This year has seen an increase in the use of bitcoin and crypto mixers as cybercriminals and sanctioned entities seek avenues to hide their erroneous gains.
Cryptocurrencies sent through mixing services have reached their all-time high, according to a July 14 report by blockchain analysis firm Chainalysis.
Mixers have gained a bad reputation as they have become the method of choice for cybercriminals and rogue states to launder digital assets. Chainalysis reported that about 10% of all funds sent from illegal crypto addresses are sent to Mixer.
It added that the 30-day moving average of the crypto sent to Mixer reached an all-time high of $51.8 million in April. The amount sent to Mixer was upwards of $600 million in Q2, 2022, but the majority of it came from sanctioned entities and stolen funds.
It would be safe to conclude that the war in Ukraine and the global sanctions imposed on Russia have had a major impact on the use of mixers for the first half of this year.
“Most notably, the huge amount of money going into Mixer from addresses associated with approved entities, especially in Q2 2022.”
Mixers are not illegal and provide legitimate services for those who need some financial privacy for whatever reason. The US Financial Crimes Enforcement Network (FinCEN) has clarified that mixers are money transmitters that require registration under the Bank Secrecy Act (BSA). Naturally, this is not going to happen because it negates their purpose.
Taking advantage of this legal loophole, addresses linked to sanctioned entities such as Russian darknet market Hydra and North Korean hacker group Lazarus accounted for 80% of funds sent to Mixer in 2022.
The report states that hackers affiliated with the North Korean regime have stolen over $1 billion worth of crypto assets so far this year, mostly from the DeFi protocol. The rest is made up of cryptocurrency derived from protocol exploits, scams, ransomware and other nefarious sources.
In April, Be[In]Crypto reported that Ethereum mixer had agreed to block Tornado Cash accepted addresses.
How do crypto mixers work?
Mixers disrupt transactions using several different methods. They break the connection between the sending address and the receiver making it very difficult to trace assets.
Crypto sent to the mixer is randomly pooled or “mixed” before being sent to the recipient which makes it very difficult to trace the origin address. Further anonymity can be achieved by staggering transaction times and changing fees and deposit types.
Their weak point is the large transactions that overwhelm the mixing pool, making it easy to trace blockchain sleuths.
Another major problem is that according to a Chainalysis report earlier this year, uninformed policymakers associate Mixer with the entire crypto industry, yet illegal activity accounts for about 0.62% of all crypto transactions.