Risks of Holding Tainted Bitcoins

Based on the aforementioned analysis, entities holding Bitcoins have to take into account various risks that are tightly coupled with coin tainting. For instance, the previous owners of their coins could have acquired these coins by means of illegal activities (e.g., theft). In general, any coin whose expenditure history involves a crime poses considerable risks for its new owners. Recall that coin tainting can be applied to incorporate accountability in the system; for example, it could be used to trace stolen BTCs or launch campaigns not to accept coins issued by suspicious senders.

To be on the safe side, this almost suggests that users should be aware of such risks whenever they receive a transaction in the network. For instance, the receiver has to compute the risk of accepting these coins and whenever needed instruct the sender to use different coins as a payment. Even if the receiver accepts to receive the coins, he or she might be inclined to immediately spend them in order to minimize any risk associated with holding these coins.

The risks associated with holding tainted coins has been thoroughly investigated in [16]. Here, the authors lay down a risk model for holding BTCs and outline a risk prediction approach using public knowledge from the Bitcoin blockchain. The authors observe there will be a certain timespan between the time at which an illegal transaction takes place and the time at which the corresponding coins are tainted/blacklisted in the network. Thus, honest users may accept a dirty BTC despite their willingness to comply with the blacklisting process. Clearly, freshly mined coins are less likely to be involved in suspicious activities when compared to coins who have been switched across several owners. This clearly motivates the need to predict the risk of holding/accepting coins to ensure that they do not lose value due to coin tainting or blacklisting over time.

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