2024 - the year that they went after mixers!
[The views and opinions expressed in this post are strictly those of the author and do not represent or reflect the policies, positions, or beliefs of their current or any previous employer.]
It’s been a notable few weeks for onchain privacy with a big focus on shutting down crypto mixers.
Just last month, Samurai Wallet creator Keonne Rodriguez was arrested on money laundering and operating an unlicensed money transmitting business. He initially plead not guilty to the accusations but could be looking at a 25 year stretch if found guilty in his hearing on May 14th. Prosecutors allege that Samurai processed more than $2billion in illicit funds between 2015 and 2024 with at least $100m linked directly to laundering of illicit funds through darknet marketplaces.?
Following quickly behind the team behind Wasabi Wallet, ZKSNACKS announced in April that they would be blocking the service for US citizens - likely in an attempt to placate regulatory pressure they were receiving stateside. However, by May 2nd they had announced that they would be shutting down their mixing and conjoin services from 1st June 2024 citing the need for more legal clarity.?
Wasabi has seen thousands of bitcoin pass through its mixing services monthly and with Tornado Cash, Samurai and now Wasabit all shuttered, the mixing and crypto privacy space is about to look significantly different.?
This all follows the 2023 arrest of Tornado Cash developers Roman Storm and Roman Semenov who face up to 40 years each in prison on the count of money laundering and sanctions violations.?
“Cryptocurrency mixers have become the go-to method for criminals to conceal their ill-gotten gains. As alleged, the defendants operated Tornado Cash as a safe haven for criminal actors to obfuscate the trail of funds tied to their criminal activities, such as computer hacking and wire fraud,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division.
Another developer, Alexy Pertsev was arrested back in 2022 and Dutch prosecutors are proposing a 46 month jail term under the claim that he made "a habit of committing money laundering.". He is due for sentencing on May 14th and many open source developers and crypto project devs will be keeping a close eye on the final verdict as it potentially carries worrying consequences for developers of open source and decentralised tech which falls into the hands of criminals.?
For balance with the Acting Attorney General’s statement above I think it's important to note that criminals aren't the only customers of mixers - in fact back in August 2022, hot off the heels of the Tornado Cash sanctioning, I wrote a piece about the legitimate use cases of mixers: https://www.dhirubhai.net/pulse/what-legitimate-use-cases-using-mixer-tara-annison and industry heavyweights such as Vitalik Buterin and Zooko Wilcox (founder of Zcash) have also sort to defend their legitimate use cases and the importance of onchain privacy.?
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The licit use cases outlined within this article are as relevant today as they were 21 months ago and will undoubtedly still be needed in X years to come.?
And the important question is whether banning mixers will have the intended consequence of stopping bad actors from obfuscating the movement of their illicit funds.
I wrote a piece back in June of last year entitled “After you sanction mixers, where does criminal crypto activity go?” and my prediction then was that we’d see bad actors move funds into DEXs to try to conceal their funds within liquidity pools. This prediction was already supported by a swathe of activity with the $160m from the Wintermute hack moving into Curve Finance and the Yearn Finance exploiter moving funds through Uniswap. Now with Uniswap receiving a Wells Notice it’s likely that some of the big name DEXs are in the regulatory crosshairs and any illicit flows finding their way there will be being scrutinised.?
In my October 2023 piece for Twinstake I also noted the risk of illicit actors staking their funds with permissionless staking providers and included an example of transactions from the Lazarus Group (North Korea’s hacking arm) being sent to decentralised pooled staking provider. https://www.twinstake.io/reports/illicit-threats-in-crypto-asset-staking-choosing-an-institutional-provider-to-mitigate-the-risks ?
With the recent ZKasino scam in which $33m from presale investors was instead directed into Lido, it looks like the high liquidity of permissionless staking pools may be being noticed by scammers and used in an effort to conceal the source of their illicit funds, whilst also earning some yield.
It’s also worth noting that whilst Tornado Cash is now a sanctioned entity and many of its associated developers are sitting in jail, this hasn’t stopped its use. In fact, whilst the OFAC action has likely scared off any individuals and law-abiding businesses, the Lazarus Group have returned to it. Back in March 2024, Elliptic’s research showed that the group had laundered $100m from the HTX and HECO hacks. https://www.elliptic.co/blog/north-korean-hackers-return-to-tornado-cash-despite-sanctions They had turned to Sinbad.io as their mixer of choice post the sanctioning of Tornado, however with this in turn being sanctioned in October 2023, criminals and regulators continue to play cat and mouse. In addition to this use, the November 2023 Poloneix hacker also moved $3m through Tornado Cash, showing that it’s still a destination of choice for some criminals.?
On the regulatory front, there’s an imminent bill coming from the House Financial Services Committee in the US which is expected to “clamp down on mixers” as it sees them as a primary money laundering concern. The view is essentially ‘guilty unless proven innocent’ with one of the backers, Rep. Sean Casten (D-Ill.) saying:
"The presumption should be that these are money laundering channels,"?
However with the election season starting to warm up and a Republican-majority house it’s likely to face the fate of many a crypto bill, and be held in policy purgatory.?
There remains a clear challenge when it comes to a user’s right to privacy and the use of privacy-orientated technology, like mixers, by illicit actors. Time will tell what regulatory stance is adopted across each jurisdiction but for now it’s clear that this is, and will remain, a hot button topic.?
#PrivacyIsNormal #mixers #cryptocurrency #blockchain?
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6 个月Insightful piece as ever Tara Annison ?? . I suspect this debate will continue to be one you revisit ?? Feels to me a bit like the one around UBO's and opaque/complex company structures in the TradFi world. As with a lot of things, there are legitimate uses, but they can also be used for less than legitimate activity ?? .