Reading Time: 2 minutes

The lawsuit against the owner of Helix, a cryptocurrency custody blending service, Larry Harmon, could become a flagship decision for bitcoin transaction privacy and compliance legislation in the United States, according to a report published in Bitcoin Magazine. The debate is around the fungibility of the bitcoin.

Harmon was recently charged and arrested for money laundering in the amount of approximately 350,000 bitcoins through Helix, which was allegedly used by people on the so called dark web.

Currency “blending” services are a privacy enhancement technology for cryptocurrency users. Most cryptocurrencies, including bitcoin, can have their transactions traceable on their blockchain. And there are companies that profit from additional traceability technologies.

What is at stake in this case is the theme of privacy and, more specifically, fungibility in the use of bitcoin. The bitcoin not being fungible from a technical point of view is the technical basis of the debate around cryptocurrency privacy.

What is the fungibility of bitcoin

Fungibility is the property of an asset or commodity whose individual units may be distinguishable from each other. And these are characteristics of the fiat money we use in our daily lives. The bitcoin blockchain was created to share with any participant of the system all transactions made.

To ensure the privacy of its users, the bitcoin uses numeric addresses. Therefore, in the thesis, it is not possible to identify the author of the transactions. However, some tools allow you to track transactions and identify their authors – which is positive to be able to track criminal activities, which would not be possible with ordinary money. But that would make bitcoin a non-fungible asset.

bitcoin fungibility

 End of the fungibility of cryptocurrencies?

The judge in charge of this case released Larry Harmon on bail, but ordered the confiscation of his assets. If the government’s case theory is successful, it is the beginning of the end of cryptocurrency fungibility. In that case, the U.S. government would be confusing the principles of privacy with fungibility.

In Harmon’s case, his service was used for the explicit purpose of masking illicit funds. Thus, bitcoin users should not legally worry about trading cryptocurrencies. But if a bitcoin is branded as “dirty”, someone who receives it at a future time could face trouble with U.S. justice. That means, the U.S. government would be starting to wage a war against bitcoin privacy.

Privacy is not an instrument for committing illegal acts, but universal right

It is important to point out that the issue of privacy on the Internet is very important – not being confused with anonymity – and it is a universal right. A blockchain-based technology that functions as a layer of internet privacy called mixnet, developed by Swiss startup Nym, promises to defend individuals from constant surveillance of governments on the Internet.