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Etherscan's New Tool Lets Users Identify Tainted Ether Addresses

Etherscan's ETH Protect tool may be helpful for new users hoping to avoid crypto hucksters, but it could be more problematic for Ether's fungibility.

bitcoin falls as privacy coins face scrutiny

Key Takeaways

  • Ethereum users can now identify if the funds they have received are associated with malicious actors.
  • This is beneficial in helping new users stay away from known fraudsters and keeping them informed.
  • However, this move also threatens the fungibility of ETH and could lead to many problems.

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Ethereum blockchain explorer Etherscan has launched a new tool, named “ETH Protect.” The tool marks addresses with tainted funds and allows users to identify if any funds they have received are associated with hacks, scams, or tainted Ether addresses. 

This is both a boon and a bane for the Ethereum network.

Safeguarding Users from Tainted Ether Addresses

Malicious activity in crypto has seen an uptick, resulting in a need for features that track the addresses of hackers and scam artists to ensure they don’t profit. 

EtherScan’s latest feature gives users the ability to track incoming funds and their history to ensure the outputs are clean. 

If an address has been marked as tainted, and the owner of said address believes they were wrongly marked as such, they can contact EtherScan to resolve the issue.

The company clarified that there is also an in-built circuit breaker for privacy-enhancing mixers. When used in conjunction with ETH Protect, addresses will not be flagged as tainted.

Blockchain sleuths like Chainalysis already have a large database of addresses operated by the perpetrators of major exploits. However, they go a step further in tracking down addresses associated with the darknet for law enforcement authorities. 

Cause for Concern

This feature, while beneficial for avoiding contact with malevolent entities, also threatens the fungibility of ETH. 

Fungibility is an economics term which states that one unit of account of a commodity is interchangeable with any other unit of account of the same commodity. It indicates that one American dollar equals one American dollar no matter what that dollar has ever been used for.

But if there is one set of “clean ETH” and another set of “tainted ETH,” the promise of token fungibility is severely eroded. Bitcoin faced a similar problem when Chainalysis started to track down tainted funds and exchanges blacklisted them. 

While this is a necessary evil, it creates a plethora of other problems.

Nobody wants to end up on a public blacklist for having funds associated with an exchange hack or a major Ponzi scheme like PlusToken.

Unlike the banking system, these tainted funds cannot be blocked entirely – they can only be identified. If a PlusToken address sent a negligible amount of Ether to 100,000 different addresses, all of those addresses would potentially be marked as tainted. 

EtherScan’s resolution process is handled by security analysts and not an automated interface. As a result, it can take weeks, maybe months, for them to clear all these unknowing addresses of any wrongdoing if such a situation were to occur.

However, among the supporters of this feature is Ethereum co-founder Vitalik Buterin, who believes that it is necessary to keep new users safe from scam artists. 

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