Crypto Mixers such as the popular Tornado Cash have gained notoriety over the years as criminals used these software tools to launder millions of dollars worth of cryptocurrency. There were several such instances of misuse in the past. Last year, an Ohio native operating a Bitcoin mixer called Helix pleaded guilty to laundering more than $300 million.
Another man was charged in April of 2021 for washing $335 million over more than 10 years, used a BTC mixer called Bitcoin Fog. Coming to this year, a hacker stole more than $33 million from Crypto.com in January, then allegedly washed the currency through an Ethereum mixer. They still remain untraced.
But despite their bad reputation, they’re “not inherently illegal and can be used for legitimate privacy purposes,” Kim Grauer, director of research at blockchain analysis firm Chainalysis, told in an interview.
So, what are Mixers?
Mixers are tools that jumble up coins in private pools before sending them out to their intended recipients. The intention behind this is to remove any trace of digital signatures associated with a trade, rendering anonymity.
However, each mixer is built differently. Some, like Blender.io, are centralized, while others, like Tornado Cash, claim to be decentralized, or run purely by code. One of the most popular Tornado Cash operates by severing the transaction trail. It then breaks the on-chain link between the deposit and withdrawal to “improve transaction privacy,” according to its website.
Are These Crypto Mixers Illegal?
Chris DePow, a senior advisor of regulation and compliance at Elliptic, a blockchain analysis firm stated, “There is nothing necessarily illegal about users wanting their crypto transactions to remain private. In the real world, he points out that physical cash transactions can be done without anyone knowing.
Tornado Cash co-founder Roman Semenov told Bloomberg earlier this month that the protocol falls under the “anonymizing software providers” definition, excluding them from regulations in the U.S. that are required to follow “know your customer,” or KYC, rules.
“All we do is write code and publish it on GitHub,” Semenov added. “This is pretty close to the definition of free speech so writing code cannot be illegal.”
Whether regulators conform with that argument is a different story.