Bitcoin ‘mixing’ is getting a reputation for money laundering as another service admits to illegal activity

Bitcoin ‘mixing’ is getting a reputation for money laundering as another service admits to illegal activity
You shouldn't mix your drinks.. or your BitcoinBusiness Insider
  • Bitcoin mixing services Helix and Bitcoin Fog are accused of money laundering.
  • Privacy advocates insist that anonymity and privacy offered by mixing is a good thing.
  • Users of Bitcoin mixing are themselves being monitored and take significant risks.
The man behind the Bitcoin mixing service Helix, Larry Deen Harmon, has pleaded guilty to charges of laundering $300 million.

Making transactions with Bitcoin isn’t completely anonymous, which is why a lot of people choose to use services like Helix or Bitcoin Fog to engage in Bitcoin ‘mixing’. Because this makes tracking payments more difficult, it’s also a fan favourite for those looking to launder money — as Harmon has admitted.

According to the US Federal Bureau of Investigation (FBI), Helix moved over 350,000 bitcoins on behalf of customers, with the largest volume coming from Darknet markets. Laundered Bitcoin were also involved in illegal drug trafficking offenses, routed through the Darknet. The Darknet refers to a part of the Internet that is usually hidden from the mainstream, accessible only through specialised means — for example, the Silk Road marketplace that was used for trading illegal goods.

Harmon will most likely have to forfeit more than 4,400 Bitcoin valued at over $200 million today. His punishment could include 20 years in prison and a fine of $500,000 or twice the value of the property involved in the transaction.

In a parallel action, a $60 million penalty was also assessed by the Financial Crimes Enforcement Network (FinCEN) for Helix’s violations of the US Banking Secrecy Act.


What is Bitcoin Mixing?

Slightly different from money laundering seen with national currencies, Bitcoin mixing makes it hard to identify the origin of the coins. Like serial numbers on currency notes, specific coins or transactions may be ‘marked’ and tracked – due to involvement in specific cyber incidents or the wallet they used to belong to.

Bitcoin ‘mixing’ is getting a reputation for money laundering as another service admits to illegal activity
Bitcoin mixing pools coins with other usersTarushTech/Medium

A mixing service will take such tainted or identifiable coins, pool them with coins from other people over a large period, and then send back coins at random times. This is claimed to obscure the trail and improve privacy of cryptocurrencies.

As a reminder, most cryptocurrencies use a publicly accessible blockchain – a ledger that records all transactions made in that currency and could be used to trace back the flow of money.

Bitcoin ‘mixing’ is getting a reputation for money laundering as another service admits to illegal activity
Bitcoin mixing wants to make it so that the authorities cannot trace transactions back to the original owner<br>TarushTech/Medium

Different types of Bitcoin mixers exist – from peer-to-peer tumblers that are arranged directly by the participants to commercial services like Helix to others like Bitcoin Fog that may charge 1-3% fees to turn a profit.

Impact of Bitcoin Mixing

Financial instruments that are normal today faced considerable suspicion and pushback when they were new, including the concept of a central bank itself. Similarly, ‘cryptocurrency tumblers’ that ‘mix’ Bitcoin, Ether and Litecoin are still evolving and the effects are still playing out.

Privacy advocates bat in favour of mixing, as a way of retaining anonymity in what is an ‘open book’ currency.

The need for privacy is growing as a counter-reaction to repression. When a user once gets his coins on some exchange frozen without any recourse, when his exchange is over complying from fear of regulators, the only defence this user has is to mix his coins for the next time.

Bitcoin Core developer Nicolas Dorier.

Law enforcement officials however, do not see it as a good thing despite the existence of ‘Know Your Customer’ (KYC) regulations to identify transactions. They say that mixing makes their job of tracing illegal transactions harder, affording an extra layer of protection to criminals on the Darknet.
Crypto exchanges such as Paxos and Binance too, are wary of coins processed through mixers. They are watching out for ‘alarming patterns’ and users have been asked questions to explain such transactions.

In addition, a person who sends in their coins for mixing doesn’t own those coins until they are sent back, which has led to fake services that scammed people instead.

On balance, it can be said that a lot of cryptocurrency activity has moved to functioning in the light of day, but Bitcoin mixers still have a long way to go to be seen as entirely legitimate.

Helix is not the only Bitcoin mixing service to come on the government's radar

Before Helix, April 2021 saw the arrest of Roman Sterlingov, alleged to be the mastermind of Bitcoin mixing service Bitcoin Fog. The US Internal Revenue Service (IRS) charged him with laundering more than 1.2 million Bitcoin, of which 23% would pass through the infamous Silk Road.

In their filings, the American agency mentions that they were able to analyse years of blockchain data, track transactions including his server hosting expenses, eventually identifying the home address and phone number of the accused Sterlingov.

These two incidents serve as a reminder that cryptocurrency – especially Bitcoin – is not anonymous and can be traced. Ironically for these two cases, that may be exactly what drives the demand for ‘Bitcoin mixing’, though users say they simply want privacy which is a declared human right and mixing is not for criminals alone.

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