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What is a crypto mixer?

What is a crypto mixer?

Whipping dough

Criminals have used mixers to launder millions of dollars in crypto. Find out how they do it.

Cryptocurrencies and the blockchain are gaining popularity for a lot of reasons. One of those reasons is transparency. Crypto users know that anyone, anywhere can see transactions on the blockchain. Every transaction is traceable and available to the public.

However, not every crypto user is happy with this feature. Some individuals prefer to hide the nature of their transactions from the prying eyes of the public for a myriad of reasons. These individuals go a long way to hide the record of their transactions on the blockchain with the help of a couple of tools. One of those tools is a crypto mixer.

What is a crypto mixer?

A crypto mixer is a tool that tries to make transactions on the blockchain anonymous by mixing it with other crypto funds in a private pool. It is also called a crypto tumbler. 

Transactions involving mixers do not require any form of identification or KYC process so the individual who uses the mixer can keep their identity hidden. This open nature has made mixers a favourite for crypto criminals especially hackers and money launderers. Mixers have been linked to processing huge amounts of dirty crypto. 

According to CoinTelegraph, mixers have processed 25% of all the illicit Bitcoin that moves around the blockchain. The transactions are only dwarfed by laundering via crypto exchanges and gambling platforms. 

How do mixers work?

Crypto mixers work just like regular fruit or food mixers, they receive the crypto and shake it together figuratively to form an even mix. That way, the transactions cannot be told apart. 

In detail, the mixer is a computer program hosted on a blockchain platform. When the mixer receives the crypto, it throws it into a private pool where there is already existing crypto and sends it out to another wallet. 

Think of it like playing a game at a party where everyone is asked to drop a $1 bill in the pool. Once done, you are asked to walk to the opposite end of the pool and pick the nearest $1 bill. You would still have your $1 but it would be a different note. That’s how a mixer works. 

People who use mixers tend to withdraw the money in smaller amounts. If they send $100 into the mixer, they might withdraw it as $10, $40, $50 at different times. This way it’s difficult to know when or whether the person who put in the $100 has withdrawn all his money and which smaller transactions are related to him.

For example, If a crypto transaction is being monitored by a block explorer, all it would show is that user A sent Ethereum to a mixer from a particular wallet, it tumbled it and sent crypto to another wallet entirely. That way there’s no proof that what was received was the same crypto that was sent. 

A block explorer is a platform that is used to monitor and view transactions in a particular blockchain. 

Types of crypto mixers

There are two types of crypto mixers;

Custodial mixers

Custodial mixers are third party platforms that manually handle crypto mixing. Users can send their crypto to the mixer, agree on a time period and submit a new address to receive the laundered coins. 

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Custodial mixers are usually avoided because you have to trust a central third party with your crypto and there is a large possibility that they can take the money and not give anything back. If they do that, there’s nothing you can do because crypto transactions are irreversible.

Non-custodial mixers

Non-custodial wallets are powered by computer code and smart contracts instead of humans. The code has already been written to perform a set of actions and reactions. Once crypto is sent to the mixer, it mixes it for a stipulated amount of time and holds. The owner of the crypto now proceeds to trigger a withdrawal transaction with a new wallet.

Non-custodial wallets remove the risk of a third party running away with the crypto. A popular non-custodial wallet that has been involved in recent crypto hacks is Tornado Cash.

Is crypto mixing illegal?

The legality of crypto mixing is based on location and jurisdiction. Some states in the US find it perfectly legal as long as the mixing platform is fully registered with the government while other states consider it criminal activity.

A man from Akron, Ohio who was operating a Bitcoin mixer called Helix pleaded guilty to laundering more than $300 million in 2021. Another man who owned and operated a Bitcoin mixer called Bitcoin Fog was also charged in April 2021 with laundering $335 million over more than 10 years.

The legality of crypto mixers is a grey area as there’s no doubt that they aid criminal activity. However, as normal crypto users seeking privacy in an open and anonymous blockchain world will keep it rising in popularity and usage.

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