Researchers at the University of Cambridge publish study that aims to "make Bitcoin legal"

Members of the Computational Laboratory of the University of Cambridge have published a study recently, which describes a method they consider much more effective in separating the bitcoins involved in crimes from those "clean bitcoins".

The proposal, called Taintchain, would use the public information of the chain of blocks and would do a tracing of the genealogy of the bitcoins. Later, I would propose a soft bifurcation for the miners and the users to use cryptocurrencies that have not been compromised in cybercrimes. With this system, the currencies would be filtered in exchanges regulated by the authorities, and the victims could request their money back.

Taintchain would work with a system used by English legislation in 1816 called FIFO, which states that the first to deposit their money should be the first to remove it. This method is used to resolve debts or to make the claim of stolen property and, applied to cryptocurrencies, it would establish that the first currency in leaving a Bitcoin address should be considered as the first one that entered it, containing all the criminal history that can be attributed to that currency. If ever that currency was stolen, then it could be recovered, regardless of what happened before by several directions.

The FIFO method, say authors Ross Anderson, Ilia Shumailov and Mansoor Ahmed, could be much more effective than those currently used by researchers to determine if the money has been contaminated. These systems are known as "haircut" and "poison". For example, if three stolen coins are mixed with seven coins, according to the first method, 30% of the resulting coins would be dirty; and according to the second, then 10 coins would be dirty. Following these two systems, then half of the transactions with bitcoin would have to be considered as dirty.

However, for this system to become operational, it would be necessary for exchange houses and governments to agree to differentiate between "clean" and "dirty" currencies, even though this "does not necessarily imply that the law "as stated in the study.

Similarly, regulated exchange houses would have to function as a kind of bank, since they would collect the funds and process them to deliver only clean cryptocurrencies to the users, the study proposes. According to this reasoning, the authors continue, the users would have to give up the privacy provided by the "laundries" (unregulated exchange houses that process the funds and mix them to send them to unrelated addresses), since the funds that are submitted to this process they would automatically be linked to crimes.

Thus, cryptocurrencies such as Monero and Zcash "would be incapable of being treated as money". The authors conclude that Taintchain would make the current Bitcoin system much safer. However, this would imply a certain degree of centralization and would even make privacy almost impossible, which would undoubtedly result in controversy for the crypto-world.