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For a long time now, authorities above all from the US have been closing mixers and other privacy services and tools operators (like Samourai) and arresting their founders and operators.

They may believe these crackdowns help against money laundering. But that is probably not the case.

Why closing mixers is useless

The reason is simple: If a criminal has some technical abilities, then he can hide his traces on blockchains in several ways without even having to use a privacy tool or mixer: He only has to do a lot of transactions mixing in different sources of funds, for example using CoinJoins and exchanges of coins on different blockchains.

One important method to help with that task are atomic swaps (https://bitcoin.stackexchange.com/questions/54120/can-someone-eli5-to-me-for-bitcoin-atomic-swaps), a trustless method to exchange funds coming from a blockchain for funds on another chain. Traditional atomic swaps still provide a link between the transactions on different blockchains. But a few years ago a new kind of atomic swap was developed which uses adaptor signatures (https://www.semanticscholar.org/reader/02133de9ee717850478870d919d7cdea616895d0) and is already used in Bitcoin-Monero swaps. This method makes the swap private.

This also gives a completely safe path for all criminals to hide their on-chain traces (I purposefully avoid the term "money laundering", see the last paragraph): simply do a couple of atomic swaps and transactions, using different blockchains, and it will be extremely difficult -- probably as difficult as to detect funds going through a centralized mixer -- to link these transactions together. This would even work without recurring to "privacy coins" like Monero.

Why a complete crackdown on privacy services would actually help criminals

In the current crypto services/tools landscape, where mixers are often still centrally or semi-centrally operated, law enforcing authorities have still some chance to stop criminals. For example, a centralized mixer has at least the opportunity to react to orders and petitions of authorities, victims of crime or whitehat hackers. Probably some mixers do cooperate if they still can intervene.

If criminals however went to completely decentralized methods like atomic swaps, nobody could stop them. Only the trade partners, but be honest, how many traders do chain analysis? So you go from a perhaps 20-50% chance to be able to stop criminal transactions due to cooperating mixers down to perhaps 0.01% of atomic swap users which can at least delay atomic swaps - atomic swaps can never be frozen!

It becomes even worse if we take into account the concept of the anonymity set. Currently, there are only few people using atomic swaps. So the anonymity set is relatively low: To achieve a high degree of anonymity, you need a large set of transactions (or "funds origins") to mix your funds with. But the current liquidity of these services provides few "funds origins".

But what will happen if there are no centralized or semi-centralized mixers available? Everybody who wants privacy will use atomic swaps, decentralized CoinJoins and other similar trustless/decentralized services.

Funds going through mixers have mostly been legitimate in many cases. Only in some occasions, where mixer operators probably cooperated with criminals, criminal funds made up a big portion or the majority.

So it's very likely that the anonymity set which can be achieved using atomic swaps will explode. And that will benefit criminals. There will be probably no way to stop them, at least inside the crypto-sphere.

A better approach

Authorities should accept that it is not possible to make it impossible to hide the traces of stolen/hacked/terrorist/sanction-evading funds inside the blockchain world. And the more they view privacy services as enemies, the more difficult it will become to stop criminals. Basically, cryptocurrency should be treated like cash.

Instead, authorities and lawmakers should focus first on the fiat "laundering" operations which emerge when the criminals have converted their funds to fiat, e.g. the creation of fake companies and other traditional methods. Because for "laundering" a criminal needs to end up with "clean" funds, it often doesn't help to have "crypto funds of unclear origin".

But also cooperation with privacy services could help to combat crime. For example, I can imagine a kind of "agreement", preferrently written into clear laws and regulations: A country allows non-KYC mixers, with the requirement that they react to orders and petitions from authorities, whitehat hackers (e.g. in the way the Security Alliance promotes it (https://securityalliance.org/)) and victims of crime, and block their addresses or freezes the funds until it's clear if they are related to a crime or not. It could also help that services could delay processing of funds, requiring more confirmations for a deposit, giving victims and authorities some more time to react.

Would criminals still use techniques like atomic swaps? Probably. But remember what I wrote about the anonymity set: People who use mixers for privacy and not to hide crimes, would be able to use centralized mixers and privacy tools without having to fear anything. So they would probably not massively switch to atomic swaps, and the atomic swap anonymity set would stay small.

There is also the important related topic of the negative consequences of the KYC requirement for all kinds of cryptocurrency services (https://bitcointalk.org/index.php?topic=5221497.new#new), resulting in data of hundreds of millions or perhaps even already billions of people often stored on relatively unsafe servers, being an interesting target for fraudsters due to the possibilities it provides for identity theft. The linked text from 1miau is really worth reading.

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In summary: Neither the crackdown on privacy services nor the widespread KYC obligations really help to combat crime.

It may be difficult for an average Bitcoiner to convince their country's authorities of these arguments. But there are possible strategies. Tell your friends about the harm of crackdowns and KYC requirements. Your friends probably are also voters, and the more people understand these things, the more attractive it becomes for politicians to hear. Support privacy on social media. And for those wanting to do a bit more: Participate in pro-privacy organizations like the Electronic Frontier Foundation (https://www.eff.org/) or the Pirate movement (https://pp-international.net/).

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Edit: I wrote a similar text in Spanish (https://bitcointalk.org/index.php?topic=5496224.new#new), and possible will also add a German translation.

Very interesting article. I have a question.
You say that atomic swaps with adaptor signatures are better than centralized BTC mixers. Then what's the point of using BTC mixers anymore?
All the criminals and crypto privacy maniacs should start using atomic swaps with adaptor signatures and coinjoin instead of centralized BTC mixers. Like you've said, having a bigger pool of atomic swap transactions will increase the level of anonymity.
There have always been rumors that the authorities are controlling some of the BTC mixers, I don't know if this is true or not.
I think that BTC mixers have become obsolete, since there are better alternatives, so it doesn't matter if they are going to be banned or not.

It's disappointing that the government actually will already know this and still continue their own pursuit just to prove that they're the ones with power which is actually dumb. To be frank I don't really know much about atomic swap and for some unknown reason i'm unable to access this site atomic swaps (https://bitcoin.stackexchange.com/questions/54120/can-someone-eli5-to-me-for-bitcoin-atomic-swaps) but at least one fact I know is that criminals/hackers will continue to find other ways to go on with their malicious plans, it's inevitable they are innovative.
Sometimes if only the government can see that the more they try the more things becomes worst I guess they would usually think back before doing somethings
 
Fiat currency is still the top of money laundering, I thought when trying to solve a problem one opt for the core but when it comes to bitcoin and privacy they rather just go against them. Data breach is like a common news now to get online in every sectors including health and even children's https://www.malwarebytes.com/blog/news/2024/03/data-brokers-admit-theyre-selling-information-on-precise-location-kids-and-reproductive-healthcare, also we can't always be sure what these brokers are using our data for, I wonder  how they plan on actually regulating this.

the government's crackdown on mixers is just a futile measure, because no matter how hard they crack down on these services, criminals will still have a way to convert the crypto proceeds from their crimes into fiat without any problems. but maybe that's the only action the government can take because it's within their authority and it would probably show the crypto community that they're capable of shutting down crypto services with their power, but i find it quite comical.

That's what the government is trying to ignore, they know this but they just don't want to go with the logical way which is letting the mixers operate normally meanwhile reinforcing their AML organizations, what would a banned mixer do when the AML group in your country is going to suck at doing their job or they're the corrupt kind, there's nothing done to eradicate those money laundering organization. Another thing that I believe why they do this kind of thing is they're focused on prevention and quantity of failed money laundering attempts instead of doing what needs to be done like removing tax exemptions and blocking out loopholes to stop the people that want to evade taxes, if they focus on quality which I hope happens eventually something more significant would happen.

BTC Mixers gives BTC<=>BTC

Atomic swaps need coins from two different chains so let's say BTC+x <=> x+BTC

The latter one is a little inconvenient compared to using centralized mixing services but if there is no mixers are in operation then people will look into the alternatives and this one is probably more difficult to trace since it involves coins from multiple chains and I believe that's the point of OP.

Not only the above mentioned thing by OP, which is already very well written, but one more thing is, when they close one mixer there is already a new one in the pipeline.
I mean what stops people from creating new sites and offer this service all over again and again and again.

It obviously is a profitable business and where money is to be made there are always people taking this opportunity. We all know the demand for mixers is still there and will most likely never go down. It will go up over time since crypto us become more and more popular, especially with scammers of course, but obviously also and much more in general.

Supply and demand, as usual. It's so easy to operate a site like this, what would stop people to create new ones once others have been shut down. I don't think they fear the FBI or other organisations that taking a stand against them.

It may not be the most effective however it still does something to the community.

First of all it demotivates the community from participating with such privacy projects or even just crypto in general. It might make them wary as they do not want to be perceived as a criminal. It also strengthens the idea of the general public that crypto is used solely for illegal activities.

Even if it does not completely erase all privacy projects, it decreases the methods used by those attempting to do illegal business using crypto.

It is easier and more convenient for users than Atomic swap that requires knowledge on hash and programming
Besides many were used to using mixers before adaptor signatures were introduced to Atomic swap. So it's not quite easy to leave a product that is working well for you and move to previously own product with certain flaws that has been improved.
Without the use of privacy coin or schnorr signature Atomic swapcan be easily tracked because the major coins it's centered on are public ledger Bitcoin and litecoin.
About Government banning Centralized mixer,  I think they trying to make a statement that no matter what they in charge.
Sure they can but only the smart ones and we all know they usually the ones moving the highest amount of funds.
I don't think Atomic swap allows crypto to Fiat or Fiat to crypto.
Is funny how the government are so fixated in transactions that are some how private but neglect the laundering under their nose
That can be found out easily with good accounting.
Frauds, Terrorism and money laundering has been existing and been funded before the advent of cryptocurrency under their nose and they neglecting the old and attacking a kid.
How mature.

It is the same people that are using fiat for money laundering that are still using mixers for money laundering, and this is why it will be very difficult for all the mixers to be banned because they are own by world class business men that can never get broke due to the way they get their funds.

This is a fight that they government will keep in fighting because they can never win because it is in the physical world that this illicit activities is done with fiat before it is used to buy bitcoin and vice versa. Those people that uses mixers for illicit activities are still some top governments officials friends or business partners, so let the government trace and get them through their actions in public and not putting all the blame on mixers due to their own weakness.

One solution I can suggest to the government based on the issue of money laundering which is promoting the crackdown on mixrs and privacy tools is that, they should start by first placing a ban on the learning and practice of coding, computer programmers should be banned, all website developers should be banned and pushed out from the society so that there won't be any case of money laundering seeing there aren't coders or developers creating privacy tools and writing programs that conceal these undetectable transactions.

Regulation won't do much obviously because new names of sites and tools that would help hide funds exist and more would be created without prior notice of the public or the government and the game would keep playing because the rich has money and can afford to hire their own programmers and coders to write programs that even the FBI software for detection of money laundering would be ineffective against.

As I mentioned previously, what they are doing now will push  towards decentralized solutions or using Monero. codes are already available, and what is missing is liquidity. This liquidity is available to those who want to mix funds, and instead of creating mixers, the number of nonkyc exchanges will increase, and with low fees of less than 5%, they will be able to mix their bitcoin.

I was expected things like wasabi coinjoin to continue as they might get cooperation with authorities.

Do you really think that the majority of governments want to lower the crime rate? Definitely no, they don't. It's all just a shitshow. Government itself is a criminal organization because absolutely each of them are very corrupted and mostly care to make themselves rich via different mechanisms.
They don't believe that these crackdowns will help against money laundering because the main money laundering entities are alive, for example JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank and the list goes on.

Gov don't understand what they are doing, they are trying to implement traditional tools to untraditional market

It helps to a certain point, I said this because doing nothing at all is even worse, with rules and law in thr world today crime still happens here and there, but think about a world with rules and law? It will be disastrous.

Most criminals don't even understand how to stay privacy 100% and we don't have to enlighten them, let them make mistakes so that they cab be caught, I want them gone because they are the reasons why crypto is been badmouthed by many.



You are talking as if you are encouraging crimes, all criminals should start using atomic swaps instead of centralized BTC mixers? Is that a good thing  to you? If I am a leader of a country I will definitely not want this to happen, many people like judging because they think of one side only, if you are in a sit where you need to keep your people safe you won't want privacy.

The existence of Bitcoin have already kept you away from the Banks and centralized authorities, For many Bitcoin is their private bank, this is why I don't see the reason why people are using mixers.

You can say that privacy is important, but how can you be sure that all in the name of privacy some people aren't preparing to attack other innocent people? Privacy here and there was how some people are digging holes into the ground in a community to find precious stones and everyone kept minding their business until a bomb went off and many people paid for it with their lives.

I don't think for myself alone, I have also put myself in others shoes to understand even more, it is selfishness to say that you want privacy for yourself and not care about those who will use this as an excuse to run fundings for weapons of mass destruction.

what if i told you governments are not cracking down on mixers due to a big 100% concentration on criminals

what if i told you its also:
a crackdown on unlicenced money services
a crackdown on money services that dont report highly suspicious transactions
a crackdown on services that dont follow regulations/rules

because if they let certain amount of money businesses operate unpunished without paying the licence and costs of following the rules.. other legit businesses will stop paying the bill and stop following the rules

notice how the main guy of the NY Bitlicence established the rules for NY businesses to legally operate in NY, then when the rules were set, he then jumped over to establish a consultation business charging businesses money to set themselves up within the rules

many regulators are no in it for the good will of its citizens. they simply want to set up barriers of entry of market competition of businesses and then charge those that can afford it to then operate in the rules. so when other businesses flout the rules they need to be stopped

yes there is an emphasis on mixing causes criminals to have a tool. but even with that there is a element of the MSB compliance side to it.

in short, if they cannot enforce the barrier of entry to their licence scheme.. the licence becomes meaningless

This is the solution we all want, unfortunately, many governments are too corrupt to investigate the banks incorporated in their own countries!

It is easier for them to crack down on you and me than on some of their largest businesses (the banks).


+1 (sorry, I have nothing more to add to this part)


I am also noticing a complete lack of interest in regulating data protection, specifically protection of identification documents, which are of the utmost secrecy. Do lawmakers think that showing your ID to an app is like showing it to a bartender?


It is of the utmost importance for those people who are actually living in the USA right now. Because they have the ability to vote out the politicians writing these laws (as many of them are too stubborn to change their opinion).

I totally agree. 100%

 This is not about preventing money laundering, that is just an excuse to attack Bitcoin. This is about control of the money.

And you know what is ironic? Fiat is 800X more often used for money laundering and scams^[1]


[1]. Fiat Money Outpaces Bitcoin 800:1 for Money Laundering: Report (https://www.ccn.com/fiat-money-outpaces-bitcoin-by-8001-for-nefarious-activities-report/)

It's a very long thread but a helpful one, and I highly agree with you. I believe you're absolutely right, the government's actions against mixers and privacy tools aren't going to stop criminals.

Most of the money laundering is done with fiat instead of Bitcoin, in fact if we study the statistics deeply then most of the crime which is related to money laundering is done by corrupt politicians.

In that sense, it's better to fix the current political system which's full of rugs and money launders than taking actions against privacy tools.

Criminals are more smarter at this, they cannot be restricted if it comes to doing what they were known best to do, we are not saying this to encourage them for more, but we have to understand the reason why fighting on mixers and privacy will create another hideout for the criminals to use, the fiat currency had not been sanitized already, we still a lot of criminal activities ongoing and yet they think the use of bitcoin which is decentralized is now what they can achieve to regulate, that is impossible, every bitcoiner is not a scam neither do we perform or engage in any illicit financial activities, all we seek is financial freedom and privacy.

As @findingnemo already wrote, atomic swaps are an exchange technology, not a mixing technology.
However, I think they could even be used on the Bitcoin blockchain alone to mix coins without having to go through an altcoin. I only still haven't seen a "platform" for that.

Basically, an atomic swap connects two sets of 2 transactions by a secret known only to the participants. It's an HTLC, very similar to those used in Lightning. So I technically don't see a problem to build a platform for BTC <-> BTC atomic swaps. However, the factor time may it make more convenient, above all for criminals, to go through some blockchain with lower block intervals, so they can make several transactions there and hide their traces even more.

Atomic swaps have two shortcomings regarding centralized mixers: 1) they can be canceled by one of the parties and 2) they take more time due to the timelocks involved (normally a few hours if Bitcoin is involved, in the case of altcoin-altcoin swaps 15-60 minutes depending on the block times).

So, in the current situation where atomic swaps have low liquidity, it would take a long time to mix especially large quantities of funds, because you must find an exchange partner, then hope that this partner does not cancel, and if he cancels, then do the whole process again. So for large amounts you would take several hours. But: Once you're through, you are almost undetectable (with the exception that your exchange partner heard something about illict origin of your funds, but that is very unlikely, and to be sure you can do one swap more).

Basically it's a virtuous cycle: once the liquidity grows on atomic swaps, more traders will be available, and that not only increases the anonymity set, but also the chance to mix funds fastly. But we're still not there.

It's also not sure if atomic swaps can be made as easy to use as a current centralized mixer. I guess it is technically possible, but current platforms aren't that easy to use.

In general I agree. I don't think that all governments of major countries are totally against Bitcoin, but in many ruling parties there are large anti-crypto movements, and of course these sectors try to convince the governments to use the excuse of crime to tighten regulation further.

Of course it's relatively easy to build a mixer, but if the crackdown deepens, it will become more difficult for them to 1) find a provider for the website, 2) find a domain, 3) advertise the service, 4) take all the legal risk to be online for a couple of months. Of course you could say that these are simply cost factors and they could take higher fees, but that will make decentralized methods with atomic swaps and CoinJoins becoming more attractive.

I don't think that swap platforms will be left without supervision either. The SEC has already initiated a lawsuit against Uniswap developers, they will ask for models to stop this kind of exchange
https://www.coindesk.com/consensus-magazine/2024/04/11/the-secs-suit-against-unswap-is-an-opening-attack-against-defi/

It's been clear for a long time that the fight against crime and money laundering is just an excuse for closing down mixers and similar services.

I don't get why they think they can stop it. When has the government managed to stop something that people stood behind? They banned alcohol and people continued to drink. They banned drugs, most teenagers admit to having used drugs at least once. They banned torrents, you can still download whatever you want within minutes from torrent sites like 1337x. China banned bitcoin, now China approved bitcoin ETF... It's all one big comedy. THey made a big deal out of banning Tornado Cash when nobody even used that thing. It was just a PR stunt for the government. They act like they give a shit about our welfare and safety, we act like we give a shit about their laws...

I do feel like it is more of a "there is nothing else we can do" move by the governments. First of all not all of these companies are based on USA or any other big nation, so you may want to make it illegal there, but they would just simply go to nations like Panama or whatever and get their legal status and still keep existing without any jail time at all.

Secondly, if governments let these companies be, let mixers do whatever they want, they are giving the criminals what they want. It is like saying "making drugs makes no sense, it just pushes people to buy it illegally" and yeah you are right on that but you have to work really hard to make sure that you could get at least some people away from it and that would make it possible for you to get as much money as you can out of it.

The whole essence of censorships and privacy evasion from the governments isn't about curbing any form of crime whatsoever... That's what they've been using to cover up their tracks and, act like they don't have any personal vendetta against Bitcoin itself.
You see, since every transaction isn't necessarily traceable, they're beginning to tire! The fear that people might HODL so much and that Bitcoin could enrich people in a way that they're richer than the government themselves, which already negates and thwarts their whole effort in fighting against inflation is reallll!!
Secondly, they're just bossy and greedy. Having a feeling that their obnoxious taxes should be extended into the crypto world is the lamest thing they'd ever think of.
This is just their usual sentiment old boy!

Uniswap has centralized components, including a premined token. This token is probably the reason why the SEC is going after them: the token was sold to investors and also a part is held by the founders, so it is not only an utility/governance token. I have analyzed that case a bit in this thread in the altcoin forum (https://bitcointalk.org/index.php?topic=5492617.msg63938362#msg63938362) (from the permalinked post on). The problem is that such a token of course is very likely passing the Howey Test.

Really decentralized atomic swaps don't need a centralized provider, not even a "market maker" platform like for example AtomicDEX/Komodo is. It does only need a P2P network of people running a software. Software in many countries is protected as literature or free speech and cannot be banned easily, and this is also why in the Tornado Cash case for example the authorities have clarified that they're not against "development" but against "services". At least, the level of "BigBrotherism" would have to be dramatically upscaled if some democratic country wanted to ban software, or using swaps.

I hope Bitcoiners are already strong enough to pressure politicians that this would never happen, and being 5-10% of the population it is likely that we already aren't ignored (for example, the European Parliament had wanted to pass a CEX ban for Bitcoin due to "ecologic" reasons, but pro-Bitcoin MPs avoided that). That's also why I think it's so important to educate your friends, your neighbors, your social media contacts, and your (at least local-level) politicians.

But if a non-KYC mixer/service ban is ineffective like I wrote, then there is no reason to ban that either, at least it's not really justified. Non-KYC mixers are normally easier to use for normal people, but criminals laundering millions don't need so much assistance as they can pay someone to arrange atomic swaps even if the software is hard to use. So a mixer ban only will target average people looking for privacy, not criminals.

My view of mixers is that it is a double-edged sword that has no good solution. I agree that banning or cracking down on mixers is a futile endeavour, but it doesn't mean that whatever the government is doing is wrong, nor is it right.

The day that your mixers cooperates with the government is a critical failure of what mixers is trying to do. Your mixers should provide a single function of mixing your coins, and removing the links between the previous coins and the current coins. If they have any say otherwise, lets say they want to freeze your coins because it seems to be from a dubious origin, then it becomes non-fungible and your privacy is impacted. Mixers, nor any party for that matter should never freezing their customer's funds and should only carry out its purpose only. Censorship and funds seizure goes against the ethos of Bitcoin. I personally would not want any mixers who is dealing with my funds to be able to freeze it for no good reason, nor have any form of cooperation with any authorities; it becomes a rabbit hole for, let's say if they cooperate to track down political dissents, sensitive individuals, capital control, etc. Even if the mixers doesn't want to cooperate, there is no choice because they are a registered entity within their jurisdiction.

Government cracks down on mixers because they shoot at anything that is tainted with illicit activities. From a government perspective, it is rightfully so; mixers are always off-shore and out of their jurisdiction. If they have an opportunity to do something, you bet that they will close it down. Having them closed doesn't mean that it is bad, it just exposes the fact that centralized mixers are not infallible and we should be moving off to alternatives which cannot be tracked nor influenced by authorities.

This is true, but on the other hand, atomic swaps break the link between transactions in different blockchains, but onchain bitcoins remain the same. If my Bitcoin address is put on the OFAC list, I can deposit to atomic swaps and exchange Bitcoin for LTC, but someone will receive my Bitcoin and when v CEX, It will be frozen, the other party will need a mixing service at some point so using criminals will using atomic swaps is a strategy to make the mixing more complex and difficult to track.

I think this is a legit point of view. However, in my opinion, there is a large area beween total non-cooperation up to total cooperation (e.g. let's think about a "KYC mixer") a mixer can do. And I would be comfortable with a mixer who cooperates in some ways as long as they don't compromise the users' privacy, if this would be a condition for the mixer to become legal in a country.

The fungibility problem is indeed a difficult one. I would accept a very short, temporary loss of fungibility of a certain set of coins if the services have clear rules to retain funds in some situations. I would for example accept the following rule in a mixer's ToS: if someone deposits the coins on the mixer, and there is a direct and clear link to funds which were recently (e.g. in the last 24 hours) stolen, without other funds mixed in, then coins can be retained. But a mixer freezing even coins of hacks commited months ago would not have my approval.

This is true but that is also something a centralized mixer couldn't change. If tainted coins enter a mixer, the mixer's owner will need to sell them to another user which will then end up with the tainted coins. For atomic swaps the problem is immediately visible, but for mixers exactly the same applies. I don't know exactly how mixers operate in such cases, but I guess that they will try to move the coins around for some time using different strategies like CoinJoins until the link to the tainted address becomes very blurred and then only sell the coins again. Users of atomic swaps can try a similar strategy. In general I think CoinJoins are also an important part of the "decentralized privacy" puzzle, atomic swaps alone are probably not enough.

Any form of cooperation or agreement should be construed as a total agreement. Mixers achieves the exact opposite of what the government wants; total surveillance, zero privacy, etc. It goes far more than just combating money laundering, China didn't want anything to do with Bitcoin because it results in huge capital outflows, etc. Governments always and will always put themselves first before your rights.

IMO, most people who are paranoid about privacy will never accept any mixer that cooperates, or otherwise allows governments to dictate their service. So long as the mixers are within any jurisdiction, US for example; there are covert and overt means for the authorities to get the data that they want. Bottom line is that if there is a mixer that is approved by the government, the large majority would think of it as a honeypot.

In that regard, it is not necessary for us to change the status quo at the moment. Mixers can still be used and most jurisdiction would never outlaw it.
Fungibility should not be compromised, IMO and coins probably wouldn't be moved that quickly regardless. The pre-conditions above makes it such that it is easy to circumvent to introduce plausible deniability no matter what. Mixers would probably be freezing more funds, and perhaps even liberally to toe the line with the law enforcement. Any money laundering that goes through them would be subjected to regulatory actions - Even bankers have to go to jail and banks are fined.

Any mixer that complies with law enforcement defeats the purpose as to why people use mixers. As long as a mixer cooperates with law enforcement, there is no way you can be certain that users' privacy isn't going to be compromised, and surely it going to grow from a small form of cooperation to a total one, so it is a no.
I do not agree, no one would want to deposit coins into a mixer that could treat their bitcoins as non fungible, no matter how clear the rules are and even if the loss of fungibility is only temporary. The bitcoin community have always stood against privacy services that treat BTC as non-fungible, i.e. Wasabi and zkSNACKs, they faced a lot of 'attack' from the BTC community the moment they started offering selective privacy and blacklisting certain utxo's from their CoinJoin.

Well, running a commercial mixer for example in Europe under MiCa would be a CASP service ("crypto-asset service provider"). And if Samourai was accused to be a "money transmitter" (not that I agree with this at all! But the accusation says so ...), then a centralized mixer would fall under this definition in the US too. And these services are regulated.

So the "status quo" (at least if we look at "legal" options for providers of mixing services, not necessarily for users) is not very satisfying. The problem is that if the trend doesn't change then it will be increasingly difficult to offer mixers legally in most countries.

This argument is a bit weird in my opinion. We have had several examples of mixers that seemed to run completely fine and seemed to protect their users' privacy (ChipMixer for example) but in the end, when they were shut down, it was revealed that their privacy policy was much less satisfying as advertised and that they stored a lot of users' data actually. And they were not exactly known to cooperate with authorities. So I think you can't deduce that a "minimally-cooperating" mixer like I described would also compromise the users' privacy. I personally would even trust a mixer more with clear rules (in the style I wrote) than one that promises that everything will be fine but could be a honeypot, selling data to chain analysis companies or hackers, or even be incompetently run (like probably in the Chipmixer case).

I think there is a big difference between the delaying or "freezing" of funds coming directly from a heist on one hand, which I would accept (as written in the last post), and privacy violations on the other hand, e.g. if the mixer records IP addresses and connections between the mixed funds. The latter is something I would not accept when using a mixer.

Of course if you distrust any state authority no matter what then "no cooperation" is the only thing you can accept, I totally agree with that. But for me there are neutral governments and evil governments.

Unfortunately, coming under regulations means KYC is necessary, for the current regulations. This is to ensure absolutely 0 illicit transactions are going through. There is no way whatsoever that any country will come up with a middle-ground because there would still be illicit transactions going through, and that is unacceptable for any authorities. Samourai was actually charged with money laundering, instead of being an unregistered money transmitter. As mentioned, the authorities would set a bar so high, that it would appear that they are valuing your privacy but is in effect having full knowledge and control of your privacy. None of us should trust them with their words, we should've learned the lesson by now.

I disagree with the point about the status quo. Having privacy means that you should be able to use basic tools to protect your own, you should be able to use Tor and ensure that there is no privacy leakage during the mixing process. What I imagine legal mixers to be like would be having your coins mixed, but the tracing of the transactions to be readily available to the authorities and their ability to halt and identify any users at will.

If there is ever a regulated mixer, I doubt the community would use it. The community is fine without having a government honeypot mixer.

---

To further expand on this point:
- From the government perspective, their argument for shutting down mixers are always because of money laundering or the evidence of money laundering. It is unlike exchanges where they are required to have a license to operate. In a similar vein, exchanges are granted the license because they can prove that their platform has the ability to track, freeze and report suspicious transactions because of the stringent KYC/AML policies. This is unlike the concept of mixers where users are supposed to be anonymous, and privacy should be guaranteed. Any subpoenas will take too long to serve and that logically mixers would find that most of them should be challenged before freezing coins, or handing over information -> See Protonmail for example. Hence, this would probably never happen and doesn't fit what the community would want to see in a mixer.

- An ideal solution that I can see for a mixer to exist and legalized is that the mixer should be able to conduct KYC/AML on their users, flag suspicious transactions to the authorities, and be ordered to turn over data at will. This essentially functions like a bank, but that is the final "goal" of the government to defeat and make money laundering harder. The argument within the thread mostly points to the ideal solution being that privacy conscious users should be knowledgeable enough to use decentralized mixers, which are sufficient to break the link and that centralized mixers being both legalized and trustable to be a far fetched dream.
Has it ever been established that ChipMixer stored logs? I don't recall them doing so, other than the fact that they retained the keys, which doesn't lead to the loss of privacy since it's quite obvious on-chain just that the connection is difficult to establish. All the more reason why I don't trust centralized mixers.
I don't think both should be acceptable, or we are setting the bar too low and giving up too much of our rights. Delaying or freezing the funds would be unfair for the users, Bitcoin is fungible and for the mixer to be the judge of whether your funds are clean or not is not acceptable at all. This would be akin to exchange arbitrarily freezing funds of their users. This is not something that I can get behind.

If mixers were to freeze or delay funds, then they would probably collect whatever data you have to prove either your innocence or if you're guilty. Either doesn't bode well for Bitcoin.
For the sake of discussion, I'm interested in knowing the neutral governments that supports their citizens to retain their own privacy. Generally, national security laws covers that part and doesn't need justification to obtain user data as long as it poses an inherent threat to the government.

Lol the banning of things/services by the government does not stop whatever it is they are trying to ban, they are just “illegalizing” it. Yes, they can not stop it but they hope that those who continue to do so will be punished and by that people will be discouraged to follow on their footsteps.

People are creative and I am sure they will find other methods to do this.

Totally agree with this, it's weird that authorities have been doing all of this thing ever since and a lot of studies have already proven that prevention of something is much better than outright intervention and prohibition. This is the same thing that's happening during the prohibition era in USA, they banned alcohol and then the people got craftier with how they will smuggle or make alcohol, same with drug smuggling, the more money that's involve, rest assured that people will innovate in terms of getting the most out of whatever that thing they're using/selling/buying to make money.

The same principle with prison, weapons are crafted based on what's available to them and you would be surprised to see what the inmates make but I digress, when the authorities completes the crackdown on this mixers and privacy tools, there's going to be that one developer that will create an innovation and revolutionize privacy tools in crypto space, once that happens, it will cascade into more and more people learning about that new tool and that new tool is going to be replicated, improved, and upgraded then it's another race with the authorities again, it's a never ending cycle of prohibition and innovation to avoid prohibition.

It falls down to the fact that better criminals will still find a way. The ones that just dumped stolen / illegally obtained coins into a mixer to 'clean' them will have to either get another way or just hope for the best.

Well funded criminal organizations will probably just set up some sort of phony anonymous exchange that they run. Get other peoples coins and send out theirs.

-Dave

I (as a guest) took a peek using Tor Browser at the more incompetent criminals on the public darknet boards - most of them don't even have a clue about bitcoin mixers. I doubt they could tell the difference between a legit mixer and a fake.

They are at least well-informed enough to use Monero though.


This is the more likely thing they would do. Put it on the clearnet so that everyone can access it, without giving away any information about who is running it.

These organizations have the ability to mix money and hide its source, even without using mixers, but hiding the source of millions of dollars is not an easy matter, and I do not think they will trust a single mixer that may sell them data.
Criminals always leave their traces, and after more than 5 years, using chain hopping to move between several blockchains, and using fake identities to create online accounts, the authorities were able to arrest them.


Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency (https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency)

The only harmed by the closing of the mixers are those who want to enjoy privacy, as their alternatives will be limited and more complicated than using the mixers.

Isn't Joinmarket.net one of the possible solutions?


They already pay a 5% fee to mixers for the service, I don't see what will stop them from directly selling Bitcoin minus such a percentage. They will surely have interested buyers.
I think it is a matter of time before some kind of offshore zone appears for this kind of services.

Aaand from reading this it doesn't even sound like they used mixers. They just deposited and withdrew the stolen money into/from various sites, and converted it into altcoins, and so forth.



It is only one solution now and so it can easily be banned or sanctioned, or de-platformed by Github.

More anonymity services are required, but they must be made by

1) non-US persons
2) people who use pseudonyms online and
3) don't already have mini-fame tied to them elsewhere.

If restricting their citizens privacy is evil, then i think i can argue that most, if not every government is evil. However, i respect your opinion in trying to come up with something that can work, and a situation were mixers and the government will partly cooperate and they would not have to be shut down, but i am certain that cooperation clearly defeats the purpose of using a mixer and many bitcoiners would not want to use such a service.

I'm aware that the type of "regulation" or "agreement" between mixers and authorities I proposed in the OP would mean a backward move in some jurisdictions like EU and US from requiring KYC from such services.

You could argue of course that the tendency always will go against privacy. But that's why I actually included the last part of my OP which talks about educating people and politicians and supporting organizations like EFF. I believe that even in the jurisdiction where already a hard KYC policy exists, a move back is possible if there are political changes. This will take some time, but perhaps at least we can stop them at the status quo. I've written elsewhere that there were actually successful fights of pro-privacy groups in several countries, including for example Germany where a project to store all phone connection data was stopped some years ago (this is for me an example of a "neutral" government). Perhaps in the EU there is still a way to stop AMLD6, even if the likelihood is quite low.

There are however other jurisdictions where some KYC-free crypto services are still possible (Switzerland, for example, or Argentina if the service's revenue is lower than a certain threshold). People should be encouraged to defend the status quo in these countries, or even roll back some recent laws (in Argentina's case, the KYC requirement for bigger services was introduced very recently to comply with the FATF travel rule).

Until this change reaches the point where FATF itself (and thus the majority of major countries) could be influenced to change their policies it will take some time, of course. Some will say it's impossible. However FATF is not a lawmaking body. The groundwork in every country to limit anti-privacy excesses is much more important.

Of course my "proposal" in the OP is immature. This is a forum post, not a scientific paper :) But perhaps some discussions in this forum can actually reach people active in pro-privacy/civic right organizations and even political parties, for example in the liberal/libertarian spectrum. Perhaps wishful thinking :) (above all in this subforum ...)

Just for completeness, not to disregard any of your points:
They actually were charged with three things: money laundering, sanctions evasion and money transmitter. Having read some material about both the Samourai and the Tornado Cash cases, I believe the both first accusations cannot be justified without the "money transmitter" accusation or, alternatively, evidence that they have cooperated with criminal groups. If what they said publicly is all they have, however, evidence is very thin.

There are several more linked in Coinjoins.org (https://coinjoins.org), for example joinstr.xyz (https://joinstr.xyz) (which is in beta however). (By the way, Github [Microsoft] is not necessary for software development, even if it's an extremely popular service. Git can even work in a P2P fashion).

Fiat is used more often because fiat is used for everything thousands of times more often than Bitcoin. And Bitcoin is not attractive for laundering because it's hard to establish a convincing story of how you got supposedly clean coins.

But you know what Bitcoin is good for? Paying ransoms. A very considerable share of ransomware payments is done in Bitcoin, because it solves the problem of fiat payments - they can't get frozen and have no KYC, so it's a very safe and convenient method for criminals.

Ransomware is actually a quite good argument in favour of my proposal of an "agreement" between mixers and law enforcement. If you are threatened to pay for ransomware, you can tell the authorities the transaction you made. Perhaps you can even tell a whitehat hacker group and these will contact mixers for you if the ransom attack involves a kind of extorsion you don't want law enforcement to know about.

If the criminal is trying to mix the ransom coins through a mixer which participates on this agreement, then these funds could be very easily frozen. If instead he does an atomic swap or CoinJoins the probability is high he can hide. The easier these tools become to use and the higher the anonymity degree is, the more criminals will choose these options instead of mixers.

Most bigger fishes will of course know about the mixers participating on such an agreement. But criminals are not perfect, they often are not overly competent, above all if they're script kiddies, so there are chances for some to be caught.

KYC policy exists for a good reason; to reduce the likelihood of money laundering going undetected and for them to stem it right when the transfer is taking place. It is absolutely necessary, because there is no way platforms would take the initiative to stop these transfers or perform their due diligence to prevent the transfers from taking place on the platform.

Generally, you need to have the data (ie. their real identity) to be able to link and investigate possible money laundering. There is no way around this in the area.
Swiss KYC is quite active, and even if there is no KYC for most services, anything that involves money transfers be it deposits or withdrawal will reveal some information about the customer. If you're talking about normal crypto, for eg. POS payments, services payments, then KYC is of course not necessary. It is prevalent where there is a chance for money laundering to take place.

Thanks. Money transmitter is not illegal, but being an unlicensed money transmitter would be. They lack the capabilities to conduct the appropriate due diligence, evidently and they can potentially aid money launderers in achieving what they want. In the eyes of the government, having the threat of doing so is a good enough reason to charge them with it.

Banks, and all of the financial institutions are also compliant to all of the laws and regulations as stated.

Now, just to further our discussion a little:
I'd like to pose this question as well. Let's say the community wants to see a legalized mixer, but the key benefits of a mixer is maintained (No KYC, no logs, no freezing of coins, and let's say minimal cooperation with the authorities (see protonmail). How would they operate considering all of the AML/KYC laws? I don't think a pushback from these measures are possible unless met with an alternative that is equally effective at stopping money laundering and terrorist financing.

When the government can't find the root of the problem, they do things like crackdowns where I think they're just trying to control users. As we recognize the case with the crypto market. When the market starts to be bullish, there are preparations to file various cases against organizations like the SEC and thus they control the market. As the number of users of Mixer increased, the authorities noticed that closing Mixer would end activities like money laundering, which is completely wrong. Those involved in money laundering will certainly want to recover their money in fiat if the authorities are able to do that properly, the volume of money laundering can be greatly reduced.

I always said this.  Cracking down on Mixers and Privacy solutions is in the advantage of CRIMINALS and the disadvantage of innocent people.

A criminal will NOT care if a Mixer is banned or not.  There will always be at least one such solution available over Tor.  You can find all sorts of weird stuff over there.  Does any body really think a crack down would stop them from creating a simple Mixing Service?

The real toll is taken by us who simply want Privacy and are innocent.  Every single time our Privacy is restricted, it is the only real thing happening.  Our Privacy is increasingly being limited, the leash is shorter every time and criminals only continue to do their thing.  But besides us Bitcoin Talk users, who will even listen?  Governments know this very well.  They know that criminals will not suffer from this.  They know it only affects our Privacy.  They just do not care because I am very confident this is precisely the reason they are cracking down over Mixers.

They tried so many things before.  Cracking down on Mining and trying to convince every body that Bitcoin is more environmentally friendly if it moved to Proof of Stake.  Cracking down on Miners for supposedly disturbing the energy distribution.  Introducing so many difficult regulations to induce fear of mistakenly reporting the wrong thing, not having enough evidence to fill a report or to make us give up using Cryptocurrency at all due to the burden it is to file your Taxes.  Know Your Customer every where so you feel supervised and controlled at all times.  They are doing this knowingly and willingly to us.

I really do believe there will be a time when we will have to move to a more Private place to discuss.  I believe there will be a time when 'The Deep Web' will become a much more comfortable place for us Privacy advocates to hang around than the Clear net.  And like I said before.  This crack down will do nothing to me if I am using Monero in conjunction with Bitcoin.  It will do nothing if Atomic Swaps exist.  By the time they will come after me for Mixing or Atomic Swapping Bitcoin that came from legitimate sources, I just know this world will be so fucked that jail will probably provide more Freedom than the outside world would anyway.

They are tightening the leash onto us and I used to be afraid of the future, but now I have to accept it.  Either we obey or we will have to find alternatives to escape their control.

I will forever be among those who find alternatives to escape.

First time I heard about Atomic Swaps actually, and I reckon since everyone's on a crackdown against mixers, this wouldn't be the last time.

I can see what you're talking about being a massive possibility in the future, especially since hackers and scammers wouldn't stop at mixers, and would most definitely find ways to cover their footprints no matter what. Although my question is, since every hacker we've had so far who stole hundreds of millions worth of crypto eventually ended their transactions on CEXs like binance, and these CEXs having crypto-tracking systems that would allow them to determine which coins are stolen and which are not, I wanna know how potent these Atomic Swaps are against these interventions primarily, cause if I'm not mistaken these are our only lines of defense against hackers getting their dirty paws upon stolen money.

Of course if these swaps are more than capable of obscuring transactions and IDs than Mixers we're fucked, but if it's just on par with mixers, shouldn't we just crack down on them as well? Not that I'm a mixer hater but it's just that I'm a little bit uninformed about shit like this.

^--- did you have to quote the entire OP? It is very long and makes reading obnoxious.

I'm sure people would just find a way to classify atomic swaps as anonymity-enhancing tools and outlaw them though. That's not to difficult to see.

Everyone you say, it is only the government that is attacking mixers and any other privacy solution.
Your only line of defense is to protect your coins, store it in cold storage and add extra layers of security. I don't fully grab what your point is from your post, but if your funds gets stolen, do not expect to get it back.
Take note that privacy is not for criminals or people involved in illicit activities, anyone who wants privacy deserves it, even if they have stolen nothing from anyone and have nothing to hide. What's your worry here? Protect your funds yourself and don't store it in centralized exchanges that can be hacked, why do you want a crackdown on privacy solutions?

That's a challenge I think the Bitcoin community should never give up. Bitcoin was not created to be only useful for a small cult of darkweb enthusiasts. Potentially, it was created as "the currency of the Internet".

My hope is essentially what I recently also wrote in a Monero thread: that a growing number from the already hundreds of millions of Bitcoin users could slowly trickle into the "world of decentralization and privacy". On a first glance, the current situation doesn't look like that: essentially, Bitcoin is about to conquer exactly the opposite group, traditional financial investors who "expose" themselves to the BTC price with ETFs, futures, options and other financial products. This demographic group will be difficult to convince. But the ETF news are also draining new "retail investors" into Bitcoin. Google Trends for example showed quite sizeable interest spikes (https://trends.google.com/trends/explore?q=bitcoin&hl=en) in March and April particularly. And these users are the ones which can slowly educate themselves, adopt the "not your keys not your coins" model, and eventually be convinced that censorship resistance is an important ideal to fight for.

And once they get more and more, they can become a sizeable political force. In Argentina, it is possible that Bitcoiners helped to decide the 2023 election in favour of a liberal/libertarian candidate.

I have already written that pro-privacy organizations like the EFF are important to continue the fight. One particular thing which worries me is that not all organizations of this group think positively about Bitcoin. I can only speculate about the reasons but the stereotype of the "get rich fast" Bitcoin cult member is quite common in some of them. I think there needs to be more work done to convince these folks that while this stereotype exists, it is much less dominant among Bitcoin users than they think. And that there are good reasons to support a censorship resistant digital money.

---

@ranochigo: I think there is a general point I simply disagree with you. ;) If I understand you well, you think from a state/government's perspective it will never make sense to allow non-KYC mixers, because a hard KYC requisite is the only way to be able to stop cybercrime. I believe that this is not true. First I would like to refer again to 1miau's text about the dangers of KYC. If the State really wants to protect us from crime, why does he provide a gift to criminals -- lots of personal data stored on thousands of servers -- and a big risk for most people because identity theft is a growing problem, unlike most other types of crime which are declining?

There is an important principle in law which is the principle of Proportionality (https://en.wikipedia.org/wiki/Proportionality_(law)). If a basic human right of a citizen is limited by a law, the limitation has to be justified. Privacy, which includes that nobody, not even the State, should see what I'm buying with my cryptocurrencies, can be seen as such a basic human right. If a mixer ban is ineffective because it could even result in better possibilities for criminals to launder their funds, then how can such a ban be justified?

The problem in my opinion is often that law enforcement authorities still don't understand the whole possibilities of crypto. I doubt lots of them have heard about atomic swaps, perhaps some more about CoinJoins, but too few. If they don't know that their measures are ineffective they will try to continue the traditional way - more restrictions, more KYC obligations. So it's necessary for crypto advocates to educate them that this is ineffective and they should concentrate on other methods. Like they do when investigating money laundering with cash. And of course my "minimal cooperation" proposal for mixers comes into play here. But this cooperation probably has to include the freezing of funds.

Correct, KYC doesn't stop money laundering or terrorist financing. However, KYC does make it harder by the logic of requiring the users to identify themselves to transmit funds. That by itself provides them with the ability to track and otherwise shutdown many crime syndicates and ensures that those who are regulated are accountable of their operations. If governments cares about your privacy, then the world would be pretty different today; Edward Snowden wouldn't have anything to share, there wouldn't be NSA, significant number of terrorist attacks wouldn't be twarted, etc. It is far easier to just impose a blanket ban than a soft KYC, which doesn't benefit the community either.

Identity theft is a whole other topic; that has to do with the multitude of mismanagement of individual organisations rather than the government. GDPR and other similar laws are enacted precisely to tackle this problem. If done properly, KYC is not an issue with proper data security and governance and this shouldn't be the reason why we shy away from KYC; organizations should do better to protect our personal data. FWIW, I've had the opportunity to see how data governance works in competent organizations and I don't see how identity theft would be a problem for them, as opposed to certain less competent companies.

You can expect proportionality to be thrown out in court for cases involving surveillance or national security, as historically seen by v. NSA for surveillance related lawsuits.

A ban on conventional mixers doesn't result in better opportunities for criminals to launder their funds; atomic swaps or other anonymizing methods were always available to all and it is widely and easily accessible for everyone. Banning these centralized mixers never really increased or otherwise exacerbated the rates of money laundering, decentralized mixers has always been preferred as opposed to centralized mixers. Even for the average Joe, this is the way to go.

For the record, I'm not advocating against privacy. Giving basic rights to the citizens seems to be detrimental in the eyes of the government and if they are able to make money laundering harder, then I don't think they would be reversing their decisions anytime soon.

Lawmakers might not, but they probably wouldn't care. However, inaction is seen as incompetence.

KYC and AML policies has resulted in banks being able to detect and stop these transactions. These are policies proven effective in the real world, and whenever it seems to fail, they punish the banks and smack them with a lawsuit. I bet this would happen if you were to legalize mixers. My question is: How do you answer the points about how criminal proceeds has been funnelled over through mixers, and the steps taken towards stemming them. Given that these aren't detectable, save for the large ones, how should we ensure that the principles of Bitcoin is upheld (no censorship, fungibility, etc).

If we were to continue with mixers and lawmakers discovers that criminal proceeds were to be funnelled through the mixer, then would the mixer be liable (and thereby should the owners be shouldering responsibilities) or should we just blame it on the privacy restrictions that affects how a mixer can conduct due diligence? If not, then why should banks be treated any differently than them?

I think that this topic has brought up numerous points about how privacy is important, and how we should balance the importance of privacy and stemming the funds from dubious origins. However, I personally don't think regulating mixers would be the way to go. It would be difficult to try to convince them otherwise, and a waste of effort because it would inevitably result in draconian restrictions and regulations if it happens. Keeping it decentralized and difficult to shutdown makes the most sense.

Good writeup op, but let's be real. Only a small percentage of crypto investors are aware of all this complicated stuff and even they listen to their respective governments when it comes to avoiding banned products like mixers etc.

This forum itself is a great example to justify whatever I stated. World governments are also filled with people who are too dumb to properly understand whatever you stated.

Great points, and I think it serves a question, but probably not the right question. I don't think these crackdowns are to deter criminals. They know who they were pursuing, and they wanted them down, so they clamped down on whomever and whatever they thought were connected.

The bigwigs surely know since Silk Road crypto makes up a tiny fraction of all money laundering. They also surely know by now, after capturing so many mixers, they've not got hordes of criminals, but the one or two they were pursuing. This is probably why they haven't outright cracked down on every mixer, everywhere.

The accompanying ridiculousness of litigation, and perhaps later, blanket bans, etc are simply tying up procedure, not policy. Could be wrong, but that's I think the reality of the situation. It isn't as philosophical or as existential as even I wondered at first.

I understand this point in the world of fiat, because in this case a real risk exists that criminals end up with seemingly "clean" money in the case of "cooperating" banks/fintechs, and I think in this case KYC/AML requirements are mostly reasonable. In a crypto setting (crypto-to-crypto, like mixers and exchanges) the KYC requirement however doesn't help because of the point I'm making in the OP - mixers don't deliver "clean" money, only "crypto-assets of unidentifiable origin", and atomic swaps and CoinJoins can deliver the same thing.

My opinion is a bit different: the more KYC you require, the more identity theft you'll provoke, because you're opening a new attack vector. And there will always be a spectrum of "safer" and "unsafer" services. It's possible that many organizations are handling data security well. But there will be always an arms race between blackhats and these organisations and even those handling it well today may lose tomorrow. Software is never perfect, the problems of bugs and vulnerabilities haven't been "fixed one for all time" even 50 years after personal computers became omnipresent, and cybercrime is at least as successful as it was 10-20 years ago despite of technological progress and increased quality management. I think it's as easy at it sounds: The more organizations are required to store users data, the more hacks there will be, even if the "error rate" was falling due to increased requirements (e.g. due to GDPR-style laws).

That's again why it's important to act against these excesses.

I think the logic expecting an increasing anonymity set/degree for decentralized privacy tools is reasonable if the number of (trustworthy) mixers decreases. Liquidity above all for atomic swaps is still low.

Yep, I didn't interpret that you were actually against privacy :)

However, the consequence of your argumentation is that you're ok with a "two-tier" crypto ecosystem: a KYC-bound "legal" tier and a "grey" tier composed of "unregulated" mixers and offshore services. The problem is that this "grey" tier is increasingly driven into a darker shade of grey due to increasing legal attacks, and also is getting bigger (see Samourai's Whirlpool, which should normally a perfectly legal "messaging service" as afaik it never signs transactions, but is now under attack), without that helping with the fight against crime, but mainly impacting normal users looking for privacy.

This is why I wrote before that the status quo is unsatisfying. I could have agreed with maintaining the status quo five years ago (before e.g. AMLD6 was a thing) but I think we'll not return to that if a mentality change isn't happening.

(This also answers the problem I have with your last paragraph).

We could imagine a policy of "either KYC or delay and react". Basically similar to the recent regulations of harassment in social media.

Mixers could be required to provide a communication channel for freezing requests. In addition to authorities (=police) in an ongoing investigation, if a Bitcoin/crypto user can demostrate that coins were stolen or taken as a ransom (signing a message with the private key used for the transaction), then a "cooperating" mixer has to retain this information and freeze funds which are directly connected with them. In addition, this class of "minimally cooperating" mixers could be required to delay all funds for an hour (close to the 6 confirmations) before they are transferred to the withdrawal address. We could even think about a protocol which includes a timelock and an IF_ELSE clause in the withdrawal transaction, where the user would only be able to move the funds after several hours, and previously the mixer could transfer it back. Taproot would allow that in a reasonably private way.

Such a policy would lead to time pressure for the criminal. Of course the criminal would then probably try to CoinJoin/atomic swap before, but the mixer's importance in the "laundering" process would then decrease. Most mixers of this class would never be used by criminals or only by the "small fishes", and thus could concentrate on the legal "privacy" market. For someone wanting to increase the privacy of his coins, the "delay" process would not be a problem.

The mixer would be liable only if he fails to demostrate that he did everything to try to freeze these funds: react in time to the "freezing request" and/or not implementing the "delay" protocol.

This is of course only an idea, and the work to convince the authorities that his may be a better approach would probably be very hard, but perhaps it can be done if public pressure (from voters) goes in that direction.

mixers and coinjoins that have a manager/coordinator that processes the funds on behalf of others for a fee will be classed as MSB (money service businesses)

if they do not register and get licenced as a MSB. that can cause trouble for the service manager/coordinator
if they do get licenced they then have to log, monitor, investigate and report on their customers(amongst other requirements)
if a action of the customer or the funds of the customer are suspicious to a point of illicit acts. they have to report it to authorities and its the authorities that would then get a court order to allow the service to withhold releasing funds back to the customer

no regulated service can just seize funds without a court order. most they can do without a court order is switch off the internal service for that customer, ask that customer to withdraw funds and then be banned from returning

unregulated services can seize funds without a court order but they are then liable for theft, however they probably are too hiding behind proxies and stuff to not allow the customer to know who the service is to chase the service for that theft

Let's put this through practice and what really happens in the whole process.
Users have coins on address A, which is marked as tainted by the authorities. He sends coins ^{from address A} to the newly created address B, and at that moment unknown where and how it was created. After a 1-hour delay, some other coins were sent to the never-used address C, which the user provided.

So, the question is, If the service is well coded and automated, how the hell can anyone recognize in an hour who generated address B, request the blocking of funds, and at the same time the hosted service respond as soon as possible?

This seems to be the rule in several jurisdictions, particularly the US, but crypto assets service providers are not regulated this way in all jurisdictions. This depends of the status of cryptocurrencies. If they are classified as "goods", like it occurs in several countries, then exchanges until specific legislation is approved are basically bartering services (at least in the case of crypto-to-crypto).

What I was proposing in the OP was not "seizing" the funds but to "delay" them until there is a decision made if the funds come from a theft/illicit action or not. In the case the funds are finally seized, of course there has to be a court order. But the possible "delay" can be clarified by the mixer in his ToS. There are several crypto services already operating this way, including mixers, although with much less clear rules, thus I can't really mention a service which *today* is already operating as in this proposal.

At least if we take the proposal I made in the OP, then there would not be such a time pressure.
First, there has to be a direct connection with a heist, thus a simple "tainting" because the funds were some months ago used for an illicit purpose would not be enough. That's what I discussed with ranochigo: this would seriously put Bitcoin's fungibility into question, so in the case this is implemented the "loss of fungibility" should only occur for a short time.

The OP proposal instead covers the typical case of somebody who has paid a ransom or got coins stolen from their wallet. This person would be able to immediately communicate this to the mixer through a specified communication channel, proving that the funds come from his wallet (this process could be totally automated, e.g. as a function in wallet software, so there's no technical barrier). It would enable the mixer to delay the funds, even if they pass through 3 intermediate steps like in your example. But the mixer can specify that if e.g. in 24 or 48 hours there is no authority response, the coins will be delivered to the person who requested the mixing. So the victim would have to denounce the stolen coins to the authorities. If this wasn't the case then you could simply pay for any good/service with BTC and then try to recover your funds this way ...

I think this is the crux of the matter, there will always be a way for the criminals to continue their business. If the authorities could not stop terrorism financing which most of the funds are not passing through cryptocurrency but charity organizations and foundations and other fiat payment systems, as I have read in some articles, then I doubt there is much they can do to stop criminals. I completely agree with you that the more they fight mixers and other privacy infrastructures, the more they help the bad eggs because, from your explanation, they will just be pushing them into the atomic swap that I am grateful for learning more about it tonight.

Most definitely, they will always find a way how to continue what they are doing. Do remember, mixers were not existent when terrorism and other illegal activities started. It is just that in today's situation, they are finding that mixers is also one good route to hide their privacy. And if this one closes, they will surely find another route. It is not the end of the line for those people who want to continue what they are doing.

100% true. The low-to-mid-level gov't hacks who run these take-downs probably believe they're fighting crime, but what they don't know is they're just doing the bidding of the biggest fish in the criminal pond


Right-on. Some of the entities you list have been caught laundering billions for drug cartels. But since they're "too big to jail", there's nothing to do but allow them to continue business as usual. When relatively small operations like Samurai or Agoradesk become targets, this is not at all about fighting crime, but rather about the biggest crooks in the game taking out their competition.

This is a fantastic resource and I may reconsider adding back a list of CoinJoin services on my website.

You can run a Git server on just about any server, but preferably one hosted with a company that doesn't take abuse letters too seriously as they could pull the plug on your account.

I would guess that it is only when the money turns to fiat that it matters. In reality, of course you can spend bitcoin to get something, but the government or the law enforcement will rarely care about it as long as it is within bitcoin world, they will not care about it in the end.

However, the moment you want to turn that into fiat, that is when they will care, because if there is some money that you can't explain in your bank account, they will retrack it and see where that came from, and if it was from a mixer that they can see, then they will consider that as illegal money, could be drug money, could be money laundering, whatever they want to name it. So, if you want to make some fiat, you need to be able to provide proof. Or just keep it at bitcoin, can always do that.

I really liked your point that authorities should stop focusing on crypto as the primary focus but to look for the exit point when the funds become clean and turned into fiat and that they should try to find the transfers or large sums of cash via withdrawals from the bank etc. because the funds don't become fully laundered until they reach that point. But Also, the Atomic swaps are a very interesting subject, and I also like that point that cracking down hard on coin mixers are going to be like shooting themselves in the foot. At least with coin mixers if authorities made some kind of deal with them to help them catch criminals it would at least be a tool they could use, but I don't think they see it that way its just a money laundering machine in their eyes. I will have to look more into the atomic swaps, I had no clue those even existed.

In my opinion this doesn't have to do much with that it's "within Bitcoin world". Generally the world of retail commerce is so big that it would be impossible to control everything to prevent criminals can spend even a single cent. Normally they concentrate on bigger sums (USD 1000 upwards).

If you can spend the money directly on goods and services, there is thus no need to "launder" it. Criminals usually can buy small goods directly with the stolen (or otherwise illicitly funded) money, because retail merchants are no "obliged subjects", they don't have to do AML checks. So if spending money on retail goods was all they wanted to do, there would also be no need to use cryptocurrencies for anything. They only would have to be fast to prevent that banks freeze their money once the investigation is advancing, or retire cash as soon as possible.

The exception are luxury goods and gold and other materials which are used as a store of value, like platinum. But that's the reason why normally the merchants of these products are "obliged subjects" and have to do AML checks. That also applies to those merchants who accept Bitcoin. So staying inside the "Bitcoin world" would also not bring much of an advantage.