Genuine question- is Bitcoin fungible?

I came across a YouTube video arguing Bitcoin’s fundamental flaw is it is NOT fungible. I wrote a summary for the video below; I’ll also link the video. I’m hoping to understand both sides of the argument if there is one. Or maybe this is just generally accepted now? Complete garbage? Idk.

Bitcoin is NOT fungible. Due to having a public blockchain, all previous transactions before u received your bitcoin can be observed. Bitcoins with illicit transactions history are “Tainted bitcoin”. There are now companies that surveil the public blockchain for these types of coins in order to deem them high risk. On the other hand, we have regular bitcoin, which is bitcoin with no “illicit” transaction history. Finally, we have “virgin bitcoin” which was just recently minted by a miner. It has no transaction history.

But what’s the big deal if your bitcoin is tainted? Exchanges can run analysis on the output of the bitcoin you deposit and if it’s tagged as illicit (due to a past transaction of buying illegal weapons for example) then the exchange can confiscate the bitcoin, leaving you to provide documentation of who you are and to prove you are not that person involved in the previous illicit transaction. This whole ordeal leaves you, when using bitcoin, the risk of confiscation by a centralized third party.

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  1. The definition of fungible means that each unit is worth what every other unit is worth. So, bitcoin is fungible. But what you describe sounds no different than cash used in a crime, like a bank robbery.

  2. There is now a KYC/AML mining pool based in the U.S. and Canada which is refusing to mine transactions containing inputs that do not comply with whatever standards they made up. Marathon is one of the major players in this.

    If they expand to the point of achieving 51% dominance, they could conceivably fracture Bitcoin.



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