Crackdown on mixers and privacy tools is ineffective: it may even help criminals

[d5000]

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, 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 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) 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, 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.


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 or the Pirate movement.


Edit: I wrote a similar text in Spanish, and possible will also add a German translation.

[davis196]

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.

[Amphenomenon]

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 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.

[moneystery]

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.

[CODE200]

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.

[Findingnemo]

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

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.

[AHOYBRAUSE]

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.

[btc78]

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.

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.

[Ambatman]

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?

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.

Because they ain't stupid to notice that Centralized platforms are easier to control than DEX.
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

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.

[Frankolala]

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 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.

[Cryptomultiplier]

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 is the same people that are use 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.

[Yamane_Keto]

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 thought so, or at least they would let them work in exchange for providing some data on suspicious transactions, or at least submitting them to the courts. Everything they do will push towards a decentralized coinJoin or Monero.

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

[Synchronice]

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

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.

[fenixosup]

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

[Z390]

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.

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.

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.

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.

[Outhue]

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.

[franky1]

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

[NotATether]

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".

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).

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) 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.

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

There is also the important related topic of the negative consequences of the KYC requirement for all kinds of cryptocurrency services, 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.

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 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 or the Pirate movement.

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).

[goldkingcoiner]

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]

...Meanwhile, policies to prevent the 800 times greater use of traditional dollars in criminal activities have not yet been disclosed.

[1]. Fiat Money Outpaces Bitcoin 800:1 for Money Laundering: Report

[SamReomo]

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.