An article in Bloomberg caught our eye recently. A developer for the Tornado crypto mixing protocol was arrested in Amsterdam. The protocol, whose crypto token is Torn, was recently banned in the USA due to it being used by North Koreans who hacked Axie Infinity and others who have committed cyber crimes according to the US Department of the Treasury. Who uses crypto transaction mixing? Is this process all about hiding illegal activities or is it simply about wanting one’s crypto transactions to be private? What are the risks?
Crypto Developer Accused of Aiding Money Laundering
The crypto developer in question is suspected to have aided in hiding criminal financial transactions and helping launder money. Dutch authorities noted that more arrests may occur. Their Financial Advanced Cyber Team are the ones who tracked crypto flows back to North Korean hackers and other criminal enterprises. The Torn cryptocurrency has suffered significant losses due to US Treasury Department actions.
How Does a Crypto Mixer Work?
The purpose of a coin mixing service is to hide where coins came from and where they are going. Someone who wants to use a crypto mixer will send their Bitcoin or other cryptocurrency to the service where through buying and selling the tokens are mixed with a variety of other tokens. The new “mix” of tokens is then sent back to the person who was seeking anonymity for their crypto transactions.
Why Use a Crypto Mixing Service?
One of the reasons that people like cryptocurrencies is that they can bypass traditional financial institutions. Thus the user gets a bit of privacy for their financial transactions. However, the blockchain is not private and anyone with the resources and patience can track the flow of tokens. This does not necessarily mean someone knows your name and physical address but they can track you on the internet. Thus, people who want the last full measure of privacy often pay for a mixing service to make it one step harder for anyone to know about their cryptocurrency transactions and wealth. As far as the authorities are concerned, this is not a problem unless you hacked a blockchain DeFi site and are using the mixing service to hide your ill-gotten gains. Furthermore, it is of concern to authorities when “developers” of mixing services help in this process.
Can Cryptocurrencies Be Traced Through a Crypto Mixer?
There are cyber forensic tools with advanced algorithms which investigators use to follow illicit funds into and out of mixing operations. While crypto mixers or tumblers slow down the process of tracing crypto flows, they do not make it impossible for someone with the ability and patience to follow the crypto trail. Another issue for those who choose to use a crypto mixer to hide their transactions is that it can be quite expensive if a large number of tokens is involved as new customers for the service are needed for the required number of transactions.
Ripped Off By a Crypto Mixing Service
A real concern for someone with illegally gotten cryptocurrency is that they can be robbed by the mixing service and have no one to complain to. And, when a mixing service like Helix or Bitcoin Fog is caught, their servers, lists of customers, and details of transactions are now in the hands of the authorities. For a customer with legitimately gotten crypto assets these are not issues but there is still difficulty in mixing and hiding the trail of your Bitcoin or other cryptocurrencies when you are trying to mix substantial quantities.
Who Uses Crypto Transaction Mixing? – SlideShare Version
Who Uses Crypto Transaction Mixing? – DOC