user5290: I have to admit I don't fully understand the Bitcoin protocol. But from what I do understand, transactions are traceable -- it is the main reason decentralization works: the world can watch and confirm that a transaction is legit.
Why then can't we observe when a thief tries to cash out or otherwise exchange a Bitcoin that we know to have been stolen?
As Robert Wagner writes:

1 out of every 14 Bitcoins is now stolen property, and there are
  plenty of laws governing stolen property.

What am I missing here? With so many Bitcoins identified as "stolen," why can't they be traced, recovered and returned to their rightful owner?

user13751: Transactions can occur very quickly and the stolen coins can exchange hands, split up and be mixed with other coins multiple times before the theft is discovered. Many innocent parties (whether it is merchants, exchanges or other individuals) could be affected. Who is going to be holding the bag?

user14198: you can't trace stolen bitcoins. when you move the stolen bitcoins into exchange and say exchange into dogecoin or litecoin then exchange back to bitcoins then everything would screwed all up, it's untraceable. also exchange like btc-e or bter which are not base in the u.s so the u.s can't do anything or even try to close them.

user14208: The answer to the first question about why stolen bitcoins can not be easily traced like regular bitcoin transactions. This is because the exchanges like btc-e magically move the coins so that tracing becomes impossible. For example yesterday I moved 15 dollars worth of bitcoins in to btc-e and traded it to litecoins, but the address where I sent those coins still today show the coins are unspent. 
The answer to the second question about why stolen bitcoins can not be easily recovered is about the bitcoin protocol itself. We can not magically revert transactions without the coin holders. Recovering stolen coins would require finding the people who are holding the coins, but this is almost impossible because of the anonymity of wallet owners. 
These two features allow easy protection against being caught which makes cryptocoins good target for Internet theft.

user14236: Several great reasons: (1) off chain transactions do not have a public ledger (2) tumbling - repeatedly moving through different addresses quickly makes tracking difficult (3) fragmenting - your BTC gets broken up into tiny tiny pieces and spread around (4) TOR or similar IP hiding can cloak the owner of an address (5) questions of jurisdiction (6) questions of whether any crime was even committed

5290: <p>I have to admit I don't fully understand the Bitcoin protocol. But from what I do understand, transactions are traceable -- it is the main reason decentralization works: the world can watch and confirm that a transaction is legit.</p>

<p>Why then can't we observe when a thief tries to cash out or otherwise exchange a Bitcoin that we know to have been stolen?</p>

<p>As <a href="http://seekingalpha.com/instablog/7360901-robert-wagner/2715103-many-bitcoins-are-now-stolen-property-with-a-public-ledger" rel="noreferrer">Robert Wagner writes</a>:</p>

<blockquote>
  <p>1 out of every 14 Bitcoins is now stolen property, and there are
  plenty of laws governing stolen property.</p>
</blockquote>

<p>What am I missing here? With so many Bitcoins identified as "stolen," why can't they be traced, recovered and returned to their rightful owner?</p>
 13751: <p>Transactions can occur very quickly and the stolen coins can exchange hands, split up and be mixed with other coins multiple times before the theft is discovered. Many innocent parties (whether it is merchants, exchanges or other individuals) could be affected. Who is going to be holding the bag?</p>
 14198: <p>you can't trace stolen bitcoins. when you move the stolen bitcoins into exchange and say exchange into dogecoin or litecoin then exchange back to bitcoins then everything would screwed all up, it's untraceable. also exchange like btc-e or bter which are not base in the u.s so the u.s can't do anything or even try to close them.</p>
 14208: <p>The answer to the first question about why stolen bitcoins can not be easily traced like regular bitcoin transactions. This is because the exchanges like btc-e magically move the coins so that tracing becomes impossible. For example yesterday I moved 15 dollars worth of bitcoins in to btc-e and traded it to litecoins, but the address where I sent those coins still today show the coins are unspent. </p>

<p>The answer to the second question about why stolen bitcoins can not be easily recovered is about the bitcoin protocol itself. We can not magically revert transactions without the coin holders. Recovering stolen coins would require finding the people who are holding the coins, but this is almost impossible because of the anonymity of wallet owners. </p>

<p>These two features allow easy protection against being caught which makes cryptocoins good target for Internet theft.</p>
 14236: <p>Several great reasons: (1) off chain transactions do not have a public ledger (2) tumbling - repeatedly moving through different addresses quickly makes tracking difficult (3) fragmenting - your BTC gets broken up into tiny tiny pieces and spread around (4) TOR or similar IP hiding can cloak the owner of an address (5) questions of jurisdiction (6) questions of whether any crime was even committed</p>
