Mixing services are popular among users seeking to increase the privacy and anonymity of crypto transactions. This includes criminals, but also legitimate entities like companies that wish to conceal their activities from competitors and high-net worth users who want to avoid getting hacked.

However, it’s important to understand that mixers are not 100% secure. Most centralized mixers keep logs of user activity, IP addresses and blockchain transaction data.

What is a Mixer?

Mixers are a crucial tool for the crypto community, as they allow users to obfuscate their cryptocurrency transactions. This is beneficial for many reasons, including protecting personal privacy and avoiding detection by law enforcement agencies. However, it is important to understand the risks associated with using mixers before deciding whether they are right for you.

A bitcoin mixer is a service that mixes your coins with those of other users to make it harder for outside observers to track your origins. These services are offered by both centralized and decentralized providers. When using a bitcoin mixer, you will send your coins to the mixer’s wallet address and pay a fee to use their service. The mixer will then combine your funds with those of other users and redistribute them.

While mixers are used for a variety of purposes, they are often associated with money laundering and other illicit activities. This has led to a heightened level of scrutiny and sanctions against some mixers, such as Tornado Cash.

While this increased scrutiny has not stopped crypto enthusiasts from using mixers, it has made some regulators more skeptical of their benefits. For example, the US Treasury Department recently issued sanctions against Tornado Cash, which prohibits Americans from accessing its mixer services. This has sparked debate over whether mixing services are legitimate tools for enhancing privacy or are simply being misused by criminals.

How does a Mixer Work?

When someone sends cryptocurrency to a mixer, it is pooled with hundreds, thousands or even millions of other transactions. It is then sent to a new address without the original sender’s information attached. This de-links the transaction and makes it harder for authorities to track specific transfers.

Mixers increase the anonymity of crypto transactions and are often used by people who want to conceal their real-world identity. However, they can also be used by criminals to hide proceeds from illicit activities. This is why the US Treasury Department has threatened sanctions against Tornado Cash, a popular bitcoin mixer.

Tornado Cash helps criminals cash out of cryptocurrencies by disassociating their money from its source. Previously, it was easy for law enforcement to trace criminal activity back to the initial cryptocurrency deposit. But with the recent surge in popularity of bitcoin mixers, Tornado Cash has become a valuable tool for crime syndicates to cash out of their illegal funds.

Mixers can be centralized or decentralized services, and the underlying technology differs from protocol to protocol. Typically, mixers use a smart contract to mix cryptocurrency deposits with the coins of other users before sending them out. This method is based on zero-knowledge proofs, which ensure that depositors can withdraw their money without revealing the specific mixer that they used. This increases the level of anonymity that users can enjoy, but it can still be tracked by dishonest mixers or service providers who keep records of their clients.

Who Benefits from a Mixer?

Crypto mixers help people stay private as they make transactions on the blockchain. This can be beneficial for users who want to keep their financial privacy, or for those trying to avoid restrictions put in place by governments and other institutions.

But criminals also use tumbler services to hide their activities, as they can be used to launder money from illicit activities and evade detection by regulators. This is why many governments restrict or ban the use of these services.

Mixers can be used to launder cryptocurrency that is linked to a crime, such as funds stolen from an exchange or from ransomware attacks. They can also be used to clean coins transferred from darknet markets, which are often subject to less rigorous Know Your Customer and anti-money laundering rules than major crypto exchanges.

The use of crypto mixers has been on the rise since 2020, and although it has slowed down this year, the numbers are still high. This is largely due to an increase in the volume of tainted cryptocurrency sent to these services from centralized exchanges, DeFi protocols, and, most importantly, addresses associated with illicit activity. According to Chainanalysis, these addresses have accounted for 23% of the total amount sent to mixers this year. This is an all-time high and it shows that criminals are increasingly using these services to mask their illicit activities.

What are the Risks of Using a Mixer?

The biggest risk of using a mixer is that if you deposit coins on a centralized mixing service, the site can link your deposits to your identity and expose you. This can be mitigated somewhat by using decentralized mixers which are programmed to be more difficult to link to users.

Crypto mixers are also often used by criminals who want to hide their illegal transactions. For example, ransomware attackers often send payments through mixers to obfuscate the origin of their funds. Additionally, if you’re using a mixer that does not offer zero-knowledge proof, your deposits can be linked to your identity by other services such as blockchain analysis tools.

While the use of mixers has been largely endorsed by the cypherpunk movement which advocates for privacy, there is a major philosophical divide between the movement and regulators regarding whether financial privacy is really a right. Many people who live in oppressive regimes where their freedom of expression is restricted use mixers to obfuscate their activity on the blockchain.

However, even legitimate uses of mixers can be abused by cybercriminals and vendors on darknet markets who are trying to erase their connection to illicit transfers. As a result, regulators have taken a tough stance on the industry and have implemented sanctions against high-profile mixer providers like Helix and Bitcoin Fog.