtually impossible. Read More...