Article contributed by Richard Paxton
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Tornado Cash is the perfect name for a cryptocurrency mixer, or what’s also known as a tumbler. What does a mixer do? It digitally stirs, for example, a customer’s Bitcoins with a slew of other Bitcoins, kind of like a tornado in a trailer park. During the mixing process the user’s Bitcoin funds are scattered across potentially thousands of users. What they receive in return is clean. This is all conducted legally because as of this writing the use of crypto mixers remains legal.
How is that possible, you ask? Chock it up to one more wild west moment in the potentially short, but exciting life of decentralization? Industry proponents argue that digital currency mixers serve an important function in the decentralized world by helping its crypto investors maintain their privacy. Kim Grauer, director of research at Chainalysis stated in an interview with Fortune magazine that mixers are, “not inherently illegal — they can be used for legitimate privacy purposes.”
Emphasis on the word can. This stance is kind of noble, but at the same time almost purposely naive in a PR sort of fashion. It is so purposely naive it gives crypto proponents some plausible deniability of the crimes taking place on these platforms. It also serves as a nice alibi for money launderers, purposeful or not. Denial is a powerful emotion. Just consider the growth of money laundering cases involving mixers listed below, and then tell me whether or not there is any industry denial going on:
May 22, 2019: Multi-million euro cryptocurrency laundering service Bestmixer.io taken down
August 18, 2021: Ohio Resident Pleads Guilty to Operating Darknet-Based Bitcoin ‘Mixer’ That Laundered Over $300 Million
January 17, 2022: Crypto.com’s Stolen Ether Being Mixed Through Tornado Cash
April 5, 2022: Justice Department Investigation Leads to Shutdown of Largest Online Darknet Marketplace [ref., Hydra mixing services]
In the case of Crypto.com, over $30 million worth of crypto was stolen from the cryptocurrency exchange. As you can read from the headline above the stolen Ether funds are reportedly being laundered through the crypto mixer I lead this story off with — Tornado Cash.
The Crypto.com thieves are still on the run too. Where are the Crypto Cops? Will they catch them? This theft affected 483 Crypto.com users. That’s an average of almost $63k lost per user! Certainly there were some whales in that batch? All of those affected were miraculously reimbursed.
Mixers and tumblers are, in my opinion, the backbone of each money-laundering operation in the crypto world. Minus these mixers, would digital money launderers have to completely retool?
Are they that ubiquitous in the crypto cleaning process? If crypto mixers had been declared illegal five years ago, would that move have made an impact on the estimated $33 billion that has been laundered via crypto since 2017? Most definitely! It would have made a huge difference. The problem with making these mixers illegal is the argument for and against privacy, an argument the decentralization crowd owns.
The golden age of money laundering is upon us, for now. Everywhere you turn in the decentralized space there are opportunities to not only increase your cryptocurrency fund, in some cases drastically, but also avenues for you to quickly wash those funds clear of government inspection. Afterwards, you can cash out all, or part of your Bitcoin or Ethereum, and then pour those funds into physical properties or other traditional, centralized markets as long term (eg., legit) investments. Enjoy this trend while you still can. Once the United States decides to centralize the current decentralized marketplace, every digital financial move will be regulated, forevermore. Decentralization will be but a memory.
If I were a Crypto Cop looking to get ahead and take down some digital money launderers, I might spend some time getting chummy, maybe over some Fortnight or in an NFT Discord group, with the right source at Tornado Cash, for example. They could help me understand how to read, review and locate the identities behind the coins being mixed on the platform. It would have to be someone higher up, like one of the code’s creators; someone who can see the big picture and understand that not complying, while heroic, might be a bad branding move long term. It is a simple act of relationship building, and information sharing.
The Feds have engineered some creative and effective strategies of late in catching digital crooks, and based on the news I have shared above, seem like they are onto the power of cryptocurrency mixers in the money laundering process, and therefore busting more and more mixer-related crimes. That is great, but as far as the feds are concerned, mixers are just one piece of a constantly moving, digital target that has their heads on a swivel. The time, money and resources needed to conduct one arrest and gain a conviction in a money laundering case involving the use of a crypto mixer, are large.
Wouldn’t it be a lot easier and cheaper to outlaw mixers altogether?
Article contributed by Richard Paxton
Follow him on Medium
