The crypto industry has seen a significant percentage of hacks, attacks, and exploits. And crypto mixers are at the heart of such problems, and most attackers use cryptocurrency mixer services to eliminate crime.
But what these mixers are and how they work remains a source of curiosity among many.
What is a crypto mixer?
As the name implies, the crypto mixer basically mixes the cryptocurrencies in the pool so that the transaction trail is lost. Originally designed to keep investors’ transactions private, investors are obscuring the path to funding the fund. The mixer helps protect the privacy of the user, but it is also used for money laundering. Therefore, they are a source of concern for many government observers.
Currently, there are several different types of crypto mixers:
Centralized mixer: These mixers first receive cryptocurrencies and after a while send back another set of the same type for a fee. This is a relatively easy replacement.
Blender.io is a popular centralized mixer.
Distributed mixer: These mixers use peer-to-peer (P2P) or fully tuned protocols to hide transactions. The user pools the ciphers together and the tokens are redistributed to lose the transaction trail.
Wasabi and Join Market are popular distributed mixers.
Obfuscation-based mixer: These mixers are also known as decoy-based mixers. These use methods to hide the user’s transaction graph. However, you can recreate the transaction graph with sufficient resources.
Zero knowledge base mixer: These mixers use advanced encryption techniques such as zero-knowledge proof. However, it requires complex encryption, which can reduce scalability.
How does the mixer work?
Cryptographic mixers perform digital signatures of transactions through a “black box” that hides them. They are programs that combine a certain amount of cryptocurrencies in an exclusive pool before sending to a given recipient.
Cryptocurrencies are added to a significant pile of other cryptocurrencies and eventually send a small amount of coins to the selected address. However, the mixer retains 1% to 3% charge.
The goal is to make it impossible for Person A to determine that he has delivered (for example) 10 Bitcoins to Person B. This is done by shuffling the currency through the black box. Public Explorer only shows that User A provided 10 Bitcoin to the mixer along with many other users and User B got 10 Bitcoin from the mixer among many different receivers.
Is the crypto mixer illegal?
Cryptographic mixers have been used in many hacks and exploits. Another popular mixer, Tornado Cash, is frequently visited by hackers and attackers. Mixers have proven to be very convenient for such players to wash their hands.
Whether the mixer is legal or illegal depends on your jurisdiction.
The Financial Crimes Enforcement Network (FinCEN) classifies Bitcoin mixers as remittance companies. As a result, they need to register with FinCEN and apply for a state-by-state license.
According to former Assistant Assistant Attorney Brian Benczkowski, using a mixer to hide cryptocurrency transactions is a criminal offense.
But while talking to CoinDesk in January, retired Drug Enforcement Agency (DEA) agent Bill Callahan said.
“Is tornado cash laundering money? They certainly obscure it. But I pay attention to the term money laundering. Take a bag of cash and run away from the police, jump over the fence, Pretend to be trying to avoid capture … it’s not money laundering. If Tornado Cash knows who deposited the money and who took it out, it’s not money laundering. ”
In addition, in May, the US Treasury imposed sanctions on the Blender crypto mixer. They said the platform was involved in the hacking of the Axie Infinity-Ronin bridge and was used by North Korea.