I'm not an expert, but my understanding is that this is incorrect. WETH is generated by a contract that conforms to reasonable KYC regulations, which is why Coinbase et. al. will accept it and exchange it for you.
You can see that the code is very short and simple, and there are no special admin functions at all, nothing implementing the sort of whitelisting required to allow KYC. (The Approve function is a standard token function, used by token holders to permit contracts to spend out of their account, up to a specified amount.)
It was very cheap for someone to build and deploy this, and to use it you only pay gas fees. If there were someone checking KYC for every new user, then they would have to charge user fees, and there'd probably be delays getting started. Someone else would deploy the simple version and people would use that instead.
It looks to me like the resulting tokens are identifiable and traceable, no? So if you exchange ETH for WETH for BTC or whatever, it's possible to get back to the original source and see if it was clean or not. The WETH makes the analysis a little harder but it doesn't change the fact that the money/tokens/coins/whatever remain traceable.
> A criminal deposits some eth and get some weth. You receive weth by some other means, and turn that in to get some eth. Did you get the criminal's eth? Or did you get the eth of one of the upstanding citizens using the contract?
There's no definite answer to that question. I really can't explain it any better than that, so please give that scenario some thought. If, in the process, you come up with technical questions about exactly how the contract works, I can answer them.
I think you're interpreting the point too narrowly? It's true that the "eth" gets mixed, but the identity of the owner gets tracked because the tokens have lifetimes too. If I buy a Walmart gift certificate and then use it to buy a Switch game, Walmart doesn't know the exact dollars that were used to buy the game, but they know it was me. Same principle.
Broadly: if what you think is true is true, then WETH is a trivial evasion of money laundering statutes, in a way that no one has figured out how to exploit. People are smarter than that. Please don't use this to launder, assuming it's anonymous, you'll end up in jail.
I have no reason to launder money, and agree that the government can and probably does know the identities behind most addresses.
I was responding to your specific point above, that some ETH would be "dirty" and some "clean," and potentially have different values. Because of this sort of inadvertent mixing due to ETH being account-based and fungible, this is not really a possibility.
Dollars of course are the same way: account-based, fungible, all worth the same.
