Cryptocurrency tumbler explained

A cryptocurrency tumbler or cryptocurrency mixing service[1] is a service that mixes potentially identifiable or "tainted" cryptocurrency funds with others, so as to obscure the trail back to the fund's original source.[2] This is usually done by pooling together source funds from multiple inputs for a large and random period of time, and then spitting them back out to destination addresses. As all the funds are lumped together and then distributed at random times, it is very difficult to trace exact coins. Tumblers have arisen to improve the anonymity of cryptocurrencies, usually bitcoin (hence bitcoin mixer), since the digital currencies provide a public ledger of all transactions. Due to its goal of anonymity, tumblers have been used to money launder cryptocurrency.

Background

Tumblers take a percentage transaction fee of the total coins mixed to turn a profit, typically 1–3%. Mixing helps protect privacy and can also be used for money laundering by mixing illegally obtained funds. Mixing large amounts of money may be illegal, being in violation of anti-structuring laws. Financial crimes author Jeffrey Robinson has suggested tumblers should be criminalized due to their potential use in illegal activities, specifically funding terrorism;[3] however, a report from the CTC suggests such use in terrorism-related activities is "relatively limited".[4] There has been at least one incident where an exchange has blacklisted "tainted" deposits descending from stolen bitcoins.

The existence of tumblers has made the anonymous use of darknet markets easier and the job of law enforcement harder.[5]

Peer-to-peer tumblers

Peer-to-peer tumblers act as a place of meeting for bitcoin users, instead of taking bitcoins for mixing. Users arrange mixing by themselves. This model solves the problem of stealing, as there is no middleman. When it is completely formed, the exchange of bitcoins between the participants begins. Apart from mixing server, none of the participants can know the connection between the incoming and outgoing addresses of coins.[6]

Money laundering

In December 2013 cryptocurrency tumbler Bitcoin Fog[7] was used to launder a part of the 96,000 BTC from the robbery of Sheep Marketplace.[8]

In February 2015, a total of 7,170 Bitcoin was stolen from the Chinese exchange Bter.com and traced back to the same tumbler.[9]

In May 2019, FinCEN published a Guidance document that mentioned anonymizing services and mentioned particularly "tumblers".[10]

In February 2020, the alleged operator of a cryptocurrency tumbler was indicted on charges of "money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a D.C. license."[11]

In January 2021, the Department of Justice conducted an operation targeting the ransomware hacker NetWalker, successfully confiscating around $500,000 in digital assets. Then, in February 2021, they apprehended three hackers affiliated with the North Korean military, recovering $2 million in illicitly acquired digital assets.[12]

In April 2021, U.S. Federal authorities arrested the founder of Bitcoin Fog, a Russian-Swedish man named Roman Sterlingov, on charges of money laundering, operating an unlicensed money transmitting business, and money transmission without a license in the District of Columbia. It was alleged that during its 10 years of operation, Bitcoin Fog laundered over 1.2 million Bitcoin at a value of approximately $335 million.[13] [14] In March 2024 the verdict came back guilty on all counts. Roman's counsel plan to appeal the verdict. Sentencing is set for July 2024.[15]

In 2022 the tumblers Blender.io and Tornado Cash were both sanctioned by the United States Department of the Treasury, making it illegal for US citizens, residents and companies to use the service.[16] [17]

In March 2023, the tumbler ChipMixer and 46 million dollars in Bitcoin were seized.[18]

See also

Notes and References

  1. News: Jeffries. Adrianne. How to steal Bitcoin in three easy steps. 17 May 2015. 19 December 2013. 10 May 2021. https://web.archive.org/web/20210510195348/https://www.theverge.com/2013/12/19/5183356/how-to-steal-bitcoin-in-three-easy-steps. live.
  2. https://ssrn.com/abstract=3080361 The Cryptocurrency Tumblers: Risks, Legality and Oversight.
  3. News: Allison. Ian. Bitcoin tumbler: The business of covering tracks in the world of cryptocurrency laundering. 17 May 2015. February 11, 2015. 24 September 2015. https://web.archive.org/web/20150924045528/http://www.ibtimes.co.uk/bitcoin-tumbler-business-covering-tracks-world-cryptocurrency-laundering-1487480. live.
  4. News: Brantly. Aaron. Financing Terror Bit by Bit. 17 May 2015. 31 October 2014. 23 May 2017. https://web.archive.org/web/20170523235646/https://www.ctc.usma.edu/posts/financing-terror-bit-by-bit. dead.
  5. News: IHS Jane's Intelligence Review. Law enforcement struggles to control darknet. 6 July 2015. 30 December 2014. 17 September 2015. https://web.archive.org/web/20150917074919/http://www.janes.com/article/47455/law-enforcement-struggles-to-control-darknet. live.
  6. See. Kenneth. The Satoshi laundromat: a review on the money laundering open door of Bitcoin mixers. Journal of Financial Crime. 10.1108/JFC-11-2022-0269. 2023.
  7. Bitcoin Fog . Wired . Greenberg . Andy . 2021-05-03 . 2021-12-18 . https://web.archive.org/web/20211218202411/https://www.wired.com/story/bitcoin-fog-dark-web-cryptocurrency-arrest/ . live .
  8. News: Edwards. Jim. A Thief Is Attempting To Hide $US100 Million In Stolen Bitcoins -- And You Can Watch It Live Right Now. 17 May 2015. 4 Dec 2013. 29 December 2021. https://web.archive.org/web/20211229152048/https://www.businessinsider.com.au/a-thief-is-attempting-to-hide-100-million-in-stolen-bitcoins-and-you-can-watch-it-live-right-now-2013-12. live.
  9. Web site: Ghoshal. Abhimanyu. Chinese Bitcoin exchange Bter will pay back users after losing $1.75 million in cyberattack. The Next Web. 9 September 2015. 12 March 2015. 8 November 2020. https://web.archive.org/web/20201108135025/http://thenextweb.com/insider/2015/03/12/chinese-bitcoin-exchange-bter-will-pay-back-users-after-losing-1-75-million-in-cyberattack/. live.
  10. Web site: Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies . 2022-08-18 . 2021-11-16 . https://web.archive.org/web/20211116144139/https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf . live .
  11. Web site: Ohio Resident Charged with Operating Darknet-Based Bitcoin "Mixer," which Laundered Over $300 Million. 2020-02-13. www.justice.gov. en. 2020-02-17. 2022-05-12. https://web.archive.org/web/20220512040537/https://www.justice.gov/opa/pr/ohio-resident-charged-operating-darknet-based-bitcoin-mixer-which-laundered-over-300-million. live.
  12. Hossain . Mohammad Belayet . 2023-11-28 . Acquiring an awareness of the latest regulatory developments concerning digital assets and anti-money laundering . Journal of Money Laundering Control . en . 26 . 6 . 1261–1268 . 10.1108/JMLC-10-2022-0147 . 1368-5201 . 2024-04-11 . 2023-11-26 . https://web.archive.org/web/20231126042925/https://www.emerald.com/insight/content/doi/10.1108/JMLC-10-2022-0147/full/html . live .
  13. Web site: Lyons. Kim. 2021-04-29. Feds arrest founder of bitcoin 'mixer' they say laundered $335 million over ten years. 2021-05-10. The Verge. en. 2021-12-29. https://web.archive.org/web/20211229151419/https://www.theverge.com/2021/4/29/22409501/feds-arrest-founder-bitcoin-mixer-laundered-cryptocurrency. live.
  14. Web site: 2021-04-28. Individual Arrested and Charged with Operating Notorious Darknet Cryptocurrency "Mixer". 2021-05-10. www.justice.gov. en. 2021-12-20. https://web.archive.org/web/20211220221831/https://www.justice.gov/opa/pr/individual-arrested-and-charged-operating-notorious-darknet-cryptocurrency-mixer. live.
  15. Web site: 2024-03-12. Jury Finds Russian-Swedish Operator of ‘Bitcoin Fog’ Guilty of Running the Darknet Cryptocurrency Mixer. 2024-03-13. www.justice.gov. en. 2024-03-12. https://web.archive.org/web/20240312213825/https://www.justice.gov/usao-dc/pr/jury-finds-russian-swedish-operator-bitcoin-fog-guilty-running-darknet-cryptocurrency. live.
  16. Web site: Clark . Mitchell . 2022-05-06 . US punishes Blender.io for helping North Korea launder millions in stolen Axie crypto . 2022-08-08 . The Verge . en . 2022-06-09 . https://web.archive.org/web/20220609012528/https://www.theverge.com/2022/5/6/23060544/us-treasury-blender-io-sanctions-bitcoin-mixer . live .
  17. Web site: Faife . Corin . 2022-08-08 . US Treasury bans Tornado Cash mixer for role in crypto money laundering . 2022-08-08 . The Verge . en . 2022-08-08 . https://web.archive.org/web/20220808154359/https://www.theverge.com/2022/8/8/23296778/us-treasury-tornado-cash-crypto-mixer-sanctions-ethereum-north-korea . live .
  18. News: Coote. Darryl. Int'l operation takes down ChipMixer money laundering service. UPI News. MSN. 16 March 2023. 1 April 2023. 17 March 2023. https://web.archive.org/web/20230317150305/https://www.msn.com/en-us/money/other/intl-operation-takes-down-chipmixer-money-laundering-service/ar-AA18HnDt. live.

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