Using crypto mixers is not explicitly illegal. However, after the ban of Tornado Cash and the arrest of its developer Alex Pertsev, concerns about regulators’ attitude to such services arose.
What Is a Crypto Mixer
A crypto mixer is a service that blends the funds sent by many users. It is used to make the funds’ senders and recipients difficult (if impossible) to track.
How Crypto Mixers Are Used
So, the main uses of crypto mixers are the following.
Financial Privacy
Financial privacy is important. It is of crucial importance for those who live under political or other kinds of oppression and cannot use the funds freely.
Money Laundering & Fraud
Crypto mixers are frequently used by cybercriminals to make the movements of stolen funds impossible to track. In this case, crypto mixers are used to make connections between crypto wallets involved in illegal activities obscure.
Statistical data shows that almost 10% of funds held by illegal entities were passed through one or another crypto mixer.
Source: Chainalysis
However, only 0.3% of crypto used in gray area activities such as gambling were mixed.
How Crypto Mixers Work
A mixer collects, pools, and shuffles cryptocurrencies that were deposited there by multiple users. Further, users can withdraw their funds to their new wallets. The connection between the money’s origin and the final wallet to which it is withdrawn becomes obscure.
A crypto mixer charges a small fee for its services.
The majority of mixers also enable users to program funds withdrawals in random amounts within random periods to a number of wallets to ensure the wallets and the funds’ origins are more difficult to track. Some of them enable users to set up a random fee and withdrawal address type to obfuscate the fact that a mixer was used.
Crypto Mixers Can Be of Different Types
There are several different types of crypto mixers. The main ones are the following.
Centralized Custodial Crypto Mixers
Such mixers, as you can guess from their name, take temporary ownership over the users’ funds. They are normally run by an operator. This is why users run a certain risk when they are using such types of services.
CoinJoin
This type of mixer is the one built into privacy wallets. Those are wallets that pitch themselves on boosted privacy.
These wallets combine the users’ coins with the coins of other users to make the funds’ tracking difficult.
These mixers are non-custodial.
Smart Contract Mixers
Smart contract mixers are non-custodial. They mix the funds sent by different users. A user can send funds to such a mixer, and instead, he receives a cryptographic note about depositing a specific sum. Then the user needs it, he can send to the mixer a request to withdraw this sum. The mixer sends the coins deposited by random users thus making the tracking of funds’ origin impossible.
Is the Use of Crypto Mixers Illegal?
The use of crypto mixers is not illegal but still, it raises concerns. In the USA, all crypto mixers shall be registered under the Bank Secrecy Act (BSA) according to the Financial Crimes Enforcement Network. Along with it, all such services shall:
- register with FinCEN
- maintain anti-money laundering and KYC policies
- meet all reporting requirements.
Considering that the main aim of crypto mixers is to provide anonymity, meeting all these requirements is very unlikely.
Conclusions
Even though the legal status of crypto mixers is not determined, using them means attracting the attention of regulators and authorities. Therefore, we expect that soon, some clearer rules will be determined that will regulate the use of these services.
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