by Albert Szmigielski
Coin tainting in Bitcoin is a way to mark certain coins for the purpose of devaluing them. Since all transaction are stored on the blockchain, a history of a coin can be traced all the way to its coinbase transaction. This fact enables tracking of coins belonging to any address. Certain addresses can be marked by some powerful entity as bad. As a result peers may choose not to accept funds from those addresses. If these entities gain support of the core developers then a blacklist of addresses can be hard-coded into the Bitcoin core software. Coin tainting can be used to incorporate measures of accountability in Bitcoin, but can also lead to abuses of the system. Imagine the government tainting coins belonging to entities that they do not like (WikiLeaks, for example). Researchers postulate that coin tainting can have a negative effect on using Bitcoin as a currency.
A massive coin tainting attack on an address A would require the help of miners. The easiest way to blacklist an address is to have miners drop the transactions originating from that address. Another way would be to hard-code the address in the core software, although this approach would require most peers to update their software. Yet another way is to mount a public campaign to raise awareness amongst bitcoin users so they boycott the given address. Combining all three ways would be the most effective and massive coin tainting attack on a bitcoin address.
To be sure, this author thinks coin tainting is a really bad idea and should never be done in practice. Besides, some newcomer to Bitcoin will always accept tainted coins unknowingly, so the whole practice of coin tainting maybe useless.