1. Coin Mixers have been drawing attention over the legitimacy of their service of obscuring the trail that leads back to the original source of a crypto transaction. Although their service aims to enhance transactional privacy by mixing coins originating from various cryptocurrency transactions. The crypto money involved potentially includes tainted coins or coins stolen by hackers.

Real-World Example of a Coin Mixer’s Involvement in a Criminal Activity

Only recently, personal wallets of Jeffrey Zirlin, co-founder of Sky Mavis, creator of the Axie Infinity game, were hacked by the notorious North Korea-based gang identified as the Lazarus Group. According to blockchain security company Peckshield, the hackers withdrew 3,248 Ether coins valued at $9.7 million from Zirlin’s digital wallets. The criminals subsequently transferred the hacked crypto monies to a crypto coin mixer known as Tornado Cash.

Comprehending How Coin Mixers Work?

A cryptocurrency coin mixer is also called a cryptocurrency tumbler, since the service it provides is to tumble the coins of customers into different digital wallets. Doing so obscures the trail that could lead back to the crypto coin’s original blockchain transaction.

Although the service aims to enhance the confidentiality feature of cryptocurrencies, the blockchain ledger is available and open to the public.

Since anyone can view and scrutinize every blockchain transaction including the addresses of the wallets used, the anonymity and privacy of the wallet owners is in a way slightly compromised.

The role of coin mixers or tumblers is to shield a blockchain user’s pseudonym and possibly the real identity of the person or entity behind those pseudonyms and their related digital currency transactions. However, there are blockchain analysis tools capable of linking and successfully tracing blockchain entries to the real-world identities of anonymous crypto wallet owners.

Users of coin mixer services move their crypto money using the service provider’s address. The latter will in turn use its address when tumbling and moving their customers’ coins to different wallets.

As can be expected, regulators frown upon this type of cryptocurrency service because they are also being used for money laundering activities.

Now the thing that heightens concerns over coin mixing or tumbling activities is that many mixers have been charged for their involvement in the perpetuation of money laundering activities. Helix and Bitcoin Fog, have in fact, been charged for moving more than $600 million worth of Ethereum to criminals linked to illicit money laundering activities.

Several States Have Laws that Ban Coin Mixing Services

At present, there is no federal law prohibiting the operations of coin mixers. Yet several states have already banned the use of such services, which makes it necessary for coin exchange firms in those states to reject blockchain transactions initiated by coin mixers or tumblers.