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According to a new report by blockchain intelligence firm Chainalysis, the most significant portion of crypto sent to mixers this year came from cybercriminals and nation-states, even though privacy advocates tout cryptocurrency mixers as an essential way to protect the identities of individual users.
"Illicit addresses account for 23% of funds sent to mixers so far in 2022, up from 12% in 2021," writes Chainalysis. The company recognizes several valid reasons to employ mixers, such as trading cryptocurrency under a repressive regime or anonymizing lawful 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," adds Chainalysis.
According to the tracking organization, mixers have received more bitcoin than ever in 2022.
Mixers are services that enable users to obliterate the digital money trail left by the majority of transactions on blockchain networks such as Bitcoin and Ethereum. These services make it more difficult to trace a path that would otherwise be publicly and freely accessible on the blockchain.
As the name indicates, mixers, also known as tumblers, combine and mix the bitcoin deposits of many customers. Users get monies from the disguised pool equal to their contributions, less applicable costs.
The Bank Secrecy Act classifies mixers as money transmitters in the United States, according to Chainalysis (BSA). Money transmitters must register with FinCEN and adopt a money laundering prevention program. However, the company reports that it is unaware of any mixers adhering to KYC or AML (Anti-Money Laundering) procedures.
Since 2021, U.S. authorities have prosecuted, sanctioned, and penalized several mixer operators.
Larry Harmon, CEO of Bitcoin mixer Helix, pled guilty to money laundering charges in August 2021 for allegedly laundering 354,468 Bitcoin, worth around $300 million. Harmon, who also ran Coin Ninja’s mixing business, was fined $60 million.
In April, the U.S. Justice Department stated that it had collaborated with German law enforcement to seize and penalize the Russian darknet site Hydra servers.
In what the Treasury says the first-of-its-kind action, the Office of Foreign Assets Control of the United States Treasury Department slapped sanctions against a cryptocurrency mixing service, Bender.io, with ties to North Korea in May. At least $21 million of the $622 million stolen in the Axie Infinity Ronin bridge attack was routed to Blender, according to the agency.
Cybercriminals moved $36 million in stolen Ethereum through the Horizon bridge of the Harmony Protocol to the Tornado Cash mixing service last month. In the same month, Chainalysis introduced a 24-hour incident response mechanism to aid victims of hackers and ransomware.
According to Chainalysis, most cash traveling to mixers originates from centralized exchanges, DeFi protocols, and addresses associated with criminal activities tied to sanctioned nations, darknet markets, and hackers like the North Korean Lazarus Group.
However, mixers may become redundant shortly, according to Chainalysis, as the company “continues to refine” its capacity to de-mix particular transactions and identify the source of money.
