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@reonarudo
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So you whitelist a new wallet... KYC it... and then transfer money to it and break the whitelist by transferring it somewhere else.

The whitelisting could only be done by KYCing it and having its history checked against a list of known whitelisted accounts. As long as there were an interaction with a non-whitelisted address, that wallet could not be whitelisted. You could only de-whitelist a address by interacting with a non-whitelisted address. After that point, the address would become non-whitelisted.

It would be like creating an address garden of whitelisted addresses. This is precisely what PayPal is doing by allowing their users to have exposure to the price action of BTC without allowing them to send funds to any non-PayPal holder of Bitcoin while sidestepping the entire on-chain transfer business as unnecessary.

The kind of regulations you are implying are again impractical and ineffective. Not saying that would stop of government agency from being impractical and ineffective, but still.

Yes, they would totally suck. But you could make it possible to divide the existing addresses into KYC'd and non-KYC'd ones and make interacting with non-KYC'd ones have consequences (like having no regulated exchange allow cashing out a balance in any non-KYC'd address that has had interactions with addresses that are non-KYC'd or that are KYC'd but have had interactions with non-KYC'd addresses .. and recursively until a address garden as been established.

The whitelist would have to be constantly updated. A status history of addresses would have to be maintained somewhere off-chain. There'd have to be a huge centralized database out somewhere.

But what would reduce the practicality of this is that anyone could send a tiny sum from a tainted address to any known address in the address garden thus effectively de-whitelisting that address and every address that will interact with it after that. A "terrorist" could inflict a lot of damage by bombarding addresses with such transactions :D Only by sending the funds to the police could whitelist you again (which would be expensive thanks to high transaction fees). That would teach entities and people never to reuse addresses. :D

Sorry, I've had a few beers. :D

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