A lot of folks in or around the crypto ecosystem have not heard about crypto mixers and even those who have, probably do not know what it is.
So what are Crypto Mixers?
Crypto Mixers is a tool that is used to make cryptocurrency transactions more anonymous and also enhance user privacy. This is useful for people who prefer an added layer of protection from third parties who may have access to their personal information and also for those persons who want to make their transaction history more private.
Crypto mixers were originally designed to protect user privacy, but the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has come out to say that many of those services are now “commonly used by illegal actors to launder funds.” The reality of the connection between crypto mixers and major several hacks has begun to cast doubts over its actual use case.
On the 8th of August, 2022, the treasury department sanctioned crypto mixer Tornado Cash which was founded in 2019, over its role in several money-laundering schemes that came to a total of $7 billion. The service is a virtual currency mixer which is also known as a crypto blender, it operates on the Ethereum blockchain, facilitating anonymous transactions by jumbling up data on the origin, parties, and destination involved in a crypto transaction.
Originally, most crypto transactions are recorded on the blockchain which serves as a public digital ledger that is visible to anyone and so the movement of funds from one wallet address to another can be monitored. The work of cryptocurrency mixers is to make it harder to track individual transactions by mixing the source funds with other funds which results in an amalgamated deposit that is much more difficult to trace.
Now, cryptocurrency mixers are not innately illegal although they are used for illegal activities. According to a report from Chainalysis in July, cryptocurrency mixers are the most used tools by cybercriminals who deal in cryptocurrencies.
The Financial Crimes Enforcement Network (FinCEN) in the U.S considers mixers to be money transmitters under the Bank Secrecy Act (BSA) which must be registered and also meet certain requirements. However, in its report, Chainalysis noted that is “not aware of any Ethereum or Bitcoin mixers who are currently following these rules.”
Notable hacks using crypto mixers.
In January, co-founder of Tornado Cash Roman Semenov mentioned in an interview with CoinDesk that privacy protocols “are defending people’s rights to financial privacy.” But a good number of these mixers have been linked to money laundering and large-scale hacks.
And several popular crypto mixers have already been flagged by the U.S. for their association with cybercrime:
1. Blender.io, a bitcoin mixer, the first ever sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for its role in the North Korean state-sponsored hackers Lazarus on the online game Axie Infinity in March 2022, which resulted in a loss of about $620 million.
2. Helix, a darknet bitcoin mixer, was the first bitcoin mixer that was penalized by FinCEN in October 2020 for violating anti-money-laundering laws. The service’s founder Larry Dean Harmon, pleaded guilty to one count of conspiracy to launder monetary instruments and was ordered to pay a $60 million civil penalty.
3. Bitcoin Fog, another bitcoin mixer, which was labeled as the “longest-running bitcoin money-laundering service on the darknet.” by the Department of Justice. Since its launch in 2011, the service is alleged to have laundered $336 million in bitcoin.
Featured image source: beincrypto.com
