What Is “Impure Bitcoin”? (Explained Simply)
“Impure Bitcoin” refers to concerns about Bitcoin’s transaction history on its public ledger, where certain coins may be flagged and ultimately blacklisted. This raises concerns about whether Bitcoin maintains equal value across all units within the network. Furthermore, it sparks another privacy debate, even though Bitcoin is not necessarily a privacy-based blockchain.
Unlike fiat currency, Bitcoin uses a public ledger that records the history of transactions. This is both a blessing and a curse, which can be used either positively or negatively. There has been some talk over the years that Bitcoin might adopt a grading system, similar to gold, which is graded by purity. The publicly viewable transaction history on the blockchain ledger can reveal whether the coins in question have been used in any illicit activity.
If so, this would ultimately result in a negative rating. The “purest” Bitcoin will obviously always be in the form of mining rewards. Freshly generated BTC, coming straight from the network, has no transaction history and therefore has the highest purity, if we are to assign levels of purity, and possibly value. This, of course, would become a very contentious matter were it to materialize on a broad scale.
You Could Be Using “Blood Money” Without Realizing It
This is, however, not seen in any way, shape, or form in the world of fiat. Nobody knows the history of a dollar bill, and quite frankly, nobody really cares. You have most likely used dollar bills throughout your lifetime that were once used to finance a crime or even stolen. Nobody knows the history of any of the notes in circulation, and nobody ever will. However, the opposite is true of Bitcoin. Everyone can view the transactional history if they so choose.
The information is public and transparent, but still private to some extent, as identity is not necessarily linked to the public address. Something I read the other day concerned me greatly because it was the first case I had heard of regarding what I just mentioned. Even though the story might not necessarily be true, it is quite possible that this type of system could be adopted by certain institutions and companies.
Why Bitcoin Is Being Rejected Based On Past Activity
I read a story of someone who had taken out a loan with one of the more credible and reputable crypto lending platforms. The price of BTC dumped shortly after he took out the loan, triggering automated messages to fund his account. After depositing BTC, he was informed that his deposit had been declined because the BTC in question had previously been routed through mixers. I can understand the red flags that mixers trigger, but that does put innocent people at risk.
A Probable Scenario Unfolding In The Crypto Market
Someone who uses mixers and later spends their coins will most likely make an online purchase. This action will then cause an innocent business to take possession of “questionable” coins. The business merely supplied a legitimate service and received payment; they are by no means responsible for any illicit or criminal activity. The fact that those coins could be rejected later is quite devastating.
I guess the point I am trying to make is that unless the mixing was done directly before the spend, one cannot simply pass judgment and penalty on an innocent person. What if you were refused due to the fact that your paycheck came from a company that had just been caught laundering money? Is that fair? Are you part of their criminal empire? No, you simply work for the company and collect a paycheck every month.
The Growing Regulatory Pain In Crypto Markets
An understandable and accurate regulatory framework will take a long time to establish. At least this is my opinion, especially given how matters have been handled up to this point. There is a massive void in understanding the mechanics of blockchain technology within regulatory bodies. This is a global issue, yet more prevalent in certain parts of the world.
In my opinion, regulation should never have been initiated without first establishing a basis of knowledge and understanding. How can any regulatory body regulate something it does not understand? It is actually a recipe for disaster! Not only do regulators need a firm understanding of blockchain technology, but they also need a firm grasp of the entire crypto space.
Regulation Is A Given In Crypto — Here’s What That Means
Regulation is not going away, which is why it is better that those who impose laws have a thorough understanding of it. Can you imagine how disastrous it will be to have uninformed individuals passing laws on something they have no clue about? I am still hoping for the best, but am also prepared for a difficult road ahead. The path to clear and concise regulation will be a long and difficult journey.
Does “Impure Bitcoin” Contradict Bitcoin’s Purpose?
This is perhaps a difficult question to answer, as Bitcoin is designed to promote and support personal financial sovereignty; criminal activity shouldn’t be allowed to continue, regardless of the means used. However, censorship can also extend beyond criminal activity, and this is where the greatest concern lies. In certain instances, legitimate censorship can also be corrupted.
It is important to note that Bitcoin was essentially established as an online currency outside government reach and influence. However, with accelerated adoption and regulation as an investment-grade asset, that narrative is gradually diluted. Essentially, yes, it does contradict Bitcoin’s initial purpose. However, given the circumstances, it’s likely to occur.
Final Thoughts
There needs to be realistic and acceptable regulations in place. Rejecting coins based on past activity is not a black-and-white decision. I am hopeful this will not become an issue, as there are numerous constructive approaches to a situation similar to the one I highlighted earlier in this article. Further regulation is on the way; here’s hoping it is realistic and acceptable. It will likely be challenging, but if it is within the realm of understanding, it will be easier for crypto users to embrace.