What Are Crypto Mixers? | Working of Crypto Mixers Explained
Privacy supporters consider Crypto mixers an essential piece of equipment for maintaining anonymity. Officials in the government refer to crypto mixers as instruments of money laundering. Crypto mixers have been responsible for transferring billions of dollars worth of cryptocurrency.
As a result of penalties announced by the Treasury Department against Tornado Cash, an Ethereum crypto mixing service, the service is practically inaccessible to users in the United States.
However, what exactly is it that Tornando Cash performs, and more generally speaking, why would anybody want to employ Crypto mixers?
In this piece, we will investigate the technology behind mixers and their appropriate and inappropriate uses.
Tornado Cash is a blockchain system that allows users to send and receive anonymous transactions. It was introduced in the year 2019.
Elliptic, a company that analyzes blockchain data, estimates that more than $7 billion worth of cryptocurrencies have passed via Tornado Cash ever since it was launched, with approximately 20% of that money being associated with illegal behavior.
What exactly is a Crypto mixer? Why would someone want to use a Crypto Mixer?
A service known as a Crypto mixer enables users to conceal the starting point and ending point of financial transactions. Users first transfer bitcoin to the service, where it is “mixed” with other cryptocurrencies or tokens, and then the same amount of the “mixed” coins are sent to a recipient address. This helps conceal the sender’s identity while maintaining privacy for the receiver.
This kind of service can be put to a variety of respectable and useful uses. You may not want your employer or anyone else, for that matter, to know every detail of every cryptocurrency transaction you’ve ever made, just as you may not want your employer to know the specifics of every bank or credit card transaction you’ve ever made.
In the same way, you may not want your employer to know the specifics of every crypto transaction you’ve ever made.
But as cryptocurrency and blockchain-based tools become more widespread, real-world identities are increasingly becoming linked to blockchain addresses.
Furthermore, every transaction, interaction, or transaction associated with those addresses is made public on a public, transparent, distributed ledger. Crypto mixers are a useful tool for this purpose.
Why Do Criminals Love Crypto Mixers?
On the other hand, because of this, Crypto mixers are appealing tools for cybercriminals, and as a result, they are a focus for law enforcement. Crypto mixers occupy a gray area between promoting money laundering and safeguarding the right to anonymity, despite politicians and law enforcement raging against using cryptocurrencies in illegal operations.
Some cryptocurrency users, because of the permissionless and transparent nature of blockchain technology, rely on the additional anonymity that Crypto mixers provide.
When a person’s activity, like journalism, civil disobedience, or protesting, can place that person in danger, privacy supporters claim that Crypto mixers are particularly beneficial and even crucial in such scenarios. As a result of this, they demand an increased level of discretion in their cryptocurrency transactions.
But on the other hand, the criminal justice system & government entities view Crypto mixers as a method by which criminals can conceal the origin of funds while laundering money via cryptocurrencies and services such as Tornado Cash.
The Treasury Department stated in its announcement of the sanctions against Tornado Cash that criminals had used Tornado Cash to launder money and that the service had filtered more than $7 billion worth of crypto money since its creation in 2019. This information was included in the announcement of the sanctions. Only $1.5 billion of the total was allegedly tied to illegal behavior, as stated by Elliptic.
The United States Department of the Treasury has stated that a total of $103.8 million was stolen in June and August of this year from two different cryptocurrency exchanges. The Horizon Harmony Bridge and the Nomad Token Bridge were both targeted by the Lazarus Group, a cybercriminal organization sponsored by the North Korean government.
How Exactly Does one use a Crypto Mixer such as Tornado Cash?
Before it was shut down, Tornado Cash made use of smart contracts so that it could accept deposits of tokens from one address and then enable withdrawals of those tokens from a second address. Other Crypto mixers work in a manner that is analogous to that described above.
The tokens deposited into this pool are randomly distributed throughout all of the smart contracts that make up this pool. When money is taken out of one of these pools, the on-chain link that connects the source address to the destination address is severed, which makes the transaction anonymous.
- To utilize Tornado Cash, a user must first link a wallet to the platform, select a network, and decide whether to make a deposit or a withdrawal. When it comes to making deposits, you could choose between ETH, DAI, cDAI, USDC, USDT, or WBTC as a token.
- Ethereum, Binance Smart Chain, Polygon, and Ethereum Goerli are some of the networks that can be utilized.
- When a user chooses to make a deposit, Tornado Cash will generate a private note for them, which they will require to retrieve their funds later.
- After it has been established that the user has made a backup of the note, the user may proceed with the deposit and send it to the Tornado Cash pool.
- When the user is ready to withdraw money from the Tornado Cash pool, they must submit the address of the beneficiary. The user will need to paste the private note that Tornado Cash generated. This note is the user’s private key and is required by the platform. The user will be able to confirm the withdrawal after proof has been generated following the user’s selection of the withdraw option.
- When verifying and approving transactions, Tornado Cash uses a protocol known as Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, or zk-SNARK for short.
Currency mixers of this type are often non-custodial, meaning that no third party exercises control over the user’s wallet or cash; instead, the Crypto mixer facilitates the formation of smart contracts.
Because these services do not make use of a middleman, they can be relied upon to remain impartial. On the other hand, this also means that they might be an enticing tool for hackers wanting to launder stolen cryptocurrency, as was the case with the Larazus Group.
What Are Some Other Acceptable Use of Crypto Mixers?
Let’s imagine there is a business person & blockchain lover named Mr. Robot who wishes to send ETH to a Hacker group that is based out of Ukraine. Let’s further state that Mr. Robot is located in Ukraine. Mr. Robot uses a Crypto mixer since he does not want his contribution to be associated with him in any way.
Mr. Robot navigates to the website of the currency mixer and deposits the Ethereum that he wishes to give away. The money sent is then deposited into the mixer’s smart contract and pooled with the other transactions already in the mixer’s pool, which could number in the hundreds, thousands, or even millions.
Mr. Robot navigates to the withdraw tab once he has received confirmation that the deposit was successful. He then inputs the recipient’s address into the mixer and sends the Ethereum from the mixer.
Following this, the Ethereum will be transferred from the mixer to the beneficiary. At the receiving end, the address displayed is not the address of the original sender but rather the address of the mixer. This makes the transaction anonymous.
This hypothetical scenario is based on Ethereum co-founder Vitalik Buterin’s tweet after the Treasury Department blacklisted Tornado Cash. If this hypothetical situation seems familiar, it’s because it’s based on that tweet.
“Let us be clear, hackers and cybercriminals, as well as those that assist them, are terrible and should be stopped,” stated Lia Holland, Campaigns and Communications Director at Fight for the Future. “But not in a way that sacrifices human rights and the first amendment.”
Frequently Asked Questions(FAQs)
Q.1. Are crypto mixers illegal?
Ans. Mixing helps maintain anonymity and can potentially be used for money laundering by combining funds that have been obtained unlawfully. Because mixing huge quantities of money could be considered a breach of anti-structuring rules, it is best to avoid doing so.
Q.2. Why would you want to use a crypto mixer?
Ans. The purpose of crypto mixers is to conceal the origin and destination of crypto assets by mixing your digital money with that of other users. This allows users to construct various combinations with innumerable transactions without anybody being able to tell whose money is whose. These services are offered in questionable online communities and in more mainstream parts of the internet.
Q.3. Can crypto mixers be traced?
Ans. Using forensics tools equipped with sophisticated tracking algorithms, investigators may be able to trace the movement of illegal funds beginning at a specific cryptocurrency address. Mixers and tumblers are known to inhibit progress and slow down the process. However, in the case of bitcoin tracking investigations, reaching a mixer is not necessarily the end of the road. The complex knot that tumblers produce can sometimes still be untangled, depending on the circumstances.
Q.4. What are some Examples of mixers?
Ans. Chipmixer, UltraMixer, Anonymix, Bitcoin Laundry, and Bitcoin Fog are a few examples of Bitcoin mixers.