Bitcoin mixers are busier than ever in 2022: chain analysis

by James · July 14, 2022

While privacy advocates for cryptocurrency mixers as an important way to protect the identities of individual users, a new report from blockchain intelligence firm Chainalysis says most of the crypto sent to mixers this year has been from cybercriminals and nation states.

“Illegal addresses make up 23% of the funds sent to mixers so far in 2022, up from 12% in 2021,” reports Chainalysis.

The company recognizes that there are many legitimate reasons to use mixers, such as trading in crypto under an oppressive government or anonymizing legal but sensitive transactions.

“But the mixers’ core functionality, combined with the fact that they rarely, if ever, ask for KYC [Know Your Customer] information, makes them naturally attractive to cybercriminals, “writes Chainalysis.

The tracking company also says that mixers have received more cryptocurrencies in 2022 than ever before.

Cryptocurrency mixers are services that allow users to delete the digital money track after most transactions on blockchain networks such as Bitcoin and Ethereum. These services make it more difficult to follow the track that will be public and easily accessible on the blockchain.

As the name implies, mixers – also known as tumblers – combine cryptocurrencies inserted by many users and mix them. Users then receive funds from the hidden pool corresponding to what they deposit, minus fees.

According to Chainalysis, mixers are classified as money senders in the United States under the Bank Secrecy Act (BSA). Money senders are required to register with FinCEN and implement a program against money laundering. Nevertheless, the company says that it is not aware that any mixers currently follow rules related to KYC or AML (Anti-Money Laundering) guidelines.

US authorities have charged, sanctioned and fined several mixer operators since 2021.

In August 2021, Larry Harmon, CEO of Bitcoin mixer Helix, pleaded guilty to money laundering allegations of alleged laundering of 354,468 Bitcoin, around $ 300 million at the time. Harmon, which also ran the mixed service Coin Ninja, was fined $ 60 million.

In April, the US Department of Justice announced that it had cooperated with German law enforcement to seize the servers of the Russian darknet site Hydra and sanctioned the site.

In May, the US Treasury Department for the control of foreign assets issued sanctions against a cryptocurrency exchange service, Bender.io, with links to North Korea, in what the Treasury Department calls a first of its kind. According to the agency, at least $ 21 million of the $ 622 million stolen in the Axie Infinity Ronin bridge hack was sent to Blender.

Last month, cybercriminals sent $ 36 million in stolen Ethereum from Harmony Protocols’ Horizon bridge to the Tornado Cash mixing service. That same month, Chainalysis launched a 24-hour event response program to help those targeted by hackers and ransomware.

Chainalysis says that the funds that go to mixers come primarily from centralized exchanges, DeFi protocols and addresses related to illegal activity related to sanctioned countries, darknet markets and hackers, such as the North Korean Lazarus Group.

But mixers may soon become obsolete – or so Chainalysis claims, as the company “continues to improve” its ability to demix certain transactions and see the original source of funds.