Crypto mixers, a type of service which disguises cryptocurrency transactions and makes them hard to track, are currently at an all-time high in use. A recent report from Chainalysis has highlighted an increase in criminal activity and transactions from government-sanctioned entities as probable cause.
Cryptocurrency as a whole has a conflicting reputation for being both highly private and very transparent. While detached from the banking system and its KYC requirements, blockchains do immutably record all transactions with unique IDs on the network. This is usually seen as a great advantage of the technology and a reason why it is being adopted by the finance and logistics industries. But what if you wanted to break the traceable chain?
This is the role of mixers, sometimes called tumblers, to conceal the movement of cryptocurrency by breaking the link between the deposit and withdrawal stages. They do this by randomly mixing up all the deposited cryptocurrency into a pool from which the user when withdraws the deposited amount—but crucially, not the exact same tokens, which is what makes it harder to trace by anyone looking to track the transaction on the blockchain. Of course, the mixer service takes its cut. Sometimes, additional techniques, such as withdrawal to multiple wallets, are also part of the mixing service. For mixers to be completely effective, participants should contribute roughly equal amounts, or one large depositor will still end up with most of their original tokens.
Using a mixer is not by itself illegal and may be an asset for privacy-conscious users. But it is naturally attractive to criminals, money launderers, and state entities seeking to circumvent sanctions, such as North Korea and Russia, which are sanctioned by the US. The Chainalysis report claims that 25% of funds going through mixers are connected with criminal activity, with 2022 seeing more transactions via mixers than ever before.
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