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Bitcoin Coin Mixers in Legal Crosshairs

Coin mixing has always been useful for those trying to protect their private Bitcoin and crypto activity. However, recent regulatory action calls its legality into question.

That depends on whether they are custodial or non-custodial. Using either type of mixer does come with some risk. The recent arrest in the U.S. of Larry Harmon from Ohio has cast the issue of coin mixing back into the spotlight.

Money Laundering

What is Coin Mixing?

Coin mixing is a privacy-enhancing technology for cryptocurrency users. Privacy coins aside, most cryptocurrencies, including Bitcoin, are pseudonymous and easily traceable on the blockchain in their transactions. Crypto-sleuthing firm Chainalysis has turned crypto transaction tracking into a very profitable business by selling its services to law enforcement agencies.

Coin mixers or tumblers allow users to split their funds into small parts and rewire them through thousands of microtransactions, sometimes into and out of a comingled pool, to a new address, thereby making it difficult for anyone to follow the cryptocurrency.

Mixing is a service that tends to appeal to two kinds of people: criminals seeking to hide ill-gotten gains or avoid taxes and people who want to protect their right to privacy. Depending on how the mixers work has a significant bearing on their legal standing.

Custodial Vs. Non-Custodial Mixing Services

In filings before the United States District Court for the District of Columbia, the U.S. Department of Justice charged that Harmon:

“… owned and operated a money transmitting and money laundering business called Helix. Helix was a service linked to and affiliated with Grams, HARMON’s Darknet search engine, and the two services were sometimes referred to collectively as Grams-Helix. Helix offered an Internet-based service that… enabled customers, for a fee, to send bitcoins to designated recipients in a manner which was designed to conceal and obfuscate the source or owner of the bitcoins. This type of service is commonly referred to as a bitcoin ‘mixer’ or ‘tumbler.’” Read More...