What are Bitcoin Mixers and are they in line with AML standards?

Our recent survey o washing the bitkey revealed how Bitcoin mixers Widely used by the users of the Dark Market, Ransomware Operators and others involved in illegal activities.

But what are Bitcoin mixersDo they have any legitimate use and can I be aligned with KYC / AML standards?

Bitcoin transactions can be monitored. Blockchain gives us the record of the original and destination address for each transaction. These records used bodies for the implementation of the laws for monitoring and identifying criminals, as well as the stock market for the verification of clients’ funds on crime links.

Mixers (or “Bitcoin Tumblers”) are used to prevent such monitoring, aggravating or impossible to identify the source of the transaction.

Mixers can be implemented in several ways, but the basic principle includes a large number of people gathering and joining their Bitcoins. They then take back bitcoins the same value. These Bitcoins probably originate from another source (or source) from those brought into a mixer. This process usually manages centralized services, which takes a fee – usually 1-10% of mixed amount.

(Very simplified) View of what is happening at the Bitcoin mixer: allows users to stop the connection to the source of its Bitcoin.

There are hundreds of such services available through the web. The images below display screenshots with “CoinMixer” service. You simply enter the Bitcoin address to which you want mixed coins to be sent, and then place your Bitcoins on the address specified.

CRYPTOMIXER service: Users enter the Bitcoin address to which mixed coins would like to be sent, and then they are given to the Address for Getting Bitcoin.

Bitcoin mixers and searches to achieve anonymity on block

Mixers can be considered equivalent to the encryptal use of bank accounts in certain offshor jurisdictions for washing “dirty” money. The washers rely on the laws on banking secrets in these countries to ensure that the source of funds cannot be determined. In the same way, Bitcoin mixers rely on these services that they will not reveal the source of any Bitcoin paying out of the mixer, nor any information about its users.

Despite their association with illicit behavior, there are completely innocent reasons for using a mixer. Bitcoin Blockchain provides sometimes an unpleasant level of transparency, compared to traditional payment systems. Knowledge of Bitcoin Address that an individual uses potentially reveals much about how they earn and consume their funds.

Pay for someone in bitcoins for a couple Alpaca socks and potentially you can ask Blockchain to see if they continue to spend these funds pizza or a cremation(!). Therefore, mixers can be used to prevent such sniff and restore a certain degree of financial privacy.

However, there are other ways to maintain privacy without having to go to the extremity of searching complete anonymity. By simply depositing your Bitcoins to a service such as a cashier or wallet service, you can prevent further monitoring of funds by third parties. This is because many of these services work in the same way as a mixer – associate funds and return different Bitcoins to those who are deposited.

The important difference is that these services usually keep records of who their customers are and which payments or deposits are suitable for the client, unlike mixers. This information is not publicly available, but in the relevant circumstances may be revealed to the law enforcement authorities who want to enter into trace by means of such a service.

How should the mixers be treated from the point of view of preventing money laundering? Cannot be assumed that funds from these services are illegal in the absence of other evidence – Only 16% of the funds entering the mixers in our study comes directly from illegal sources and are usually used to prevent sniffing, not funds wash.

However, the use of the mixer should be a factor in assessing the risks associated with a given transaction or client, and can justify further investigation into the source of funds.

Are you interested in learning more about tracking illegal activities on Bitcoin Blockchain? Connect with Elliptic.