Christopher Allen

@ChristopherA

Fungibility means that any one unit of a currency is indistinguishable from any other unit. All dollar bills are mostly fungible: until someone writes down a serial number and then monitors its use. The same is true with digital assets. (2/15)

7/16/2020, 11:54:40 AM

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Christopher Allen

@ChristopherA

In fact, cryptocurrency like Bitcoin should be even more fungible than most paper currency. That's because it's constantly being pooled. There's no such thing as a discrete coin in Bitcoin — instead all Bitcoin is only a balances on an accounts in a ledger. (3/15)

7/16/2020, 11:54:40 AM

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Christopher Allen

@ChristopherA

If Censorship threaten's your ability to transact on-chain, the LOSS OF FUNGIBILITY adversary threatens your ability to use cryptocurrency elsewhere. This is a serious problem, and in fact it's the final adversary in my #SmartCustody book. (4/15)

7/16/2020, 11:54:41 AM

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Christopher Allen

@ChristopherA

The problem arises if a Bitcoin was used for something that's considered antisocial by some community, which could taint the money. And it's become a real problem in the blockchain world because some exchanges now trace the origins of cryptocurrency. (5/15)

7/16/2020, 11:54:41 AM

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Christopher Allen

@ChristopherA

Someone paid you with funds where somewhere in the past it was used by someone as drug money? You're an American citizen who used your Bitcoins for gambling? In either case, you might suddenly find your funds locked by an exchange. (6/15)

7/16/2020, 11:54:42 AM

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Christopher Allen

@ChristopherA

Yesterday's #TwitterHack netted over $110K of Bitcoin but already those coins are being blacklisted. Seems like a paltry amount given the sophistication of the attack—but what if the attacker gave those coins to thousands of innocent people? All funds could be blacklisted. (7/15)

7/16/2020, 11:54:42 AM

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Christopher Allen

@ChristopherA

But it isn't all about illegal source of funds. In the US cryptocurrencies are not legally a "currency” but instead are an "intangible property”. This means that a bankruptcy court could legally say “that payment to you was pledged to someone else, give it back". (8/15)

7/16/2020, 11:54:43 AM

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Christopher Allen

@ChristopherA

Mitigating the risks of the LOSS OF FUNGIBILITY adversary are difficult. First step is to make sure that exchanges don't have exclusive control of your private keys. As I wrote a few days ago, true Censorship is hard because when we are using a decentralized system. (9/15)

7/16/2020, 11:54:43 AM

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Christopher Allen

@ChristopherA

But you can also approach this as a Correlation problem, which I talked about yesterday. LOSS OF FUNGIBILITY only occurs if someone can correlate where your coins came from. (10/15)

7/16/2020, 11:54:44 AM

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Christopher Allen

@ChristopherA

So, scramble them. Use CoinJoin, SendShared, or Zerocoin. Use Confidential Transactions on @Blockstream's Liquid. We have ways to break the links in the blockchain. (11/15)

7/16/2020, 11:54:45 AM

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Christopher Allen

@ChristopherA

If you in the US are planning to pledge your cryptocurrency against a loan, consider holding your cryptocurrency in Wyoming. Under their laws, after two years all of those funds are consider "perfected" and can't be clawed back by a bankruptcy judge. (12/15) https://twitter.com/CaitlinLong_/status/1086371268461359105

7/16/2020, 11:54:46 AM

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Christopher Allen

@ChristopherA

But, as always only concern yourself with this adversary if it truly seems to be a concern. If you genuinely think your funds are likely to be clean, there's almost no danger here. Or at least prioritize against other adversaries first! (13/15)

7/16/2020, 11:54:46 AM

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Christopher Allen

@ChristopherA

And that closes out my look at Privacy-Related Problems, which included everything I talked about here: Censorship, Correlation, and Loss of Fungibilty. And it's also the end of my look at 27 different adversaries that can impact your digital assets. (14/15)

7/16/2020, 11:54:47 AM

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Christopher Allen

@ChristopherA

Have your own stories of LOSS OF FUNGIBILITY impacting digital assets? Your own solutions? Let us know! And please consider supporting #SmartCustody. We're working on V2, with multi-sigs and other expansions: https://smartcustody.btcpay.blockchaincommons.com/ (15/15)

7/16/2020, 11:54:47 AM

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