Could Cracking Crypto Mixers Harm Our Privacy?
Crypto mixers have recently come under fire from international law enforcement. They are designed to provide privacy and anonymity for people’s funds. But they ask a question: what should the limit of privacy be?
Crypto mixers have hit the headlines several times this year. Sinbad.io, apparently the mixer of choice for North Korean hackers, even had its own WIRED profile. So what are they?
A crypto mixer, or crypto tumbler, is an online service that increases the privacy and anonymity of cryptocurrency transactions. It works by mixing a user’s crypto assets with those of other users. Creating a pool of commingled funds before they are returned to their original owners. This makes it difficult to trace the funds back to their original source. This may involve splitting the funds into smaller amounts and sending them through multiple addresses to hide the transaction history.
The primary reason people use crypto mixers is to increase the privacy of their cryptocurrency transactions. However, some individuals may use them for illegal activities such as money laundering or purchasing illegal goods on the dark web. By using a crypto mixer, they can make it more difficult for law enforcement to track their activities.
Authorities seize $46 million in BTC
Due to their association with illegal activities, crypto mixers are often in trouble with law enforcement agencies. Last week’s teardown of ChipMixer is the latest example.
According to Europol, authorities in the US and Germany seized four servers, around 1,909 bitcoins (worth $46 million), and 7 TB of data connected to the platform, which has been operational since 2017. Ransomware actors such as Zeppelin, SunCrypt, Mamba, Dharma , and Lockbit had apparently used the service to launder funds.
ChipMixer is believed to have enabled the laundering of around 152,000 BTC ($3.8 billion) in crypto assets. The funds were linked to dark web markets, ransomware, illegal commodity trading, child exploitation material and stolen crypto. All serious crimes worthy of our attention.
But it raises an ethical question: what is the limit of crypto-based privacy? Many defenders of crypto mixers will argue that users of crypto are simply seeking the same privacy by default that cash offers. So in a sense they are simply regaining a level of privacy that was recently taken from them. (In the UK, physical cash makes up less than 3% of the total economy. A Pew Research survey recently found that 41% of Americans did not use cash for a typical week’s transactions.)
There are legitimate reasons to use them, too. For example, trying to hide your identity and funds from an oppressive government. Nor should you need a reason to want privacy.
Cryptomixers present an ethical dilemma
“There are a number of legitimate users who are forced to use crypto mixers right now because there is no other alternative solution for them to use to protect their financial privacy,” Elena Nadolinski, founder and CEO of Iron Fish, a team of focus on privacy. -1, BeInCrypto told.
“In the non-cryptic world of finance, you have a much greater degree of financial privacy. You can pay your friend, buy a coffee, accept a salary—all without the world knowing every other financial detail like what you buy, how much you earn, when you travel etc. Right now most crypto is completely transparent by design which leaks all your financial privacy and privacy. It is not only moral but essential to a healthy financial ecosystem to provide protection to users through privacy.”
Sakhib Waseem, Chief Technology Officer at Astra Protocol, a decentralized KYC platform for Web3, thinks targeting crypto mixers is a good idea. “Mixer concerns are nothing new. If we look back at the Tornado Cash issues, it is unilaterally agreed that in the eyes of law enforcement and regulators, these types of applications are actively sought out to hide criminal or illegal activity,” Waseem told BeInCrypto.
“There is consensus from regulators around the world that they should be banned, and also an understanding within the industry that it is counterproductive to the growth of crypto as a whole. Analytical platforms already highlight which wallets are linked to this, which allows us to build more traceability of suspicious transactions and is one of the many benefits of blockchain.”
An in-between?
Waseem believes cases like Sinbad.io highlight the need for a major overhaul of the compliance infrastructure. “By applying modernized regulatory infrastructure to crypto platforms, we can drive more institutional and deeper retail trust in this industry and minimize the risk of illicit finance operating through honest platform economies,” he continued. “It will allow us to insulate nascent users from the risk of illicit funding, turning liquidity into a toxic funding pool.”
Perhaps the most famous mixer of all time is Tornado Cash. The US Treasury Department charges that bad actors used it to launder $7 billion in digital currency. That sum includes half a billion linked to Lazarus, a hacking group sponsored by North Korea. Other crypto mixers, such as Privacy Pools, try to avoid the same pitfalls – and claim to offer privacy and regulatory compliance. Privacy Pool’s users will be able to indicate which depositors they do not wish to be associated with. According to the creators, this will limit the ability of criminals to use the mixer.
“In the non-crypto world, would you be okay with a system that exposes all your financial activity (including credit cards, bank accounts and fintech payments) to help law enforcement catch bad actors?” Nadolinski asked.
“By giving up all our privacy to help law enforcement stop criminals, we as a people take on the burden of catching criminals instead of law enforcement.”
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