With crypto mixers, particularly Tornado Cash, coming under increasing regulatory scrutiny, facing sanctions and generally receiving the wrong kind of attention, this is an opportune time to take an objective look at these services. Looks like. What exactly does a crypto mixer do, why would individuals or institutions want to use these services, and what are the potential legal and regulatory implications? As with anything else in the cryptocurrency space, investors and users of these products and services should themselves carefully review who is using these services and find examples of how previous issues have been resolved.
In other words, it’s a prime example of the importance of always conducting rigorous due diligence.
For the purposes of this talk, the focus will be on no-custody cryptomixers, which may make it harder for regulators to crack down on bad actors, but also reduce the risk for users of these services. Due to the fact that cryptocurrency is never held by a trusted third party or any other entity, and instead is fully controlled by smart contracts and the underlying blockchain, the risk of being stolen by unethical actors is reduced.
Let’s take a look at some of the key questions and considerations that investors and regulators alike should consider when discussing, evaluating, or potentially deploying crypto mixers.
What is Cryptomixer? As the name suggests, a crypto mixer is a service (which can be centralized or decentralized) that increases the anonymity of certain crypto transactions. Users escrow crypto in a smart contract designed to execute mixed transactions from a single address. After a specified time, users can withdraw the previously deposited tokens from another address. The specifics of the mixing process are unique to each crypto mixer, and users are able to verify/confirm the deposited crypto through multiple cryptographic techniques, which – again – vary from protocol to protocol.
Why should investors use such a service? It is also worth remembering that the origins of blockchain and cryptocurrencies – no matter how far they have developed – were heavily influenced by liberal ideas. These include, but are not limited to, a desire for greater privacy and anonymity in relation to individual transactions and a role for governments, regulators and (especially for crypto) existing financial institutions. Crypto mixers improve the anonymity and confidentiality of crypto transactions, which is useful for people seeking privacy or users who want to bypass restrictions that exist in some jurisdictions, such as B. Nations that have effectively allowed crypto transactions can be useful. completely forbidden.
What are its dangers? As recently demonstrated, governments and regulators have mixed (no pun intended) the idea of crypto mixers at best. The entire industry has been accused of money laundering and using blenders to encourage all manner of criminal activity. The Office of Foreign Asset Control (OFAC) has imposed sanctions on many of the most high-profile vendors in this space, with a label normally reserved for nation-states designating a smart contract as a specially designated national. As crypto mixers continue to gain notoriety, this in turn will result in more regulators operating these protocols and taking longer to exploit investors.
From a consultant’s point of view, there are definitely use cases and situations where cryptomixers can be used for completely legitimate purposes. It’s also worth noting that traditional financial services firms routinely facilitate illicit payments or launder funds originating from illicit sources. However, it is safe to say that in the future there will be many more questions that users and institutions dealing with crypto mixers will need to answer. Clients of all sizes should consider this before allocating assets to shufflers or dealing with counterparties that do.
Like everything in the blockchain and cryptoasset space, crypto mixers have rapidly evolved, evolved, and entered mainstream financial talks at a rapid pace. As regulators continue to grab the private sector, regulation and enforcement will become more prevalent. Crypto investors, developers, and advisors to these entrepreneurs would be well served by paying attention.