Cryptocurrency is slowly gaining acceptance as a means of payment, but many challenges still need to be addressed before it can be widely adopted. One of the biggest challenges is anonymity. When you transact with conventional currency, your identity is not revealed. However, when you make a transaction with cryptocurrency, your identity is attached to the transaction.
This is where crypto mixers come in. A crypto mixer is a service that helps you to anonymize your cryptocurrency transactions. It does this by mixing your coins with other users’ coins, so it becomes difficult to trace the source of the coins.
If you are concerned about your privacy and want to use cryptocurrency without revealing your identity, then a crypto mixer is the right choice. This article will explain everything you need to know about crypto mixers.
TL;DR
The crypto mixing process, sometimes called crypto tumbling, anonymizes a user’s tokens. Cryptocurrencies are mixed in a pool as a way to make money. Typically, you get your money back with fewer commissions, and the origin of the tokens is obscured.
What Is A Cryptocurrency Mixer?
Crypto infrastructure and vulnerabilities, such as crypto mixers and tumblers, have become a concern for government agencies overseeing financial security as cryptocurrencies expand rapidly.
Using crypto mixers, people can blend cryptocurrency funds with larger sums of other funds to keep their cryptocurrency transactions private. A KYC check is not required when using these services to anonymize transfers between services.
Thus, crypto mixers pose a significant risk of laundering money or concealing earnings. As mixers and online gambling sites process the vast majority of dirty currencies, they have the most severe money laundering problems. A quarter of Bitcoin (BTC) is processed by mixers yearly, while 66 to 72% of Bitcoin has been laundered by exchanges and gambling (66 to 72%).
Bitcoin mixers fall into two categories: centralized and decentralized. Using a centralized mixer, Bitcoin can be tumbled by receiving and returning different bitcoins in exchange for a fee.
Decentralized mixers such as CoinJoin obfuscates transactions via a fully coordinated or peer-to-peer model (P2P). In essence, the protocol allows many users to pool their Bitcoins, then redistribute them so that everyone receives one bitcoin. Despite this, no one can tell who received what or where it came from.
A zero-knowledge mixer and an obfuscation mixer are also types of coin mixers. Users’ transaction graphs can be concealed by obscuration-based mixers, also known as decoy-based mixers. It is possible, however, for an adversary of sufficient resources to recreate the transaction graph.
On the other hand, zero-knowledge mixers apply advanced cryptographic techniques to ensure that the transaction graph is entirely removed from the system. Despite its advantages, this strategy is primarily limited by the need for extensive cryptography.
The role of a mixer
In cryptocurrency, a mixer (or tumbler) mixes various streams of potentially identifiable cryptography. It also makes bitcoin more challenging to trace, which improves anonymity. Bitcoin mixing is a service that allows bitcoin owners to send money mixed with the money of other bitcoin users to a list of bitcoin addresses.
It means the original transaction is unconnected to the address used. If you choose the amounts randomly, you can spread the payment over a longer period so that each payment is small. Typically, mixing services charge between 0.25 and 3% of the mixed amount.
What are the types of crypto coin mixing or bitcoin tumbling service?
There are two types of cryptocurrency mixing services: custodial and noncustodial. A custodial mixer returns “clean” coins to users after a timeout after they submit their “tainted” currencies. In the process of mixing, users lose their money, which makes this technique insufficient.
Custodial mixers can therefore steal funds from the trusted mixing party. Often, noncustodial mixers use publicly verifiable and transparent smart contracts or secure multi-party computations to replace trusted mixing parties. Custodial mixing can be removed from the system in two steps.
Tokens or Ether (ETH) are first deposited from address A into the mixer contract. A withdrawal transaction to address B can be performed after a specified time interval. Then the deposited coins can be withdrawn.
Several cryptographic techniques are available for users to confirm their deposits without exposing their deposit transactions to mixer contracts. The ring signature and the zk-SNARK are two such techniques.
How do cryptocurrency mixers work?
Most cryptocurrency transactions take place on a public ledger called a blockchain, where each wallet address is tracked, and the movement of funds is visible to anyone. Cryptocurrency mixers combine source funds with other funds to create an amalgamated deposit that is difficult to trace, especially since individual transactions are difficult to track.
We’ll examine how this works with bitcoin. Alternatively, there is the option of using a centralized mixer, which receives bitcoins, stirs them with other bitcoins from other deposits, and then returns equivalent amounts. While crypto payments are obscured as their origin and destination, a record can be kept connecting them. Usually, transaction fees are charged for these services.
In contrast to centralized mixers, decentralized mixers use open-source protocols such as CoinJoin to complete a transaction. As a result, users can blend their coins into more significant transactions and receive the same amount of cryptocurrency at the end. This is because it is difficult to identify the origin of the funds.
Tornado Cash is a decentralized, open-source protocol for private transactions on the Ethereum platform. In Tornado Cash, ether or ERC-20 tokens can be deposited at one address and withdrawn at another via smart contracts. Upon depositing funds, the company advises users to wait a while to withdraw them to “improve privacy.”
Why Would Someone Use A Crypto Tumbler?
Crypto tumbler services are used for money laundering because of their ability to obscure cryptocurrency origins. It was reported that 96,000 Bitcoin were stolen from the Sheep Marketplace hack in 2013 and laundered through the crypto-tumbling service Bitcoin Fog.
Throughout its ten-year existence, Bitcoin Fog is thought to have contributed to the laundering of over 10 million bitcoins.
There is, of course, more than one reason why someone might use a crypto-tumbling service. Among the benefits of these services is that they hide crypto users’ identities, protecting their increased anonymity.
Is Bitcoin Mixers Illegal To Use?
If using coin mixing services is legal or illegal in your jurisdiction depends on where you live. Is it necessary to use Bitcoin mixers? What about tumbling crypto? Is crypto mixers legal? This depends on what your goals are when using these services.
Former U.S. Assistant Attorney General Brian Benczkowski said concealing crypto transactions through mixers is criminal. With Bitcoin, for instance, your identity is not always revealed, but you can audit your bitcoin transactions to determine if there has been any misconduct. Is mixing Bitcoin illegal?
The Financial Crimes Enforcement Network (FinCEN) classes bitcoin mixers as money transmitters. In this case, they must register with FinCEN and obtain a state-by-state license before operating.
A 2021 arrest was made for operating a Bitcoin mixing service on the dark web based on allegations of money laundering conspiracy. The company was an unregistered and unlicensed money-transmitting business and did not need to comply with FinCEN’s licensing requirements.
Notable Hacks Using Crypto Blenders
In January, Tornado Cash co-founder Roman Semenov told CoinDesk that privacy protocols “are defending people’s rights to financial privacy.” In addition, the U.S. has already flagged several popular blender tools for their association with cybercrime due to some of these mixers being linked to large-scale hacks and money laundering:
Blender.io:
A bitcoin mixer called Blender.io became the first to get sanctioned by OFAC. In March 2022, the Lazarus Group attacked the online game Axie Infinity using the service, causing about $620 million in damage. A total of $20.5 million in illicit funds was processed through Blender.io, according to OFAC.
Helix:
A darknet bitcoin mixer Helix was the first to be penalized by FinCEN for anti-money laundering violations in October 2020. A $60 million civil penalty was ordered against Larry Dean Harmon, the service’s founder.
He also pleaded guilty to one count of conspiracy to launder monetary instruments. According to reports, Helix processed 354,468 BTC between July 2014 and December 2017.
Bitcoin Fog:
Bitcoin Fog, a third bitcoin mixer, was identified by the Department of Justice as the “longest-running bitcoin money-laundering service on the darknet.”
In April 2021, Russian-Swedish citizen Roman Sterlingov was arrested on suspicion of laundering $336 million in bitcoins since 2011, when the service was launched.
Tornado Cash:
In June 2022, Harmony’s Horizon bridge attack and Nomad’s hack generated more than $96 million in malicious funds that Tornado Cash, an Ethereum mixer, laundered. The Singapore-based Crypto.com website was hacked in January, and PeckShield data indicates that 4,600 ETH were laundered during the scam.
Can You Trace A Bitcoin Mixer Or Cryptocurrency Tumbler?
Since all coins are pooled together and distributed randomly, keeping track of specific coins is difficult because of crypto mixing services.
A cryptocurrency tumbler lets retailers use various digital currencies to construct a custom blockchain and rewrite their crypto history. It is difficult for users to link specific currencies to specific exchanges since transactions are routed through a complicated semi-random network of other fictitious exchanges. A tumble service, therefore, does not allow coins to be tracked.
A Bitcoin tumbler and a Bitcoin mixer are two alternative methods of mucking up the blockchain traces of BTC transactions. Bitcoin tumblers and Bitcoin mixers accomplish the same thing, but Bitcoin tumblers serve people who don’t trust anyone, whereas Bitcoin mixers serve those who trust third parties.
BitMix uses a Bitcoin tumbler and mixer to provide anonymous bitcoin transactions thanks to Bitcoin’s inherent anonymity. Because all payments are routed through the app, tracking coins takes a lot of work.
Tracking the currency’s usage using public blockchain data combined with known addresses of threat actors is possible through several tools. The information is used to determine if currency swaps and mixers were used in money laundering transactions.
Privacy Considerations
Crypto mixers are useful tools for enhancing user privacy and anonymizing cryptocurrency transactions. This goal is to make your transaction history more private or prevent third parties from viewing your personal information.
Yet, some mixers have been used for money laundering by malicious parties for many years and may need to conform to FinCEN regulations. Some mixers may also set a minimum and maximum limit. The legitimacy of these frauds and their ability to hide financial transactions can also vary.
Cryptocurrencies with privacy-oriented characteristics, such as Monero, mask senders, receivers, and transaction amounts using stealth addresses. According to Elliptic, 13% of all bitcoin crime proceeds were sent through privacy wallets, roughly $160 million. The Wasabi Wallet, which creates a new bitcoin address whenever a transaction is made, can also facilitate private transactions.
