Coin mixers are a key part of the blockchain world that has attracted admiration and scrutiny from governments and regulators. While they increase the privacy and anonymity of crypto transactions, these services have also become the tool of choice for criminals engaged in money laundering and other illicit activities. The US Financial Crimes Enforcement Network and other regulatory bodies frown upon such services that aid bad actors, and some exchanges even prohibit them.
Mixing increases the privacy of crypto transactions by disguising the original sender’s address. This can come in handy for users seeking a degree of financial autonomy, especially in jurisdictions with anti-money laundering (AML) regulations. However, it’s worth noting that some cryptocurrency mixers are centralized and therefore pose the risk of hacks and privacy breaches. In addition, centralized mixers often save both the input and output Bitcoin addresses for future reference; this could compromise user anonymity if those mixers share information for any reason.
For example, a user named Robert might transfer Ethereum to the mixer, which will then combine it with other deposits and send out the resulting mixture to recipients at multiple addresses. The recipient then receives their Ethereum from the mixer, which can be a new, anonymous address that cannot be traced back to the original sender.
Crypto mixers are typically noncustodial and run on smart contracts. This makes them more difficult for regulators to track and prosecute bad actors, but it also leaves users vulnerable if the service is compromised or shut down. For instance, if the mixer’s servers go down, the user could lose their funds. Moreover, many centralized mixers postpone the transaction between their servers and final destinations, which can make the mixing process less effective. Crypto Mixer