What is a Cryptocurrency Mixer? How It Work & Is It Legal?

What is a cryptocurrency mixer?

In cryptocurrencies such as bitcoin and ether, all transactions are publicly visible through the blockchain. As a result, all cashflows can be traced. We explain below how mixers or tumblers increase anonymity.

Mixed streams of cryptocurrency can be identified by a mixer (or tumbler). As a result, bitcoin transactions are more anonymous, since they are harder to trace. By transferring the bitcoin to the mixing service, the original transaction is not connected to the address to which the mixed currency will be transferred, as it will be mixed with that of other users. Randomly selecting the transaction amounts allows the transaction to be split up into a variety of small partial payments spread over time. There is usually a fee associated with the mixing service of 0.25 to 3%.

Users receive bitcoin during this process from other users. Therefore, they may receive ‘dirty’ bitcoin, which has, for example, been used for illegal activities and could be linked to them. It is also possible for criminals to use mixing services for laundering stolen money. It is therefore illegal for mixing to take place in some jurisdictions under anti-structuring laws.

Comparison of centralized vs decentralized mixers

Decentralized bitcoin mixers and centralized bitcoin mixers are both ways to mix bitcoin. The centralized bitcoin mixers actually exchange your bitcoin for other bitcoins for a fee. Bitcoin mixing can be done easily with these companies. Privacy remains a challenge with these, however. There will still be a record kept of who received which bitcoins and from where they came. There is a risk that such records may be made public or handed over to third parties.

Unlike centralized bitcoin mixers, decentralized bitcoin mixers obscure funds’ provenance through blockchain protocols like CoinJoin. An anonymous blockchain can be made more private with CoinJoin, which adds a layer of anonymity to it. By using the CoinJoin protocol, a group of users pools bitcoins together and then distributes them so that everyone gets the same amount. Nobody can tell who got what or where it came from after the process.

Is it illegal to use bitcoin mixers?

Because bitcoin transactions can be obfuscated, mixers are an obvious hotbed for money laundering, attracting tax dodgers and criminals trying to hide their profits. Based on where you live, you may be able to use these services legally. A month later, then-    Assistant Attorney General Brian Benczkowski wrote that using mixers for hiding crypto transactions was illegal.The U.S. authorities arrested Roman Sterlingov for helping people launder $335 million two months later, aka the Russian-Swedish founder of Bitcoin Fog.

According to Larry Harmon, the owner of Helix, a bitcoin mixer, helped darknet market criminals launder around $300 million in August 2021.

As a result of new anti-money laundering rules, including the Financial Action Task Force’s “travel rule” and the European Union’s AMLD-5 directive, it will be more difficult to launder money, and bitcoin tumblers may become less viable for those wanting to participate in the wider crypto economy.

What are alternative bitcoin mixers?

The flow of bitcoin transactions can also be hidden using a bitcoin mixer. Many exchanges are used by criminals to siphon funds after hacks, using accounts created with stolen or cheaply purchased identities. The chain-hopping method relies on the fact that it takes a long time for law enforcement to shut down accounts. Furthermore, if an exchange has already gone through know-your-customer (KYC) checks, it can be difficult for them to spot dodgy accounts in the first place.

According to privacy advocates, methods such as privacy coins are a powerful tool for preventing the government from snooping on your financial transactions. With Monero, one-time use “stealth” addresses are used with decoy transaction signatures to obscure funds flow. Former darknet market White House Market, known for its security, only accepted Monero, unlike Silk Road, one of the first dark web marketplaces to accept bitcoin.

Instead of sharing transaction information, Zcash offers optional private transactions based on zero-knowledge proofs. A little like CoinJoin, Dash offers private transaction options.

Visit also: What is crypto futures trading? (For beginners how it works)

Leave a Comment