- Cryptocurrency mixing adds a layer of anonymity to pseudonymous transactions
- Mixing obfuscates a coin’s history, essentially making it impossible to denote prior ownership
- Using crypto mixing services is legal, but running one probably isn’t
Cryptocurrency mixing, also known as cryptocurrency tumbling, is a process by which an extra layer of anonymity can be added to typically pseudonymous coins. There is however much debate about the legality of using cryptocurrency mixing services, but our guide to cryptocurrency mixing clears up these misunderstandings and answers the key question – is using a cryptocurrency mixing service legal?
What is Cryptocurrency Mixing?
Cryptocurrency mixing is the process of anonymizing a cryptocurrency transaction so that it cannot be linked to previous holders. Once a transaction has gone through a mixing service, the prior addresses associated with the coins are effectively erased. It is important to note that a crypto mixing service does not completely wipe the history of a coin but mixes it with others to render it almost impossible to identify prior addresses.
How Does Cryptocurrency Mixing Work?
Any coins sent to a cryptocurrency mixer are added to a pool of identical coin types and are mixed up so that the trail of past addresses associated with each one is commingled. When the coins come out of the pool, all links to past addresses have been broken and the coin is effectively anonymous – or at least the trail contains fragments of past transactions that have no bearing on the coin’s actual history.
Why Use a Cryptocurrency Mixer?
The reason crypto mixing has got a bad name for itself is because it is often used by criminals who want to obscure the origins of stolen coins before moving them on. Many people liken this to money laundering, and to be fair there are similarities.
However, there are completely legitimate reasons why someone would want to mix their coins. Given that most blockchains, like Bitcoin and Ethereum, are open to anyone to view, all wallets are therefore also open for the public to view, allowing hackers the chance to identify those with large holdings. This could lead to them using this information to hack the individual, all from a single transaction they once sent someone. Obfuscating the history of transactions out of a wallet means that it is almost impossible to link a real person to a crypto address.
Is Cryptocurrency Mixing Legal?
The key question, and the answer is yes – using a crypto mixing service is legal, but operating a cryptocurrency mixing service might not be. There have never been cases where a user of a cryptocurrency mixing service has been arrested, but in February this year an Ohio resident was arrested on charges of money laundering conspiracy, operating an unlicensed money transmitting business, and conducting money transmission without a license, all because he ran a Bitcoin mixing service on the dark web.
Risk vs Reward
Using a cryptocurrency mixing service might be a good idea for those who have a need for greater privacy, such as those living in countries with oppressive regimes or who want to keep their crypto wallet addresses private, but the 1-3% fee attached to the transaction by most mixing services may prove to be prohibitive for some. Then there is the risk of using a disreputable mixing service that walks off with the crypto you send them.
As with many things in the space, whether to use a cryptocurrency mixing service or not is down to the preference of the individual and if the risk of introducing a third party into a transaction, and the fee, is worth it to them. But the good news is that using a cryptocurrency mixing service is not illegal…for now.