Does BIP 75 Really Threaten Bitcoin’s Fungibility?

On Wednesday, the Bitcoin community went into a tizzy over BIP 75 (BIP stands for Bitcoin Improvement Proposal) which is, in short, a layer-2 protocol for improving the user friendliness of Bitcoin payments.

The community, especially on Reddit, is concerned that the option to identify oneself to the sender or receiver of a payment may lead down the road toward know your customer (KYC) and anti-money laundering (AML) restrictions on the Bitcoin protocol. The hysteria around this proposal appears to have emerged from a post made by Bitcoin Core contributor Peter Todd to the Bitcoin development mailing list.

What is BIP 75?

Before getting into the controversy, it’s important to understand the details of BIP 75. Bitcoin Magazine reported on the proposal’s ability to simplify wallets for the average Joe earlier this year, but here are the key points: