Crypto Mixers & Tumblers: What Are They?
I remember reading a story on my favorite Crypto blog sometime last year, and that was the first time I came across the word Crypto mixer (also known as Bitcoin mixer).
I was wowed at the discovery of what crypto mixers are. I mean Crypto is like the wild west, and there are new things to discover in Crypto every day, especially Web3 at large.
I never knew people could mix various crypto transactions to hide the origin of where a crypto came from, and where it’s going. Look at me thinking that thanks to block explorers, we can always track transactions done on the blockchain.
Then on June 4th, Atomic Wallet gets attacked by hackers from the Lazarus Group, and up to $35M worth of crypto was stolen, and moved through a notorious crypto mixer known as Sinbad.io. This story I covered in DIFX Newsletter.
This is not just the first time crypto mixers, and tumblers are associated with fraudulent activities done on the blockchain.
In August 2022, The office of foreign assets control (OFAC) sanctioned Tornado Cash, a popular crypto mixer, due to suspicious transactions which involves stolen funds by hackers linked to North Korea on the Harmony and Ronin bridges.
Also, In August 2021, Helix a Bitcoin mixer known for illegal Crypto mixing activities was taken to court for money laundering conspiracy. After the operators of Helix pleaded guilty, they agreed to forfeit over 4,500 bitcoin valued at $210 million.
So the question here is, are crypto mixers worth using? Are they doing more good than harm in the crypto space?
In this article, I try to cover everything you need to know about Crypto mixers and tumblers, how they operate, and if it is okay to use their services.
What are Crypto Mixers and Tumblers?
Crypto mixers, also known as Crypto tumblers or Crypto blenders, are services within the Crypto space that hide the origin and destination of crypto transactions by mixing them at random with other legal transactions.
By doing this they make sure that transactions are anonymous and can’t be easily traced by any third party on the blockchain.
Crypto mixers or bitcoin mixers are divided into two: Centralized mixers, which use third-party services, and decentralized mixers, which rely on protocols like CoinJoin.
Both aim to protect privacy but can be connected to hacks and money laundering.
How do Crypto Mixers work?
Crypto mixers enhance the privacy of crypto transactions done on the blockchain by combining coins from multiple sources and sending them out to different addresses before sending them to the final address.
This breaks the connection between the source and destination of funds. Mixers utilize algorithms to create exclusive pools and facilitate the exchange of various cryptocurrencies.
By hiding sender and receiver information, they make tracking difficult for hackers or anyone looking for the source and destination address.
In other words, when you employ the service of a Crypto mixer or tumbler, after transferring your cryptocurrency to the mixing service, the Crypto mixer will combine your crypto with other crypto transactions.
Then, they will pass this through various randomly selected wallet addresses before sending the mixed crypto to your desired wallet address.
Types of Crypto Mixers
Centralized or Custodial Crypto Mixers
Centralized or custodial crypto mixers, such as blender.io and bitmix.biz, are operated by a single entity that holds users’ funds.
Users trust the mixer to return their blended funds and pay a fee ranging from 0.2% to 3.5% for the service.
Although making use of centralized mixers is easy and fast, they carry risks of theft, privacy breaches, and regulatory limitations.
Decentralized or Non-custodial Crypto mixers
Decentralized or non-custodial crypto mixers, like Tornado Cash and Wasabi Wallet, operate on a peer-to-peer basis without a central authority.
They utilize smart contracts, cryptographic protocols, or privacy wallets to facilitate mixing.
Crypto holders making use of decentralized mixers can retain control of their funds throughout the process and do not need to trust a third party.
Why are Crypto Mixers important?
Crypto mixers are considered important for few reasons:
Privacy
They help in preserving privacy by adding an extra layer of anonymity to cryptocurrency transactions, preventing others from easily tracing the sender and recipient of funds.
Anonymity
Mixers make it challenging for third parties to identify the individuals involved in a transaction, preserving the anonymity of users.
Security
By hiding the origin of transactions, mixers contribute to safeguarding against potential threats like hacks and scams, enhancing the overall security of cryptocurrency transactions.
Are crypto mixers legal?
Although Crypto mixers and tumblers have been linked to so many illegal activities like money laundering, etc, these services themselves are not inherently illegal.
However, it depends on who is making use of their services. When crypto mixers are employed for illegal activities like money laundering, theft, or facilitating illicit transactions, they become illegal.
Governments and regulatory bodies are implementing measures to prevent the misuse of mixers for illicit purposes.
For example, in the United States, crypto mixers are subject to regulations under the Bank Secrecy Act (BSA) enforced by the Financial Crimes Enforcement Network (FinCEN).
These regulations require mixers to register, adhere to anti-money laundering (AML) policies, and implement know-your-customer (KYC) procedures.
While crypto mixers can provide privacy and anonymity, they are largely used by cybercriminals and wallet hackers.
Therefore, the legality of crypto mixers varies by jurisdiction, and compliance with relevant laws and regulations is crucial.
Downsides of using crypto mixers & tumblers
Using the service of crypto mixers & tumblers carries quite a good number of risks and uncertainties, that you should be aware of. They are as follows:
Financial Loss
Technological issues or vulnerabilities in the mixer’s system can result in financial losses if funds are mishandled or lost during the mixing process.
Personal Identification
Some mixers may require you to provide personal information, which could potentially compromise your privacy and anonymity.
Scams
There is a risk of encountering fraudulent or unreliable mixers that may steal funds or operate with malicious intent.
Legal Risks
The legal status of crypto mixers varies across jurisdictions. Using mixers for illegal activities such as money laundering can result in legal consequences.
Reputational Risks
Due to their connection with illegal activities, the use of crypto mixers may carry a negative reputation. Engaging in mixer-related transactions could potentially damage one’s personal or professional reputation.
Best Crypto mixers to use as a crypto investor
Some of the best crypto mixers with a reputable image to use as a crypto investor are:
- ChipMixer
- Anonymix
- Mixer. money
- UniJoin
- Kilos Krumble
- Cryptomixer
- Sinbad.io
- Blender
Can I trace my crypto after it has been mixed by a crypto mixer?
Although cryptocurrency mixers enhance transaction privacy by blending funds, making them harder to track, it is still possible to trace funds back to their origin, especially if one user contributes significantly more.
This is because, advanced forensics tools assist in tracing illegal funds, but their effectiveness varies on how good the mixer is, the speed at which the crypto was mixed, and transaction details.
Some alternatives to Crypto mixers and tumblers
Privacy wallets, such as Samourai wallet, offer an alternative to crypto mixers and tumblers by facilitating untraceable Bitcoin exchanges through CoinJoin transactions.
They reduce the risks associated with mixing servers stealing funds or acting as honeypots.
Individuals & businesses can also consider privacy blockchains or decentralized platforms to store sensitive data off-chain while preserving its hash on-chain.
Another option is to utilize privacy-oriented cryptocurrencies like Monero, which utilize stealth addresses to conceal the sender’s information. Monero’s blockchain ensures transaction anonymity and fungibility.
Conclusion
Crypto mixers are essential for enhancing transaction privacy and anonymity by combining coins and obscuring their origins.
Although they contribute to the anonymity of crypto transactions, they are also under intense inspection and suspicion by various law enforcement agencies and financial regulatory bodies in various countries for their link to illegal activities like money laundering.
This is why you need to do your own research before choosing a crypto mixer that is high on a good reputation.
It is also important to exercise caution and explore alternative options like privacy wallets, privacy blockchains, decentralized platforms, or privacy-oriented cryptocurrencies like Monero.
