What Is A Crypto Mixer (a.k.a. Tumbler)?

Crypto mixers allow users to complete cryptocurrency transactions while preserving their privacy.

Transparency is one of blockchain's important features, and transactional details are freely accessible to the public. For example, a person can use a block explorer to get in-depth data on crypto transactions, including the sender’s and receiver’s wallet address, amount, fees, and more. 

According to the 2022 Chainanalysis report, almost 10% of the funds used in crypto mixers are used for illicit activities. It’s important to note that the funds used at high-risk exchanges, gambling platforms, P2P exchanges, CEXs, and DeFi remain below 0.3%, representing a limited demand for legitimate activities.

Users prefer crypto mixers to conduct crypto transactions without disclosing the information to the public. While this might sound like a great idea at first, it comes with significant trade-offs, which we’ll cover in this article.

What Is A Crypto Mixer?

Crypto mixer or tumbler is a service that collects funds from users and transfers them without relieving their identities.

For example, you can use this mixer if you plan to send cryptocurrency to your friend while remaining anonymous.

The service offered by mixers hides the sender’s and receiver’s addresses. Here, to mask the user’s details, the mixer’s address will be available to the public as the sender’s and recipient’s address. 

This masking process makes it extremely difficult for the public to obtain details on specific transactions, wallet addresses, wallet portfolios, and other major information that was previously available in a few clicks. 

How Does A Crypto Mixer Work?

There are three steps to how crypto mixers work:

• Step 1: A user visits the crypto mixer platform, provides the receiver’s wallet address, and sends the tokens to the mixer’s wallet address. 
• Step 2: The mixer transfers the user’s funds to a pool, where it mixes all received tokens belonging to numerous other users of their platform. 
• Step 3: After the collected tokens are shuffled well, they are sent to the provided wallet addresses as per the specified amount.

Here, the user who sends the token via the mixer stays anonymous as the blockchain explorers provide the mixer’s wallet address. The mixers deduct a fee from the sender, typically ranging between 1% and 3% of the total crypto transactional value. 

What Are The Types of Crypto Mixers

Decentralized Mixers

Decentralized or non-custodial mixers provide their service to users using the peer-to-peer (P2P) network. Here, the received crypto tokens are mixed and distributed among the users without the support of a central authority or entity.

These non-custodial mixers offer the best possible privacy aspects compared to centralized ones. However, decentralized mixers are less user-friendly as they involve complex protocols, smart contracts, and algorithms.

Decentralized mixers also charge lower fees for their users, as it is easier for the platforms to send cryptos to peer users. Most importantly, the absence of a central authority also reduces the risk of crypto thefts or asset misuse.

Centralized Mixers

In the case of centralized mixers or custodial mixers, a single entity manages and operates the collected user’s fund. Here, the users have no other option other than to trust the respective entity with their crypto fund. 

Compared to decentralized mixers, centralized ones have a higher risk of crypto theft, asset misusage, privacy breaches, etc. Additionally, these custodial mixers usually charge higher fees than non-custodial mixers.

Even though centralized mixers offer a user-friendly interface, they also represent a single point of failure, with a high chance of downtime and hacks that might cause users to lose all their transferred assets.

Advantages of Crypto Mixers

Improved Privacy

Crypto mixers mask the sender’s and receiver’s address, providing the best possible privacy. Even if a person has the wallet address or transaction hash, it will only show the details of the mixer’s wallet activities.

This privacy feature allows users to transfer their crypto assets without leaving their identity mark on the blockchain. Additionally, it makes tracing transactions back to the original sender or recipient extremely difficult, thereby enhancing their anonymity.

Protection Against Hackers

The anonymous nature of crypto mixer-based transactions allows users to stay away from the prying eyes of hackers. The unavailability of trails of user transactions restricts hackers from planning attacks on your wallet.

By hiding important details related to the origin and destination of crypto funds, mixers significantly reduce the risk of targeted online hacks or attacks, thereby providing an additional security layer for users' digital assets.

Risks of Crypto Mixers

While there are advantages associated with crypto mixers, it also comes with certain risks, such as:

• Asset Loss: Vulnerabilities or technical issues, especially in centralized crypto mixtures, can result in the permanent loss of your valuable assets. 
• Money Laundering Concerns: The large usage of crypto mixers for illegal activities such as money laundering can be a potential reason for users to fall under the radar of regulators.
• Exchange Restrictions: Crypto exchanges can detect and block tokens transferred using mixers to comply with the regulatory guidelines of the concerned jurisdictions. 

Crypto Mixers: Are They Legal?

The jurisdiction has the final word on deciding the legality of crypto mixers. If the regulatory bodies haven’t officially banned the use of these mixers in your region, you are free to use their services.

Several instances have been reported where legal actions were taken against the founders and developers for offering crypto-mixing services. In those cases, the case was registered for not following the Anti-Money Laundering (AML) policies and the absence of KYC verifications.

For example, Roman Sterlingov was convicted in Washington, D.C., of money laundering worth around $400 million. According to the evidence and documents submitted to the court, Sterlingov was involved in the operation of Bitcoin Fog, a crypto mixer that provided its services from 2011 to 2021. 

To offer legal crypto mixing services in the United States, one needs to register with the Financial Crimes Enforcement Network (FinCEN), maintain AML and KYC compliance programs, and maintain proper records and reports. 

Crypto Mixer’s Money Laundering Cases

As an informed crypto user, before trusting your funds with crypto mixers, it's necessary to understand the major historical illegal activities of such mixers to evaluate the potential risk involved in these services. 

We’ll have a look at some major money laundering conducted by crypto mixers:

• Tornado Cash: In 2022, the U.S. Treasury sanctioned the crypto mixer Tornado Cash, which was used for money laundering worth over $7 billion since its launch in 2029. In May 2024, the developer of this mixer, Alexey Pertsev, was found guilty and was sentenced to a jail time of 64 months. 
• ChipMixer: This crypto mixer helps criminals, including hackers and spies, launder assets worth over $3 billion. European and U.S. authorities took down this mixer platform, which actively provided its service from August 2017 to March 2023. 
• Helix: According to the FinCEN (U.S. Financial Crimes Enforcement Network), Helix was the first crypto mixer to be penalized by FinCEN for violating anti-money laundering laws. The founder and operator of Helix, Larry Dean Harmon, was sentenced to 51 months in prison for laundering over 350,000 bitcoins between 2014 and 2017. 

Major Bitcoin Mixers

1. Mixero: This Bitcoin mixer offers a user-friendly interface that helps users send their assets to one or more BTC wallet addresses. Users can use Mixero to send bitcoins anonymously for a fixed fee of  0.0003 BTC, ranging from 0.002 BTC to a maximum of 250 BTC.
2. Whir: This non-KYC Bitcoin mixer allows users to send mixed BTC to multiple wallet addresses with an “instant mixing” service to send or receive mixed bitcoins in a few minutes. Whir offers same-day customer support and charges a 3% service fee on the total transaction value and 0.001 BTC as a network fee.
3. Yo!Mix: This bitcoin mixer offers a ‘transfer delay’ feature where the user can choose ‘No delay’ or set a delay of up to 3 days according to their convenience. Yo!Mix allows users to adjust the service fees to boost the process, starting as low as 0.7% to 5%. 

Conclusion

Crypto mixers allow users to send and receive crypto assets without exposing the sender’s or receiver’s wallet address. Moreover, if your jurisdiction doesn’t prohibit crypto mixing services, you are free to use such platforms while considering the risk associated with such platforms. 

Despite the attractive privacy features that crypto mixers offer, there are possibilities for exit scams, theft, or external hacks, which can lead to partial or complete loss of your valuable digital assets. Ultimately, it’s up to you to decide if the potential benefits are worth the tradeoff.