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

[Agbe]

And this dilemma lies here: if the mixer uses AML tools without restrictions like most traditional exchanges do, then it no longer serves this function. The ethical mixer protocol I linked to above is an idea to solve that dilemma.

The only solution to solve these attacks in exchanges is to only allow non custodial wallets to operate and there should be no traditional exchanges to but or sell and all those transactions should be done with non custodial wallets. Mixers are here to support the bitcoin transaction more privacy and if it is traceable then it has been defeated. And those coins from Binance might not directly sent to mixers but other wallets and exchanges before mixing them so the . mixers might not detect them.

Let all the centralized exchanges stop operation and allow only non custodial wallets to operate and that will create one on one transactions.

[ObeyKnock]

Correct. There is no perfect method, but you have to draw the line somewhere. And that's what AML / chain analysis companies are trying to do.

In my ethical mixer protocol there is a safeguard for "normal" users: the possibility to mix up to ~$500-$1000 per day without AML check. This should cover most "retailer" users' needs, and allows them to mix slightly tainted coins too.

It's not a perfect solution of course: these $1000 may have been obtained by selling drugs or a minor theft for example (let's say someone stealing $10,000 and mixing $1000 per day). But this are things we can't prevent totally. It's like the dilemma to put cameras in all streets to prevent all street crime. The important thing is that the "big fishes" can be caught with that kind of protocol.

The daily limit seems simple, however enforcing this can be tricky. If we apply it on a per address / mixing session basis then it is easy for someone to deposit over the limit. This can be done by sending to multiple addresses or using multiple days. To stop someone doing this there needs to be some mechanism to track them across all mixing sessions. This can start to look like we are not maintaining much privacy.

It is not really the issue of whether the limit should be $500 or $1,000 that is the issue. The real issue is trying to enforce cumulative limits without creating a tracking system. This seems like a much more difficult problem.

[Wincob]

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.

Are you saying if the mixer service manages to hold the stolen fund they will keep it to themselves? Even though they understand what's happening presently? At this point it seems everyone has stealing urge in them, it's just a prize thing.

If the price is good enough they are ready to compromise, no wonder my old man used to say that everyone has a price in them, they won't compromise until the price is good enough.

I expected the mixer to probably freeze  the money if it's too big, and since the stolen money is still on the new freshly ongoing then it's possible that they found it, I expect them to do the needful even though they are mixer service.

[Faisal2202]

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?

Thorchain was asked the same question; they could even blacklist the affected addresses but did they do it? No, did hackers move their funds through them in bitget hack? Yes.

Did authorities do anything against them? So far, nothing but in the future they could use something against them.

I am not talking about mixers and all those obfuscating tools but they should focus more on privacy I was one of those who wished Thorchain should block the hacked funds, and I would wish the same from mixers and exchanges too. But the stolen funds can only change wallets; they remain the same! They become someone else's problem in the end. But in the end, hackers use centralized exchanges to make it good. Usually, KuCoin is used by them:

May–July 2021 — Atomic Wallet theft
About $1.4 million in cryptocurrency was stolen from Sofia Reca, and court filings state that many of the stolen assets were later transferred to KuCoin deposit addresses believed to be controlled by the thief.
Court Filing

November 2024 — MetaWin hack
Hackers stole more than $4 million from MetaWin's Ethereum and Solana hot wallets. ZachXBT said the stolen funds were transferred to KuCoin and a HitBTC nested service.
MetaWin hack

April (not sure about the exact month, as there was some delay in reporting) 2026 — Bitcoin Depot theft
ZachXBT traced roughly 54 BTC, worth around $3.7 million, stolen from Bitcoin Depot to KuCoin wallets.
ZachXBT Tracks $3.7M BTC Theft From Bitcoin ATM Firm to KuCoin

April 2026 — Fake Ledger Live app theft
A fake Ledger app resulted in about $9.5 million being stolen from more than 50 victims. ZachXBT said the funds were routed through more than 150 KuCoin deposit addresses tied to AudiA6.
Fake Ledger Live app theft

June 2026 — Secret Network / Axelar bridge exploit
About $4.67 million was stolen and the ETH was split into roughly 30 transfers before reaching deposit addresses at KuCoin, ChangeNow and HitBTC.
Axelar bridge exploit

July 2026 — Private-key compromise thefts
After withdrawing about 3,200 ETH, the attacker laundered approximately $5.5 million through Circle CCTP and transferred the resulting funds to seven KuCoin deposit addresses on Arbitrum.
Investigations by ZachXBT

September 2026 — FomoPeek malicious iOS app
About $580,000 in crypto was stolen, with portions of the funds traced to KuCoin, FixedFloat and cce.cash.
FomoPeek malicious iOS app

they'll end up becoming exit liquidity for DPRK.

I don't think it's stupid. I agree this can happen.

[Ambatman]

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

To run away with it
Like steal from the thief like Robin Hood only they will consider themselves  the poor
Well that's on a lighter note
The thing is who gets to decide what's clean and what's dirty coin?
The issue with introducing blacklist is that it could extend outside stolen funds
To coins associated with addresses the authority don't approve of.
And No knowing helping to hide stolen fund isn't something that sets a good precedence.

Let all the centralized exchanges stop operation and allow only non custodial wallets to operate and that will create one on one transactions.

Eliminating exchanges doesn't change the fact that people still loss their funds
Via various means with non custodial wallets.
We saw the recent cases of Coldcard and Trezor even if it wasn't directly.

The only solution to solve these attacks in exchanges is to only allow non custodial wallets to operate and there should be no traditional exchanges to but or sell and all those transactions should be done with non custodial wallets.

Do you know exchange helps create a market?
And no it doesn't have to be centralised.

[abel1337]

The major customers of mixers are those user/group that has a bitcoin that came from these illegal activities like hacking or dark web. These customer bring large volume of bitcoin to mix and this is the time where mixers really makes their income. I doubt that they would ban them or seize the bitcoins for the sake of morality. Also once they stop someone from mixing these coins, their business would definitely fail since the trust from their "big clients" is now gone.

There are many arguments about mixers, but it is definitely a gray area where legal authorities are cracking down. We've seen some mixers taken down as authorities got involved.

I wonder if these hackers made a mixer themselves and use it themselves. Of course, by using the laundered money they got from other mixers. This way, they don't have limits and no risk of having funds confiscated.

[Smartprofit]

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?

I believe that if Satoshi Nakamoto were alive today and leading the development of Bitcoin, this moral dilemma would never have arisen. 🙋

Satoshi Nakamoto understood well that the less Bitcoin relies on the "human factor," the better. I believe he would have strengthened Bitcoin's anonymity and privacy at the code level. When Satoshi was developing Bitcoin, the combination of Bitcoin and TOR provided a sufficient level of anonymity and privacy. However, today, this is completely insufficient.

Bitcoin is money. The functionality of money cannot depend on moral and ethical standards. A hundred-dollar bill should not identify itself as an individual and be plagued by guilt. A hundred-dollar bill should not fall out of a gangster's pocket because of suspicion that he is a bad and dishonest person. But since Bitcoin lacks anonymity and privacy (unlike, for example, the cryptocurrency Monero), mixers are used to ensure fungibility.  Mixers are centralized commercial organizations run by people (the same "human factor"). People can face moral dilemmas and, in trying to resolve them, make certain decisions... From the Bitcoin project's perspective, this is an architectural flaw.💁

[d5000]

It is not really the issue of whether the limit should be $500 or $1,000 that is the issue. The real issue is trying to enforce cumulative limits without creating a tracking system. This seems like a much more difficult problem.

Yes, you'd need some kind of "tracking" indeed (in the ethical mixer protocol thread, this issue was also discussed). But if you put a limit for the "check-less" method per 24 hours then the logs can be deleted each 48 hours at least. That's imo acceptable, or should be acceptable for "retailers" who don't need a "perfect" but a "working" privacy solution. Of course it implies trust to the mixer company to really delete the logs. But that's always the case, and mixers without any kind of logging, imo, cannot exist (at least not without some fancy zero-knowledge solutions I'm not aware of).

[Taskford]

It is not really the issue of whether the limit should be $500 or $1,000 that is the issue. The real issue is trying to enforce cumulative limits without creating a tracking system. This seems like a much more difficult problem.

Yes, you'd need some kind of "tracking" indeed (in the ethical mixer protocol thread, this issue was also discussed). But if you put a limit for the "check-less" method per 24 hours then the logs can be deleted each 48 hours at least. That's imo acceptable, or should be acceptable for "retailers" who don't need a "perfect" but a "working" privacy solution. Of course it implies trust to the mixer company to really delete the logs. But that's always the case, and mixers without any kind of logging, imo, cannot exist (at least not without some fancy zero-knowledge solutions I'm not aware of).

That kind of tracking is indeed necessary, so they can prevent any type of abuse.

If they are really deleting those logs, then those are reasonable actions by mixers to maximize the privacy of their clients.

But the real issue here, is if the operator is deleting the logs of their clients. Also they are not retaining all the data they collected. If they are hiding something, then this might cause a problem to those people who use their services in future. So everything does not offer any guarantee, especially if the one operate the mixers is shady and didn't do their jobs.

[pawel7777]

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.

Yeah, we all know that's the case for the vast majority (if not all) of mixers. They would probably only refuse a service if funds came from a high-profile criminal act and if they didn't want all the extra heat (i.e. three letters agencies going after them).
Thanks for all the replies, but just to clarify, the purpose of this topic is not to focus on the technical aspects of things such as coin tracking and whether or not mixers know the coins are stolen, but to discuss whether mixers should be considered bad actors for not refusing to process orders from criminal proceedings.
So, for the sake of the discussion, let's assume:
- mixer operator somehow knows the coins are stolen
- they have the means to either freeze coins or to refuse such mixing order.

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.
(...)

Maybe you're right. Maybe it's really that simple. But personally, I find the issue more nuanced than that.
By the same logic, should we, as the Bitcoin community, be OK with, or even demand that devs/miners come together to override the protocol to reverse the hack (similar to what Ethereum devs did after DAO hack)? I know both scenarios are not a perfect analogy, but the principle is similar: we let a bad thing slide because undoing it would have much worse consequences (i.e. a complete loss of trust for Bitcoin or mixers).

Or another angle: if it's not immoral for a person to launch a decentralised, automated mixing service (like CoinJoin), would it become immoral if the same type of service had a manual, human component to it, and the operator chose to have a "no-questions-asked" policy?

[PrivacyG]

The moral thing would be to pay back the victims.

However.

In this kind of situation, one end has to suffer.  You either have criminals being able to also mix their own Bitcoin coming from crime or you have innocent people having their Bitcoin blocked and even seized.

But here is the deal, criminals are very few, innocents are almost every body.  The way it currently works on all those 'Anti Money Laundering' enabled websites, you are treated as guilty right from the start.  You enter that page, you are already suspicious unless your Bitcoin proves to be 'clean'.  This is what Anti Money Laundering does.

Not only this, but if you are THOUGHT to be bad then you are instantly punished by having your Bitcoin frozen or even seized.  Not only this!  But you may even end up losing it entirely, for reasons such as not being able to prove their origin although you KNOW your transaction had no relation to crime, or reasons such as not being able to provide 'enough' documents to prove your innocence.

So.  My actual dilemma for you is.  To treat every body under presumption of guilt or under presumption of innocence?

I am personally a supporter of Freedom.  If I do not care what the origin of Bisq UTXOs is, should I care what the origin of some UTXOs to be mixed is?  There is no way of objectively ensuring a UTXO is bad or good, particularly in this situation where there are so many variations.  How many hops from the crime does it take for those Bitcoin to be 'clean' again?  How do you know all these hops were not actual hops done by the same criminal?

And as there is no way to objectively distinguish good from bad, I do not see the reason why UTXOs should be 'scanned' for the level of goodness every time they go through a service.  If this is moral, this is a loop that never ends.  Why do we let Miners include transactions of criminals in Bitcoin Blocks and why should we not force them to stop?

The last and only time I checked a Bitcoin Address for 'Anti Money Laundering score', it was mine a few months ago and it raised all the possible red flags and I am sure it would get frozen on a Know Your Customer and Anti Money Laundering custodial service.  I earned all of the Bitcoin on bc1q76xwrcslun45tt8trlklpec8kywg7f4qznwdmh and 1C9DuPoF633vW5tAe9BPuNzCzBkFr7p8qA from Bitcoin Talk.

The idea is to integrate an AML / chain analysis tool but allow the user to check the coins in advance.

But then, what is the point of having Anti Money Laundering rules.  Imagine this, I could create some counterfeit Dollars and go from store to store trying to pay using them.  Under current rules, if a store finds out they will have to immediately alert authorities.  Under your rule, it means I could keep going from store to store until I can finally find one that will not refuse me, or rather that I would go to a store, get denied and then simply go back home and find an alternative way to spend it.

[Ayers]

Any thoughts?

Yes Bitcoin's greatest strength is its fungibility. Value of one Bitcoin is equal to that of another Bitcoin, it doesn't matter whose wallet it was in.

If any privacy protocol or mixer begin conducting background check on its user or implement censorship at behest of government then it ceases to be any trustless tool. It will end up being mere puppet, much like centralized exchange.

Once any centralized filter is in place, even your or my clean coin could end up being tagged as suspect and frozen.

[Darker45]

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

I disagree. There is a dilemma.

I was just plainly reacting to the arguments that mixers keep Bitcoin fungible and freezing coins would breach the users' trust. These aren't moral arguments per se, although we could attach moral implications to them, just like we could to almost everything else.

And this dilemma lies here: if the mixer uses AML tools without restrictions like most traditional exchanges do, then it no longer serves this function. The ethical mixer protocol I linked to above is an idea to solve that dilemma.

I don't think it's as simple as that. Are we just trying to please them all or at least displease them all a little but more or less equally? Are we simply skirting heavy responsibilities while being compliant but also not too much as to lose the interest of users?

I don't think ethics is simply playing safe hitting the perfect balance. Quite the contrary, if there's such a thing as mixer ethics, I don't think the service should reserve even a tiny place for AML tools and KYC and the like, because isn't that itself a complete betrayal to the very justification of their own existence?

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.

Again, how do you know this? And much more: how to know this in real time, e.g. in the 10 minutes after the coins are stolen, where many thieves will try a first mixing step? You need an AML tool - and then you enter the dilemma described above.

I was thinking of those funds that are, borrowing from your thread, "directly coming from criminal sources". If there's an AML tool needed for that, it'd be the most rudimentary of all.

As I've said, mixers function in good faith and with the presumption of regularity. It's designed to "keep bitcoins fungible", not to catch dirty funds. Having said that, if alerts and warnings came a little later than the criminal's use of the service, that's water under the bridge.

However, again, there must be certain thresholds. At least it somehow softens the impact or perhaps even discourages the use of the service by criminals.

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.
(...)

Maybe you're right. Maybe it's really that simple. But personally, I find the issue more nuanced than that.
By the same logic, should we, as the Bitcoin community, be OK with, or even demand that devs/miners come together to override the protocol to reverse the hack (similar to what Ethereum devs did after DAO hack)? I know both scenarios are not a perfect analogy, but the principle is similar: we let a bad thing slide because undoing it would have much worse consequences (i.e. a complete loss of trust for Bitcoin or mixers).

If it isn't black and white, and confronted with a choice between a smaller evil and a bigger evil, I'd obviously prefer the smaller evil.

These are practical matters, and I won't mind taking a utilitarian approach.

Or another angle: if it's not immoral for a person to launch a decentralised, automated mixing service (like CoinJoin), would it become immoral if the same type of service had a manual, human component to it, and the operator chose to have a "no-questions-asked" policy?

I think the automated service itself is merely a tool, just like a fork or a piece of paper. It's neither moral or immoral. It's amoral. It serves a neutral purpose. In the case of a mixer, for Bitcoin's fungibility or privacy.

If there were ulterior motives in the process of developing it, that's with the creator, not the result or product. If the knife's original inventor had killing as his/her primary goal, I guess that won't matter now. As to the product or service itself, I'd probably still lean toward the consequentialist way of assessing it. If mixers are beneficial only or mainly to criminals, then that's obviously immoral. But if everybody else is using it for their privacy, I don't find any moral issue with it.

If it's not truly automated and an operator unwittingly let a dirty fund pass through, no problem at all. If the operator chose to turn a blind eye, that's problematic. But I'm afraid we won't be talking about intentions as if they can truly be known.

[ObeyKnock]

Yes, you'd need some kind of "tracking" indeed (in the ethical mixer protocol thread, this issue was also discussed). But if you put a limit for the "check-less" method per 24 hours then the logs can be deleted each 48 hours at least. That's imo acceptable, or should be acceptable for "retailers" who don't need a "perfect" but a "working" privacy solution. Of course it implies trust to the mixer company to really delete the logs. But that's always the case, and mixers without any kind of logging, imo, cannot exist (at least not without some fancy zero-knowledge solutions I'm not aware of).

This is useful. However, mixer can still hold linkable data. Whilst data may be purged after 48 hours, a well-designed mixer aiming to preserve user privacy should make it difficult to link deposits. Using data available within those 48 hours, operator can still link deposits.

For most retail users, this is probably fine. But will they be honest and actually delete the logs as promised? It’s easy to say you will, but how do you know?

This is where I m uncertain.

[d5000]

So, for the sake of the discussion, let's assume:
- mixer operator somehow knows the coins are stolen

For me that issue can't be separated from the fungibility / tracking question. The big dilemma is: track or not track? Not "if you track, then freeze or not freeze".

Or to say it differently: if mixers don't care about fungibility and secretly (not like in my proposal) employ normal AML tools (otherwise they cannot know that funds are stolen!) then it's easy: they are either almost unnecessary (if they'd freeze funds) or bad actors (if they don't freeze - then they knowingly help criminals).

I don't think ethics is simply playing safe hitting the perfect balance. Quite the contrary, if there's such a thing as mixer ethics, I don't think the service should reserve even a tiny place for AML tools and KYC and the like, because isn't that itself a complete betrayal to the very justification of their own existence?

Yes, you can't please everybody, but you can offer a service that caters to a certain public and solves their problems. In this case it's "users which want to keep their coins fungible even if some chain analyst may have linked them to some kind of risk score".

So I don't think there is something like "generalized mixer ethics". I think the ethical question resolves in how good the service is for the use cases of the target public. And yes, this can conflict with another interest group: victims of crime, but if you design the protocol in a way that it minimizes this "moral cost", but still caters to the target public's necessities, then - why should this be "bad" (ethically) in any way?

I was thinking of those funds that are, borrowing from your thread, "directly coming from criminal sources". If there's an AML tool needed for that, it'd be the most rudimentary of all.

I think it isn't that simple to detect direct criminal funds. Mixers are automated. There are no support employees following crypto news all the time, and then manually checking all the addresses of their mixer customers to see if some is related - that would be impossible to pay Even a "rudimentary" AML tool covering only big heists needs someone who enters the addresses / UTXOs in the blacklist when they know about a hack, and they have to be fast, so that is a service that needs good full time employees 24/7 (maybe it can be automated with an AI, but at the cost of false positives, I assume).

This I think most mixers would probably not know about a hack until it's too late if they don't use a dedicated AML tool or service.

So if they chose to not use an AML tool, then (after that fact) there is no moral dilemma for them. The dilemma is the decision to use the AML tool or not and in which fashion (secretly or openly) - and then, in a second question, to freeze or not to freeze, but for me the answer for this second question is much clearer, see above.

But then, what is the point of having Anti Money Laundering rules.

The point is to make it more difficult to spend the coins. At least, your "ethical" mixer won't help the criminals. It may also not help the police directly (e.g. compared to catching and freezing the coins), but that's not necessarily your business.