Bitcoin Mixing Services Are Seeing An Increase In 2022

Crypto mixing services are one of the best ways to protect individual users’ identities, but a new report from blockchain intelligence firm Chainalysis shows that cybercriminals and nation states sent more cryptos to mixers than any other user group.

"Illicit addresses account for 23% of funds sent to mixers so far in 2022, up from 12% in 2021," the report showcases.

Despite Chainalysis reporting that a large portion of crypto mixer users are using those services to cover up their illicit activities, the intelligence company also acknowledges that there are many legitimate reasons to use mixers. For instance, users can use mixers to trade crypto under an oppressive government or anonymize legal but sensitive transactions.

"However, mixers' core functionality, combined with the fact that they rarely, if ever, ask for KYC [Know Your Customer] information, makes them naturally attractive to cybercriminals," Chainalysis writes.

How crypto mixers work

Crypto mixers are essentially large pools that allow users to send cryptos in order to erase the trail left by most transactions on blockchain networks and receive a fresh batch of cryptos without being traced.

According to United States laws, crypto mixers are classified as money transmitters under the Bank Secrecy Act (BSA), which obliges mixers to register with the FinCEN and deploy a sort of anti-money laundering program. However, Chainalysis admits that the company is still unaware of any mixing services providers obliging to KYC or AML (Anti-Money Laundering) policies. Meanwhile, U.S. authorities already charged, sanctioned, and fined several mixer operators since 2021 with Larry Harmon, CEO of Bitcoin mixer Helix, who pleaded guilty to money laundering charges for allegedly laundering 354,468 Bitcoin, around $300 million at the time.

Crypto enforcement targets mixers

Apart from the Helix case, the U.S. Justice cooperated with German law enforcement to seize Russian darknet site Hydra's servers and sanctioned the site in April 2022. The actions towards crypto mixers continued in May, as the U.S. Treasury Department's Office of Foreign Assets Control sanctioned Blender.io, allegedly tied to North Korea. Blender is the middleman for at least $21 million of the $622 million stolen in the Axie Infinity Ronin bridge hack.

Furthermore, Harmony Protocol's Horizon bridge exploiters managed to send $36 million in stolen Ethereum to the Tornado Cash mixing service in June. In order to respond to the increased number of hacks and exploits, Chainalysis opened up a 24-hour incident response channel, directed to hackers and ransomware victims.

However, the vast majority of cryptos inflowing into mixers are from centralized exchanges and DeFi protocols. However, crypto mixers may soon fall out of fashion, as the industry gets increasingly better at de-mixing the transactions and tracing back the original source of funds.