Can stolen or otherwise tainted coins be laundered through mining fees? Do chain analysis techniques consider the fee portion of block rewards as tainted funds?
e.g. if known stolen funds are moved in a certain block, the fees the sender pays end up &quot;polluting&quot; the block reward. I want to know how much weight this taint actually gets when it comes to chain analysis. Would the largest exchanges accept these coins as deposits?
If so, then a thief could launder the funds by colluding with a miner. e.g. do a self transfer that pays 10% in fees; don't broadcast the tx, just pass it to the colluding miner who mines it and later returns a portion of the fees to the thief out of the block reward.
If not, then a thief could taint every block's reward by simply self transferring a minimal amount with sufficient fees for next block. Then none of the blocks rewards can be deposited in any heavily regulated exchange. I guess miners could censor those txs if the thief's UTXOs are well known, but it's still an attack vector I guess.
I cannot look into the chainalysis code but if someone cooperates with a miner by paying unusual fees with tainted coins then the high fees are suspicious and I'm pretty sure analytics will monitor this.
Usually it's not a question whether or not the funds on a bitcoin address are from a criminal source, it's a question of what % is polluted. If you go inbound in the transaction trees of an address back to the miner rewards then you might have 1000 addresses and a little percentage will be polluted. So e.g 1.5% of the starting addresses funds are from a criminal source. It's the same with the bills in your wallet or with your ancestors. Going 10 generations back we have upto 1024 great...grandparents and if 10 of them were criminal then we could say that 1% of our ancestors were criminal.
So the criteria aren't the same at all exchanges but I assume that only addresses with a relatively high percentage of pulluted 'ancestors' will be rejected otherwise the exchange would have to stop it's business.