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## Introduction
##### I read a fascinating Coindesk article today by David Vorick who is a Bitcoin Core developer:

[Ensuring Bitcoin Fungibility in 2017 (And Beyond).](http://www.coindesk.com/ensuring-bitcoin-fungibility-in-2017-and-beyond/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CoinDesk+%28CoinDesk+-+The+Voice+of+Digital+Currency%29)

_Whilst I have previously understood the need for some people requiring anonymity in cryptocurrency transactions it never really made sense to me for the average user until now._
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## Fungibility or lack of it as a problem
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##### According to [Wikipedia](https://en.wikipedia.org/wiki/Fungibility) fungibility is:

>the property of a good or a commodity whose individual units are capable of mutual substitution 

>That is, it is the property of essences or goods which are "capable of being substituted in place of one another."[1] For example, since one ounce of pure gold is equivalent to any other ounce of pure gold, gold is fungible.

##### One of the central points that Vorick makes is that anonymity is a means of securing fungibility:

> For example, it's common for exchanges and merchants to discriminate between bitcoins based on the owner or their history. An example is that exchanges will attempt to block bitcoins that have been stolen, especially if the theft was well publicized.

_I'm not sure how common this kind of discrimination is right now but it is certainly feasible and we have seen people developing tools to trace and track the origins of bitcoin transactions._

https://i.imgsafe.org/55f932abb7.jpg

Law enforcement authorities already exercise strong controls on fiat money transfers and banking from certain people who they consider undesirable.  

There is no reason to think that they will not start pushing this with cryptocurrencies like bitcoin.

##### This could result in a two-tier market where there are clean and dirty bitcoins.  

Dirty bitcoins would be less valuable.  Hence they would lose fungibility.  

_This doesn't just affect those who are taking part in crime - it could also mean that legitimate businesses or individuals unknowingly receive such coins and end up with something of lesser value._

##### That not only affects those who are directly involved but it could also affect the overall value of bitcoin.
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## Centralisation
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##### A further point that Vorick makes is that it could result in a degree of centralisation of the system because:
1.  Governments and exchanges can control the free movement of certain bitcoins.
2.  It might create a situation where people use services that analyse their bitcoins to determine if they are clean or dirty - such a service would be a central point of attack for anyone wishing to harm bitcoin.
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## Is anonymity/lack of tracing a necessity for fungibility?
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##### I think Vorick makes a compelling case for this.  

The ability to trace coins essentially enables governments and law enforcement agencies to exercise indirect control over transactions and currency movement.

##### They use various laws and regulations to do this with the conventional fiat money supply.  If you do anything the government don't like they can freeze your accounts and confiscate your money.

Whist they can't necessarily freeze or confiscate your bitcoin - they could in theory prevent other people from accepting them.  

##### If you can't exchange them or make purchases with them they lose their value.
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## The cash "problem"
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##### I think it is also important to think of how governments worldwide are trying to eliminate cash.  Whilst cash is not immune to being tracked, marked or traced it is a lot more intensive in terms of time and cost to do so.  

_This is essentially makes it a virtually anonymous means of transferring value since it is almost impossible to track every transaction._

##### People like cash and trying to get rid of it is not a popular move.  It also disproportionately punishes those who are very poor.  

Look at the recent elimination of certain denominations of currency in India.  It may literally have cause deaths for those who were unable to pay for medication, hospital treatment and the basic necessities of life.  

##### It was still forced through.  

_I think in view of this it would be unrealistic to expect that governments will not aggressively pursue identification strategies for cryptocurrencies._
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## Possible Solutions
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1. **Vorick discusses the forthcoming Lightning Network as being a potential solution for bitcoin** - whether it is or not remains to be seen.  It is not even 100% certain that it will be implemented.
2. **Tumbling services - basically you mix up your coins with others - current services have issues with privacy and the risk of users getting scammed.**  He describes a new allegedly safer service called "Tumblebit" which may solve some of these issues when it launches in 2017.
3. **ZCash uses something called zkSnarks to achieve anonymity and fungibility - not being a cryptographer I don't really understand this fully.**  What I do know is that there is debate over the security of this within the cryptocurrency community as a whole and even some of those who are involved in ZCash.
4. **Monero mixes all transactions by default and will be undergoing upgrades in 2017 to further secure this.**  Having used it myself this is the system I'm most familiar with.  The recent release of a GUI wallet might help to bring it into the mainstream.

##### I think as time proceeds anonymity will become more and more important for free transactions and true decentralisation.  I can even envision Bitcoin getting left behind and becoming secondary to other cryptocurrencies like Monero if it does not tackle this.

_We have already seen a switch in Dark Markets using things like Monero and now considering ZCash._

##### We may think we are safe because we are "not doing anything illegal".  

I don't think we can assume that though.  We have seen how governments can over-reach and how their definition of who is desirable and undesirable changes with time.

They are also prone to making mistakes.
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## Are we safe from this issue with Steem?
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##### One of the things with Steem is that it is very easy to trace every transaction.  Right now with Steemit being the main app it may appear that anonymity is unwanted or not required.

_That may not always be the case though._

##### With the recent "Fake News" situation we have seen both official and unofficial attempts at censorship.  The blockchain itself cannot be censored but a future government may try to silence people indirectly by marking their money (in this case Steem/SBD) as dirty.

_Is this possible?  I would be grateful if someone who understands the technicalities of Steem better than me could comment on it.  Further is it feasible or (or even desirable) to have some sort of coin mixing type system with Steem?_  

I assume it would need to be combined with some means of having disposable and anonymised addresses that would still be able to send money to your Steem wallet.  I don't think that is possible though - please correct me if I'm wrong.

##### Perhaps a better way of doing it would be to have a decentralised exchange which does not discriminate and automatically mixes coins up during transactions?
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## Conclusion
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##### It seems to me that governments will do anything they can to exert control over cryptocurrencies like Bitcoin in the same way that they do over fiat money (particularly in its electronic forms).

They are already trying to get rid of cash in an attempt to close that loophole.  We must assume they will use any kind of means at their disposal to compromise cryptocurrencies in the same way.

##### They may not be able to block them directly but they might use the fungibility issue as a means of attack and trace-ability could be the tool that enables them to do that.

Please let me know what you think.  Many of you will have much greater knowledge and expertise in this field and I would be grateful for your informed opinions.

Also apologies for any errors or misunderstandings I may have made in this post.  I find this issue fascinating but it is something I am still learning about.  
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## Thank you for reading.
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