In cryptocurrency, there are businesses that a called “mixers” or “blenders”  on the Ethereum blockchain.  The purpose of these businesses is to help disguise the source and target of funds.   Many people believe that there is no purpose for this service except money laundering, but there might be legitimate reasons.   For instance you might live in a country where your rights are often not enforced, and so, to defend yourself, you would want to re-enforce anonymity.    But, Tornado is accused of laundering a total of $7 Billion.  Specifically, the Treasury Department believes that Tornado Cash was used in several schemes perpetrated by North Korea.

How do mixers work?

Well, you take a quantity of mixer, pour into a glass, add a shot or 2 of vokdka…   Oh, sorry.  Cryptocurrency transactions are indelibly recorded on a blockchain that is publicly available.  Put simply, these mixers will co-mingle transactions, thus making the sources and targets of these funds less clear. 

Are there different kinds of blenders or mixers?

There are both centralized and decentralized exchanges, so it is likely not surprising to find that there are also centralized or decentralized mixers.     A centralized mixer means that there is a centralized  party who plans and executes these transactions.   There are also decentralized mixers (like CoinJoin or Tornado Cash) that require individuals to meet up  and agree to the transaction specifics.  Decentralized mixers charge much lower fees, but do require substantial knowledge of the individuals.

Are blenders and mixers legal?

They are not explicitly illegal.  But, they are often used for illegal purposes.   Per a recent report by Chainalysis report, they are the “go-to tool for cybercriminals dealing in cryptocurrency.”    The rub is that the US government believes that these companies must be registered under the auspices of the BSA.    This is quite complicated, and expensive, so the companies do not want to have to be registered, or abide by the  onerous recordkeeping requirements.

What can be done with non-compliant organizations?

Quite a lot can be done, especially with the help of international partners.  First, any servers used in this illicit activities can be seized by authorities.  They can face sanctions for their participation in international hiding of income.   Finally, they can also face a variety of criminal and civil charges.

Is this really a big deal?

Yes, it is.   In a variety of hacks, the ill-gotten gains were distributed using blenders, mixers or related services.

1. In March 2022, there was a $620 Million hacking exploit on the online game Axie Infinity.   $20 Milllion of this money was distributed by Blender.io and this caught the attention of  the OFAC.
2. In October 2020, the founder was ordered to pay $60 Million in civil penalties after his service Helix processed transactions totaling more than 350,000 BTC from 2014 to 2017.
3. In April 2021, the founder of Botcoin Fog was arrested and stands accused of laundering $336 million USD in Bitcoin over a 10-year period.
4. Tornado Cash laundered over $96 Million obtained in a combination of attacks on other cryptocurrency systems.  Crypto.com was hacked, and  it seems that 4,600 ETH was  washed using Tornado Cash.

The Verdict

A mixer can be a lot of things.   To some, it is a party so that people on a team meet each other in a social setting.   To others, it is a beverage one can combine with alcohol to improve the flavor of that alcohol.  To still others, it is a service that will help support the anonymous nature of their cryptocurrency transactions, whether illicit or legitimate.  But, one thing we can agree upon is that they exist, and we should then be perhaps a bit more skeptical when we think we know the source of our cryptocurrency transactions.

REFERENCES

Tornado Cash: What Are Crypto Mixers and How Do They Work? (coindesk.com)

Crypto Mixers and AML Compliance – Chainalysis

Mixers, Tumblers, Foggers – CipherTrace

US Treasury imposes sanctions on ‘crypto mixer’ over alleged laundering | Financial Times (ft.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.