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What is cryptocurrency mixer?
The rapid growth of the cryptocurrency market and vulnerabilities such as crypto mixers or tumblers have become a concern for government agencies in charge of financial security.
Many people use crypto mixers to secure the privacy of transactions by mixing identifiable cryptocurrency funds with a large number of other funds. It is often used to anonymously transfer money between services and does not require a Customer Insights (KYC) check.
Therefore, the use of crypto mixers to launder money or hide income is quite common. Mixers and online gaming sites often have the most serious money laundering problem. For example, mixers have consistently processed about a quarter of all illegal Bitcoin (BTC) each year, while the rate laundered through exchanges and gambling remains relatively stable (66 to 72%).
Mixer classification
There are two types of Bitcoin mixers: centralized and decentralized mixers. Companies that receive Bitcoin and resubmit different BTC for a fee known as centralized mixers, provide a simple solution to reduce Bitcoin.
Decentralized mixers use protocols like coins to disrupt transactions using a coordinated or Peer-to-Peer (P2P) method. Basically, the protocol allows a group of users to synthesize an amount of BTC and then redistribute it so that everyone gets one Bitcoin. However, no one can know who received what or where it originated.
Other coin mixers include shuffle-based and zero-knowledge-based mixers. Shuffle-based mixers, often referred to as decoy-based mixers, use ways to hide a user’s transaction graph. On the other hand, a competitor with sufficient resources can recreate a trading chart in a variety of ways.
In contrast, zero-knowledge-based mixers rely heavily on advanced cryptographic techniques such as zero-knowledge proofs to completely erase the transaction graph. The most significant downside of this strategy is that it requires extended cryptography, which can limit scalability.
What are the types of crypto coin mixing services?
Crypto coin mixing services are divided into two categories, custodial and noncustodial coin mixers.
Custodial mixing occurs when users send their “tainted” coins to a trusted third party, returning the “clean” coins after a waiting period. However, this technique is not enough because users lose ownership of their money during the mixing process. Therefore, a trusted mixing party can steal money in the event of a custodial mixing party.
The use of transparent and publicly verifiable smart contracts or multi-party safety calculations to replace reliable mixing parties is a regular factor in noncustodial mixers.
This process consists of two steps. First, the user sends the same amount of Ether (ETH) or other tokens into a mixer contract from address A. After a specified period of time, the user can withdraw the deposited amount through the withdrawal transaction to a B address.
Users can confirm that they have deposited money with the mixer contract without exposing the issued deposit transaction using one of a number of accessible cryptographic techniques such as ring signatures and zk-SNARK in the withdrawal transaction.
How cryptocurrency mixers work
The concept of crypto tumblers or mixers is to run the technical signatures of a transaction through a “black box” that hides them.
Crypto mixers are programs that mix a certain number of cryptocurrencies in separate groups before transferring to the designated recipient. For example, a Bitcoin explorer, who tracks all BTC transactions, will show that person A has transferred Bitcoin to a mixer and that person B has received BTC from the mixer. In this way, no one knows who btc has been sent and sent to whom. Therefore, dirty Bitcoin is washed during crypto mixing.
Coin mixers work by taking cryptocurrencies and mixing with a large number of other cryptocurrencies before returning smaller units of cryptocurrency to a designated address, with the total amount entered minus 1-3%. That’s the difference in profits companies make.
Coin mixing is similar to money laundering in that it is illegal. However, the fact that a person participates in coin mixing simply to increase the privacy of cryptocurrency transactions, there are no grounds to convict them.
Is coin mixing illegal?
Determining whether the mixing coin is illegal or not depends on the jurisdiction in which you reside. As such, are Bitcoin mixers and tumbling crypto clutter legal? It depends on the objectives of the user of this service.
According to former U.S. Assistant Attorney General Brian Benczkowski, using mixers to disguise cryptocurrency transactions is criminal behavior. For example, bitcoin’s main function is security rather than anonymity, which means that your identity is not always disclosed, but your transactions can be checked to investigate any wrongdoing. Is Bitcoin illegal ?
Bitcoin mixers are seen as money transmitters by the Financial Crimes Enforcement Network (FinCEN). Therefore, they must register with FinCEN and apply for a state-by-state license to operate. An Ohio citizen was arrested in 2021 on charges of conspiracy to launder money because he ran a Bitcoin service on the dark web. The service acts as an unregistered money transfer business and conducts money transfers without a license despite FinCEN’s mandatory licensing requirements.
Can you follow a cryptocurrency tumbler or Bitcoin mixers?
Crypto mixing services are difficult to track specific currencies because they are lumped together and distributed over random periods of time.
Cryptocurrency tumblers allow retailers to edit the history of cryptocurrencies by building a custom blockchain using a variety of digital currencies. They route transactions through a complex semi-randomized network of other fictitious exchanges, making it difficult for users to link currencies to specific exchanges. Therefore, coins cannot be found if transferred through a tumbling service.
Bitcoin tumblers and Bitcoin mixers are two alternative techniques for disturbing the blockchain of traces transferred by BTC. While in fact they all achieve the same goal, Bitcoin tumbler is for those who want to trust third parties, while Bitcoin mixers are for those who don’t trust anyone.
BitMix is a combination of the Bitcoin tumbler app and mixer that provides anonymous transactions by routing all payments through its own system, taking advantage of BTC’s inherent anonymity and making it more difficult to track these coins.
On the other hand, many tools track the usage of currencies by combining public blockchain data with known addresses of threat actors. This information is evaluated to identify money laundering transactions and the use of swapping transactions, currency disturbances.
