Crypto Mixers: What do they do?

Cryptocurrencies have become a popular method of payment and investment recently. With the increasing use of cryptocurrencies, the privacy and security concerns have also surged. While cryptocurrencies like Bitcoin provide a certain level of privacy, they are not entirely secure. Cryptocurrency transactions are stored on a public blockchain, which means anyone can track the sender and receiver’s addresses and the transaction amount. To address this problem, a crypto mixers have been introduced to offer crypto users a more secure and private way to transact. This article will explain the crypto mixers, how they work, and why they are essential for crypto users. We will also discuss some advantages of using crypto tumblers and how these tools can help strengthen financial privacy.

What is crypto-mixing?

Crypto mixing is sending your cryptocurrency to a third-party service that will tumble your coins with other users’ funds before returning them to you. The idea is to break the link between your transaction and your cryptocurrency wallet. Crypto mixers use complex algorithms to shuffle transactions and disperse them over multiple addresses, making it challenging to track them back to the original sender.

Using a crypto tumbler can increase your privacy and security. It is beneficial for sensitive transactions, such as large purchases or donations. For example, suppose you want to purchase something anonymously online or make a significant charitable donation without connecting it to your public address. In that case, you can use one of the highest-rated Bitcoin tumblers​ to anonymize the transaction.

Crypto Mixers are sometimes used in illegal activities, such as money laundering. However, using a tumbler does not always imply illicit activities, and it’s a tool that can be used for privacy reasons, too.

When using a crypto mixer, choosing a reputable, high-quality service that maintains excellent privacy protocols is essential. You can also choose between centralized and decentralized tumbling services. Centralized tumblers involve sending your cryptocurrencies to a third-party service, whereas decentralized tumblers use smart contracts to shuffle your funds. Centralized mixers are generally the preferred choice for those who prioritize privacy.

So why would someone use a crypto mixer in the first place instead of purchasing their digital coins privately? The answer is simple: Not all cryptocurrencies are equal. Sometimes, people can track and connect one particular electronic asset’s dots with their identity by analyzing transaction patterns. Therefore, using crypto mixers, the tumbling process breaks the link and association between the sender and receiver of a particular asset.

How crypto tumblers strengthen financial privacy

Crypto tumblers, also known as Bitcoin mixers, are tools that allow crypto users to anonymize their transactions by mixing their coins with those of others. A crypto tumbler shuffles cryptos from various sources and sends the new coins to the recipient’s wallet. It is nearly impossible to trace the source of the coins.

Crypto tumbler works by breaking down large transactions into smaller amounts and then transferring these amounts through different addresses in a randomized manner. The coins are mixed with those from other users, making associating them with the original transaction difficult. This process is repeated several times until the original coins are sufficiently mixed, with no traceable link left between the source and destination.

Using a crypto tumbler provides several advantages for crypto users, including privacy protection, security, and anonymity. By making it difficult for third parties to track transactions, this tool helps to protect against fraud and identity theft. Moreover, it also prevents people from tracking your financial history and wealth, which can help keep you safe from potential security threats.

Another significant advantage of using a crypto tumbler is its affordability. The transaction fees associated with using Bitcoin for this service are relatively low, which makes it cheaper than other privacy tools like VPNs and proxies. This affordability has contributed to the widespread adoption of crypto tumblers among crypto users worldwide.

Can use of crypto mixers be illegal?

In many countries, the use of crypto mixers is legal. However, some countries, like the United States and some European countries, have regulated mixers. For instance, in the USA, the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) have outlined the regulations regarding the use of mixers. US regulators classify mixers as money transmitters, meaning they must register with FinCEN, carry out customer verification, and comply with anti-money laundering regulations.

In some countries, the use of mixers is illegal. For example, in Algeria, Bangladesh, Bolivia, Nepal, and Pakistan, cryptocurrencies are banned. These countries have a strict policy against the use of cryptocurrencies, including the use of crypto mixers. Individuals caught buying or selling cryptocurrencies can face hefty fines and, in some cases, imprisonment.

Many debates around the legality of coin mixers revolve around their use in criminal activities. Crypto mixers have been used for illegal activities such as money laundering, terrorism financing, and buying illicit goods and services. Governments worldwide have taken strict measures to curb such activities. They track the use of crypto mixers and have developed regulations to prevent such actions.

Countries where crypto mixers are prohibited

China

China may have pioneered using paper money, but it has been one of the most vocal opponents of cryptocurrencies. In September 2017, China outlawed Initial Coin Offerings (ICO) and announced plans to shut down domestic cryptocurrency exchanges. This move caused widespread panic and a significant dip in the value of Bitcoin and other cryptocurrencies. Since then, China has been actively cracking down on any form of cryptocurrency trading.

Nigeria

Nigeria is Africa’s largest economy and home to a burgeoning crypto community. However, the country’s financial regulators have been critical of cryptocurrencies. In February 2021, the Central Bank of Nigeria directed all banks and financial institutions to close accounts involved in purchasing or selling cryptocurrencies. This move has made it challenging for Nigerians to trade in cryptocurrencies.

Bangladesh

Bangladesh is one of the poorest countries in the world, and its citizens have been eager to adopt cryptocurrencies as an alternative means of payment. However, the country’s government has come out against cryptocurrencies. In 2017, the Bangladesh Bank banned using Bitcoin and other cryptocurrencies. The government argued that their anonymity made them ideal for financing terror and other illegal activities.

How not to get affected by the regulation of crypto-mixers

In November, California-based Bitcoin platform Swan Bitcoin warned users of an indefinite lockout for using crypto-mixers. The company said Swan’s banking and custodial partners will no longer serve customers directly interacting with CoinJoin mixing services like Wasabi and Samourai.

Let’s explore why trading platforms impose bans on crypto mixers and how to avoid blocking your assets.

Why regulators ban cryptocurrency tumbling platforms

In 2020, the U.S. Department of Justice called cryptocurrency mixing a crime for the first time. Then FinCEN fined the founder of Bitcoin mixer Helix $60 million. It is remarkable that the court recognized digital gold as money within the framework of this case.

A year later, U.S. authorities arrested the alleged operator of the Bitcoin Fog service. He was accused of laundering over 1.2 million BTC and providing payment services without a license.

In 2022, the U.S. Treasury Department added cryptocurrency anonymization service Blender to the sanctions list. According to the agency, the service helped launder funds stolen by the North Korean hacker group Lazarus. In the same year, Tornado Cash service came under U.S. sanctions.

Finally, in October 2023, FinCEN proposed declaring cryptocurrency mixers as “money laundering centers” that threaten national security. According to the agency’s statement, “increased transparency is a key component to denying criminals access to the U.S. and global financial system.”

According to The Wall Street Journal, this sanction would require crypto services to report any financial transactions specifically.

However, privacy-focused lawyers and anonymity-enthusiasts believe that the U.S. authorities’ toughening rhetoric towards crypto mixers threatens their developers with criminal cases but is unlikely to solve the money laundering problem.

Why using crypto mixers is not a crime

According to regulators, cryptomixers are only used for money laundering. However, according to respected blockchain analytical companies, financing illegal activities still relies more on traditional methods.

Bitcoin and other cryptocurrencies have a small share in criminal schemes. In 2022, less than 1% of all transactions were linked to criminal addresses. As for mixers, they processed $7.8 billion worth of crypto assets in 2022, of which only 24% came from illegal addresses. A year earlier, the figure was 10% of $11.5 billion. The amount of illicit coins is decreasing due to the development of cryptocurrency-tracing tools.

The services of crypto-mixers can indeed be used by criminals – just like the rest of the financial instruments. This should not cast a shadow on the primary use case of mixer services – ensuring the privacy of users’ transactions.

How to avoid being blocked for using a mixer

There are two crypto-mixer service types: centralized ones like Anonymix, BitMix, and CryptoMixer, and decentralized ones like Wasabi, TumbleBit, and Samourai.

The centralized services accept a user’s coins and send them funds unrelated to the incoming transaction.

The decentralized tumbling platforms mostly rely on CoinJoin technology, which mixes BTC from multiple participants, divides them into equal shares, and returns them to the recipients. This protocol is decentralized and secure but leaves traces in the blockchain. The classic CoinJoin transaction is visible in the Bitcoin blockchain.

CoinJoin and many decentralized mixers are easy to identify using on-chain analytics tools. Coins that have been in them are automatically marked accordingly. The Swan Bitcoin case showed that today, your account can be blocked for the use of the tumbling service.

To reduce the risk of being blocked by the centralized exchange (CEX), experts recommend using trusted centralized services capable of hiding the passage of coins through solutions for anonymizing transactions.

In this case, any connection with the crypto mixing app is lost: on-chain analytics services can only see the transaction of Bitcoin withdrawal from the exchange to the wallet. In addition, the participation of large trading platforms reduces the possibility of receiving their own Bitcoins or coins of dubious origin to zero.

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