This is a proposal to help stop bitcoin thieves. Especially pertinent in light of recent thefts. The coins stolen from bitfloor have not been spent yet! We still have a chance to make this thief's life more difficult. Please discuss.

People have proposed blocking tainted coins. There are good arguments against this. Who will decide which coins should be blocked? What happens if the thief spends the coins before they are blocked? The person who took the coins might not know that they are stolen.

My proposal is similar, but it relies on giving people (bitcoin users and miners) options, as opposed to forcing everyone to do something. In principle, those who want to do this can do this already. But it's difficult, so no one will do it. I would like the software to give people the option to do what I propose. This will make it much easier to do, and a lot of people will do it.

Part 1. Clients should have the option to block tainted coins -- coins that have passed through specific transaction ID's. If this option is turned on and A receives payment from B that contains blacklisted coins, these things happen:
- The blacklisted coins are immediately sent back to B.
- A's client indicates that he did not receive the full payment, that some of the received coins were stolen and were sent back.

So A tells B "I did not accept some of the coins you sent me. To complete the transaction, send me more coins, ones that have not been blacklisted."

Who controls the blacklist? The software should give the option to manually enter blacklisted transaction OR to subscribe to a list that someone continuously updates. This would work like the AdBlock Plus browser plugin for blocking ads. It's up to the user to choose which list they want to use. After awhile, most people will use one of a few lists.

In the beginning, this option should be turned off by default, so that people don't freak out that their client is doind somethign that they don't want. I predict many people will turn the option on. After some time, clients can have it on by default. People can still opt out if they want to.

EDIT.  Here is what a watch-only wallet could do:
- Indicate the amount received that is blacklisted.
- Don't add that amount to the total.
- Automatically create a transaction sending the blacklisted coins back to the address from which they came from.

The next time I am signing transactions, I will have the option to sign this one as well.

Part 2. The bitcoin software should give miners the option to reject transactions that involve coins that have passed through specific transaction ID's. Again, strictly optional. If we convince a few of the big mining pools, the thieves will lose their ability to spend coins.

Also add a whitelist. The whitelist is a list of addresses -- blacklisted coins can only be spent to these addresses. With this option, thieves can only send the coins back to their rightful owner. All other transactions will be blocked.