Cryptocurrency Mixers and Why Governments May Want to Shut Them Down

On May 22, 2019, cryptocurrency mixers were front and center on the news cycle, following reports of European authorities shutting down one such service.

With the eyes of law enforcement seemingly fixed on anonymous cryptocurrency operations, a pivot toward on-chain anonymization might be the solution for those preferring to keep their cryptocurrency transactions anonymous.

Is cryptocurrency transactional anonymity a myth?While it is common to hear phrases like "Anonymous transactions" with respect to cryptocurrencies, the truth is that activities on many blockchains are more pseudonymous than anonymous.

For cryptocurrency transactions, the absence of an intermediary means A and B can transact between themselves without revealing their identities.

Cryptocurrency mixers and how they workThere are, of course, cryptocurrencies that offer near-total anonymity by obscuring almost every detail of a transaction - addresses, amounts involved, etc.

These cryptocurrencies mostly utilize transaction mixers or high-anonymity consensus protocols, such as zero-knowledge proofs, to create almost total obfuscation of transaction details.

Not everyone who values anonymity would necessarily want to use these privacy coins, and that is where cryptocurrency mixers come into play.

Person C could use a cryptocurrency tumbler to mix up these transactions by adding inputs from other users.

Recently, Europol, in conjunction with Dutch and Luxembourgian authorities, shut down Bestmixer.io - one of the largest cryptocurrency mixers in the industry, with a turnover of more than $200 million since its inception back in May 2018.According to the Europol report, the platform was involved in money laundering and several forms of illegal financing.

Cryptocurrencies certainly didn't contribute to the country receiving the FATF's lowest rating in terms of Anti-Money Laundering and KYC compliance back in 2008.Perhaps a pivot toward on-chain anonymization?If governments continue to clamp down on avenues that ensure transactional anonymity, then it stands to reason that developers will create more robust platforms that will be more difficult to police.