Moral dilemma: to mix or not to mix stolen coins, e.g. from Binance hack

[pawel7777]

I just wondered on what the community's consensus is on whether mixing services should go ahead with mixing stolen coins, e.g. those stolen in the recent Binance hack (estimated 18,270 bitcoins).

Argument against mixing:
- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

Arguments for mixing:
- mixers help keep bitcoins fungible (one bitcoin is worth the same as another bitcoin) and censorship-free. Anyone who uses Bitcoin should understand the risks and that transactions are irreversible.
- freezing coins would breach the trust of mixers' users. It is implied that a mixer provides service indiscriminately to anyone without judgement.

Any thoughts?

[BitMaxz]

Do you mean if the mixers do not mix stolen coins from the Binance hack? And then lock the stolen coins so they can be returned to the owner?
I don't think any mix service would do that; however, given the large amount, the mix service might freeze it and store it while informing the sender about the latest attack in order to take advantage and hold the amount of the sender.

Actually, there are numerous ways to launder money today, like swapping and instant exchange, which does not require any identity verification. That is why those mix services exist because that is their advantage not to ask for any data.

And how can people trust the mix services if they freeze this amount? They don't even have the authority to ask the sender where it came from.

If the news recently reported that Lazarus was behind the breach, I'm sure they have plenty of ways to avoid having their stolen assets seized. They are smart individuals who cannot easily fall into any other traps.

[d5000]

- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

This is the big question here: How do you know the coins are stolen?

If you want to know that, then you need to integrate an AML checking / chain analysis tool into your mixer. If there is no such check, then even well known stolen coins can't be frozen.

You could of course integrate a "rudimentary" check, like a blacklist of well known stolen UTXOs. But then the thief can just move around the coins a bit and circunvent the blacklist. So you need at least a tool that analyzes the coins' trajectory in real time, and thus most mixers would install a full fledged AML tool.

I have outlined a possible "ethical mixer" protocol here. The idea is to integrate an AML / chain analysis tool but allow the user to check the coins in advance.

[ObeyKnock]

This is the big question here: How do you know the coins are stolen?

If you want to know that, then you need to integrate an AML checking / chain analysis tool into your mixer. If there is no such check, then even well known stolen coins can't be frozen.

You could of course integrate a "rudimentary" check, like a blacklist of well known stolen UTXOs. But then the thief can just move around the coins a bit and circunvent the blacklist. So you need at least a tool that analyzes the coins' trajectory in real time, and thus most mixers would install a full fledged AML tool.

I have outlined a possible "ethical mixer" protocol here. The idea is to integrate an AML / chain analysis tool but allow the user to check the coins in advance.

However, using chain analysis to determine risk is not a reliable method of proving ownership or criminal activity. It is possible to get BTC into a wallet from a tainted address, without the owner of this address being in any way involved with the initial theft. This can cause problems if mixers decide that all indirect links should be rejected. This causes the tainted coins to continue to flow through the network, going against one of the key principles of fungibility.

There seems to be a clear difference between rejecting known stolen funds and rejecting all potentially tainted coins. If there wasnt this distinction then innocent users may be punished by an AML solution.

[legiteum]

I have outlined a possible "ethical mixer" protocol here. The idea is to integrate an AML / chain analysis tool but allow the user to check the coins in advance.

I hadn't seen that proposal, but I really like the approach. In particular, I've always thought that the principle behind the Banking Secrecy Act (BSA) passed in the 1970s, which puts a $10,000 limit on physical cash deposits into banks before they are reported to the authorities, is a really good framework.

This always made a lot of sense to me since it coincides with how reasonable and honest people want to operate. There are very strong reasons--safety and privacy--to use cash (or the internet equivalent) for "small" amounts. For "large" amounts, however, there aren't, realistically, any "good" reasons to want total privacy (unless you have a business that deals in cash for instance). And there's a big difference between "privacy" from hackers, fellow citizens, marketers, and so forth--and "privacy" from a government with a validated inquiry (viz. probable cause).

I've talked about the "paradox" of privacy here before: that normal honest people want anonymity for "small" money and identity for "big" money. You want to pay for things under $100 with physical cash, but most law-abiding individuals want to hold things like their house, their car, and their life savings in their name so they don't have to physically guard it themselves. There are a lot of reasons to more and keep large amounts of money anonymously, but they are basically all... criminal reasons (even if the definition of "criminal" can be unjust in your country).

Bitcoin has always gotten this paradox exactly backwards: for large amounts, you can work to make it anonymous (e.g. with mixers and other tradecraft), but for most average people moving small amounts around for convenience, Bitcoin is absolutely not private at all, and dangerous.

[tbct_mt2]

I just wondered on what the community's consensus is on whether mixing services should go ahead with mixing stolen coins, e.g. those stolen in the recent Binance hack (estimated 18,270 bitcoins).

Argument against mixing:
- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

I think in moral principle and practice morally, it's a right action to do with any service. It is also very helpful for mixing services to self defense against legal issues and potential sanctions and seizures from governments.

Arguments for mixing:
- mixers help keep bitcoins fungible (one bitcoin is worth the same as another bitcoin) and censorship-free. Anyone who uses Bitcoin should understand the risks and that transactions are irreversible.
- freezing coins would breach the trust of mixers' users. It is implied that a mixer provides service indiscriminately to anyone without judgement.

Any thoughts?

There are conflicts of interest between hackers, mixers and governments so it's hard to find any legal equilibrium among these factors. KYC or not KYC, if a mixing service can freeze funds from users and send it to governments, it will lose users.

Having actions like this, mixing services will become risky for users like centralized exchanges but generally I understand about what you want to discuss here.

Like this term is only one of many terms to define a mixer by theymos.

Definition of a mixer
 3. The service does not collect KYC-type info from all users. (This is not an endorsement of KYC generally, or a condemnation of non-KYC services generally. Non-KYC services of other types are still allowed, and in many cases they are a good idea.)

[Darker45]

As far as morality is concerned, I don't think there's any dilemma at all. Helping a thief get away with stolen money or his/her crime is morally wrong, plain and simple.

None of the arguments in favor of mixing in the OP is founded on moral grounds.

But this isn't just about morality. For instance, should there be a level of certainty before mixers reasonably decline a client or his/her money, or even seize it? Or why should a mixer discriminate? Isn't that considered a betrayal of its very function? Since it's mainly a privacy tool, shouldn't it wear a blindfold so to speak and serve all its clients equally?

For me, mixers, and everybody for that matter, being part of the larger society, should do what's good and right. However, services should be offered in good faith or with the presumption of regularity. Unless there's more or less absolute certainty that a deposit is stolen, everything should proceed. Mere suspicions, indirect links, and the like shouldn't be grounds for rejection.

However, being realistic at the same time, I think there should also be thresholds. One can't just move a hundred million around as if it carries the same weight as a grand. The reality is that there are indeed exploitations.

[Charles-Tim]

Argument against mixing:
- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

What the hackers are doing is not that easy. The transaction is not easy to detect. Within few minutes, the hacker would probably have mixed the coin. If it is getting late, they use other means.

Also mixers can be decentralized. Coinjoin is a good example.

Arguments for mixing:
- mixers help keep bitcoins fungible (one bitcoin is worth the same as another bitcoin) and censorship-free. Anyone who uses Bitcoin

About the censorship resistant, that should be used to discuss the part of bitcoin. Mixers are not part of bitcoin like miners and nodes.

[Japinat]

mixers do not have the same regulations as exchanges, they are not registered because that's the only way they can promote privacy. So how would the mixers know that the coins are stolen and will they really investigate? I think mixers operate in a simple way, they cater to people without knowing where the coins came from ( and would not care), and process the transactions based on their system.

So it's hard to bring mixers into this mess, unless the government tells them to trace those coins and stop helping with money laundering, that is when they might have to cooperate, but in most cases when stolen coins go to mixers, the mixers themselves could also face sanctions  and could be frozen by authorities.

[alani123]

I have a stupid prediction:

These so called "exchangers" that gives BTC for XMR will end up taking users' XMR and dishing out DPRK BTC at some point.

Give it 2 years. Hundreds of people will end up having their accounts blocked on major services like exchanges and gambling sites because when they thought they'd be getting untraceable coins, they'll end up becoming exit liquidity for DPRK.

[Frankolala]

What's the essence of using a mixing service when they would freeze your coins. Mixers are to cover your transaction tracks for privacy and that is why Mixing services wouldn't bother to check anything but mix your coins for you and get paid so that, they can have more customers and keep the ones they already have.

People are using mixers every day so how will they know that the coins from this address is tainted or not. What if the thief didn't use mixer directly after stealing but converted it to monero and move it across three or more decentralized exchange before sending it to a mixer which send the coins to his final address.

Anyone or group that hack an exchange has already made ways on how to move the stolen funds without any trace because it's only when the funds are in his possession without any trace that he has successfully stolen the coins. Don't you know that how to move the coins is also part of the plan before the hack will take place.

[Aliciaworld]

This is the big question here: How do you know the coins are stolen?

If you want to know that, then you need to integrate an AML checking / chain analysis tool into your mixer. If there is no such check, then even well known stolen coins can't be frozen.

You could of course integrate a "rudimentary" check, like a blacklist of well known stolen UTXOs. But then the thief can just move around the coins a bit and circunvent the blacklist. So you need at least a tool that analyzes the coins' trajectory in real time, and thus most mixers would install a full fledged AML tool.

I have outlined a possible "ethical mixer" protocol here. The idea is to integrate an AML / chain analysis tool but allow the user to check the coins in advance.

However, using chain analysis to determine risk is not a reliable method of proving ownership or criminal activity. It is possible to get BTC into a wallet from a tainted address, without the owner of this address being in any way involved with the initial theft. This can cause problems if mixers decide that all indirect links should be rejected. This causes the tainted coins to continue to flow through the network, going against one of the key principles of fungibility.

There seems to be a clear difference between rejecting known stolen funds and rejecting all potentially tainted coins. If there wasnt this distinction then innocent users may be punished by an AML solution.

Exactly, there is a total in trying to censor and freeze funds. It's like petitioning to ban crypto because it is anonymous and can be used for crime. Good point, but won't hold up.

[Don Pedro Dinero]

This is the big question here: How do you know the coins are stolen?

I’d go a step further. The OP doesn’t specify this, but if you’re the hacker, the logical thing to do would be to mix the coins once they’ve been stolen. I don’t think the OP is considering that scenario; they’re considering the scenario where you receive coins from the hack in a transaction. But normally, not 100 per cent of them will be from the theft. If you carry out an analysis and find that a high percentage of them could be flagged and frozen by a service you’re going to use, it would make sense to mix them again.

But the scenario where you receive a transaction and 100 per cent of the amount comes from the Binance hack seems unlikely to me.

[davis196]

Argument against mixing:
- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

Arguments for mixing:
- mixers help keep bitcoins fungible (one bitcoin is worth the same as another bitcoin) and censorship-free. Anyone who uses Bitcoin should understand the risks and that transactions are irreversible.
- freezing coins would breach the trust of mixers' users. It is implied that a mixer provides service indiscriminately to anyone without judgement.

1.How would the BTC mixer owners know that the coins are stolen? The Binance hackers could've just moved them from the Binance wallets to their "throwaway" cold wallets before moving the coins to a BTC mixer. What if the hackers are from North Korea and they move the coins to cold wallets, which are located in North Korea(which means no government can confiscate the stolen coins)? This removes the need to mix the coins. I'm not expert in this field. Is there a possibility, that the government of North Korea has crypto wallets within North Korea?
2.You are answering your own question. Who would trust a Bitcoin mixer, that freezes funds because of suspicion, that they might be obtained via criminal activity? Are BTC mixers created to mix "clean" coins to begin with? What's the point of mixing Bitcoins, that are "clean"(not stolen)? Do you believe that BTC mixer owners have morals?

[mirakal]

I just wondered on what the community's consensus is on whether mixing services should go ahead with mixing stolen coins, e.g. those stolen in the recent Binance hack (estimated 18,270 bitcoins).

Argument against mixing:
- when you know coins are stolen, it would be a moral thing to do to return them to the rightful owner(s).

If I'm the mixer then I will surely return the coins especially if I know they are coming from a hacked exchange.
The risk is just too high to let it proceed as that might mean I participated in the crime. I have to remember that the main purpose of the business is to provide privacy, not to help criminals, that's two different things.

Lastly, this is a popular case, governments are already involved, and you cannot fight the government as they have all the resources.

- freezing coins would breach the trust of mixers' users. It is implied that a mixer provides service indiscriminately to anyone without judgement.

Any thoughts?

I would rather choose this that  being penalized than or worst put in jail.

This mixer in 2020 was penalized $60 million for a money laundering related case, a business could not afford that.

[ABCbits]

Arguments for mixing:
- mixers help keep bitcoins fungible (one bitcoin is worth the same as another bitcoin) and censorship-free. Anyone who uses Bitcoin should understand the risks and that transactions are irreversible.

Alternatively, blockchain analysis will try to find and treat all known UTXO from that certain mixer as "tainted" or "dangerous".

You could of course integrate a "rudimentary" check, like a blacklist of well known stolen UTXOs. But then the thief can just move around the coins a bit and circunvent the blacklist.

They probably don't even have to do that, because such list usually updated manually or semi-manually. The delay is likely enough to allow hacker/thief mix the coin as soon as they stole the coins, before it added to the blacklist.

[Sanitough]

They probably don't even have to do that, because such list usually updated manually or semi-manually. The delay is likely enough to allow hacker/thief mix the coin as soon as they stole the coins, before it added to the blacklist.

Those hackers are smart enough to steal that money, so they will likely use many mixers to avoid being detected especially if there's a sudden increase in volume on a certain mixer. In  an hour,  more or less, an exchange would already detect if there's crypto that was hacked, and if it's a big exchange it would already be all over the news, so mixers would probably look for some abnormal volume and possibly hold the funds if they have to. But we can only speculate here since mixers in the first place are not regulated, so they are not bound to follow what a legitimate business would normally do, and not sure if they will cooperate with authorities.

[FinneysTrueVision]

The biggest volume days for mixers are right after there is a major hack. They know exactly who their largest clients are and it’s naive to expect them to reject such a massive windfall. It’s very rare for the operators of these mixing services to be apprehended, so to them the benefits might outweigh the risks. There is nothing to gain by implementing AML checks. Once you go that far, you might as well start being fully compliant and cooperative with law enforcement.