Coin Mixing: The Causes and Effects
Drug Lords and Crypto Currencies
Some days ago, I started seeing a Korean series that revolves around drug abuse, and somehow inter-twined with crypto currencies.
Max and Doogo:
Max (not real name) is a fine young man in his early thirties, he is the CEO of a popular logistics company, as well as one of the most powerful, sophisticated drug lords in South Korea. Max imports a deadly kind of synthetic hard drug, in the form of face masks. It was easily bypassed at the airport, considering the fact that the police had a hint that some hard drugs were to get into the country that night.
Max has a standby chemist who analyses and synthesizes drugs for him, the synthetic hard drugs disguised as face masks dissolves as soon as it get in contact with water, the chemist dehydrates the mixture in an oven, and a powdered substance magically appears. This substance was modified into pills and pellets that can be easily ingested. It was sometimes advertised as a weight loss drug to unsuspecting people, and other times, to others who recognizes it partially, hard drugs.
This drug will go on and on to kill a lot of people like a plague.
Drugs, Coin Mixing, Wait fot it;
In a guise to mask his source of his wealth, Max went on to create a crypto currency (Doogo coin) while heavily marketing for investors to invest in the crypto currency he created.
Meanwhile, the South Korean cops have been studying the concept of coin mixing, upon the advent of different crypto currency scams going on in the country. They were seen monitoring coin trends on each of their computers.
Going Straight to the point, here is what Max does;
Max, as a drug lord, makes a lot of money from peddling and synthesizing hard drugs. The inflow of these monies will be traced and monitored by authorities, as unclean money. Max will utilize coin mixing services to confuse the origin and flow of funds from his drug peddling activity.
The ‘Doogo’ crypto currency he created will make it much easier for him to mix coins.
The Art of Mixing Coins
Coin mixing, also synonymous to coin tumbling or coin laundering, is a process that confuses the transaction history of a cryptocurrency, making it difficult to trace and identify the original source.
Take on this scenario, you have a bag of colored pencils, 2 other friends have the same bags of colored pencils as yours, you want to confuse others as to who owns a colored pencil, then you mix all the colored pencils together.
After mixing, it is going to be very difficult to identify which one is yours or your friends’. This is the exact aim for coin mixing.
The major reason for coin mixing is to increase privacy and and anonymity in crypto currency transactions.
Causes
Tornado cash was launched in 2019, it is a blockchain protocol that allows sending and receiving anonymous transactions.
According to Elliptic — a blockchain analysis firm, more than $7 billion cryptocurrency funds passed through Tornado cash since they launched, and about 20% of the funds were found to be illegal.
Privacy, Security
What is supposed to be the primary goal for coin mixing is majorly privacy. The blockchain has on it’s own declared decentralization, but, that doesn’t totally implies that transactions cannot be traced and tracked, since they are linked to wallet addresses rather than personal identities.
Coin mixing provides a sophisticated layer of protection to make tracing much more difficult.
Many people and organizations will go as far as possible to protect their financial transactions from being monitored via any means. Coin mixing helps to confuse the link between senders and receivers, making it difficult to track the flow of funds.
Mechanism of Mixing
There are special tools and procedures for mixing coins. An example is the Bitcoin mixer, also known as the Tumbler.
This mixer blends and tangles up an amount of bitcoin in a particular private pool before sending them out to their various recipients.
Just like mixing up colored pencils, bitcoins from various destinations are shuffled through a box, then sent to their recipients. When traced, all that will be seen on the surface is someone receiving bitcoins from a mixer. The actual owner will be ‘untraceable’.
- Centralized Mixers
This type of mixing involves specialized companies. They do the mixing for people for a fee. Coins are sent to them, they mix it up and send back a different coin.
This method is still traceable, obviously. The trails will go to the company, the company can easily give up transaction records, making it easier to find senders.
- Decentralized Mixers
This is mostly coordinated via peer-to-peer. It allows a large group of people put together equal amount of their crypto currencies and then redistribute it so everyone gets the exact amount of their funds back, but, no one knows, neither can they tell who got theirs, or where theirs came from.
Here is the thing with decentralized mixers, the more people use the mixer, the more difficult tracing and tracking of funds distributed will be.
Effects
- Anonymity
Without mixing coins on the blockchain, it is a bit difficult to link transactions to individuals. Bringing in coin mixing, it is definitely going to be more difficult.
One of the effects of coin mixing is the anonymity involved. The connection between the original sender of a coin is severed and tracing becomes difficult.
- Security
Another effect of mixing coins is the unmatched security involved in the process. By disrupting the transaction history, aspiring attackers are not likely to pick interest in specific wallets of individuals. Just like a multi-factor authentication, people have peace of mind over their monies.
- The Challenge of Control
The level of security coin mixing offers users is becoming a threat to regulators and law enforcement authorities, considering the case of Max, — the drug lord, and 99+ other people involved in the illegal use of coin mixing. The difficulty involved in tracing a mixed coin transactions can hinder efforts to catch money launderers, terrorists, drug lords and many other criminals.
This realization is now based on balancing the privacy of crypto currency holders, and the prevention of criminal activities on the blockchain.
Thinking on these things, should coin mixing be encouraged or discouraged?