In November the California-based platform Swan Bitcoin warned users of indefinite blocking for using crypto mixers. The company said that Swan’s banking and custodial partners would no longer service clients who directly interact with bitcoin-mixing services such as Wasabi and Samourai.
Together with Mixer.Money we explain why trading platforms are imposing bans on crypto mixers and how to avoid blocks.
Why regulators ban crypto mixers
In 2020, the U.S. Department of Justice for the first time called cryptocurrency mixing a crime. Then FinCEN fined the founder of the Bitcoin mixer Helix, Larry Dean Harmon, $60 million. Notably, in the course of this case the court ruled that digital gold is money.
One year later, US authorities arrested the alleged operator of the Bitcoin Fog bitcoin mixer, Roman Sterlingov. He was charged with laundering more than 1.2 million BTC and providing payment services without a licence.
In 2022, the U.S. Treasury added the cryptocurrency mixer Blender.io to the sanctions list. According to the agency, the service helped launder funds stolen by the North Korean hacking group Lazarus Group. In the same year Tornado Cash was placed under US sanctions.
Finally, in October 2023 FinCEN proposed to designate cryptocurrency mixers as “money-laundering hubs” that threaten national security. According to the agency’s statement, “increasing transparency is a key component of depriving criminals of access to the American and global financial system”.
According to The Wall Street Journal, this form of sanction will require crypto services to report on any financial transactions.
ForkLog’s experts believe that the tougher rhetoric from US authorities towards crypto mixers could potentially lead to criminal charges against their developers, but is unlikely to solve the funding of terrorism.
Why using mixers is not a crime
Regulators argue that crypto mixers are used only for laundering money. However, according to data from Elliptic and Chainalysis, funding of illicit activity still relies more on traditional methods.
Bitcoin and other cryptocurrencies account for a small share in criminal schemes. In 2022, less than 1% of all transactions were linked to criminal addresses. As for mixers, in 2022 they processed assets worth $7.8 billion, of which only 24% originated from illicit addresses. The year before, the figure stood at 10% of $11.5 billion.
Criminals can indeed use crypto mixer services—just as they use other financial instruments. This should not cast a shadow over the primary use of mixer services — ensuring users’ transaction privacy.
According to representatives of Mixer.Money, it is fungibility that makes Bitcoin electronic cash:
“All bitcoins, like fiat cash, should have the same value regardless of their owner or history. And privacy is a necessary condition of such fungibility. If a certain UTXO of Bitcoin is seen passing through the hands of an unscrupulous person, company or service, others may devalue it or simply refuse to accept it.”
Without fungibility, Bitcoin cannot serve as a universal medium of exchange.
How to avoid blocks for using a mixer
There are two types of Bitcoin mixers: centralized ones like Mixer.Money and decentralized ones like Wasabi.
The first type takes the user’s coins and sends back funds not linked to the incoming transaction.
The latter use CoinJoin, a technology that mixes bitcoins from several participants, and then splits them into equal parts and returns them to recipients. This protocol is decentralised and secure, but leaves traces on the blockchain.
“CoinJoin and many centralized mixers can be easily identified with the help of on-chain analytics tools. Coins that have passed through them automatically receive a corresponding tag. The Swan Bitcoin case showed that now your account can be blocked simply for the fact of using a mixing service,” — say representatives of Mixer.Money.
To reduce the risk of blocks they recommend using services capable of concealing coin movement through transaction anonymising solutions:
“For example, in the ‘Full anonymity’ mode, Mixer.Money clients receive bitcoins from major exchanges. The coins enter a premixer, are split into random parts and sent to various trading platforms. Back you receive funds from other exchanges to two addresses.”
In that case there is no link to Mixer.Money: on-chain analytics see only the transaction of withdrawing bitcoins from an exchange to a wallet. Moreover, the participation of major trading venues reduces to zero the possibility of receiving one’s own bitcoins or coins of dubious origin.
Conclusion
Most crypto-service executives understand well the importance of privacy — one of Bitcoin’s defining features. But in practice they face increasingly stringent requirements to implement Know Your Customer (KYC) / Anti-Money Laundering (AML) procedures.
The fight against Bitcoin mixers that began in 2020 by US regulators signals that authorities want greater control over their citizens’ transactions. At the same time, the right to financial privacy is being ignored, and the crypto industry often becomes the scapegoat in discussions of counter-terrorism and economic crime measures.