Cryptocurrency tumbler

A cryptocurrency tumbler or cryptocurrency mixing service[1] is a service offered to mix potentially identifiable or 'tainted'[2] cryptocurrency funds with others, with the intention of confusing the trail back to the fund's original source. Tumblers have arisen to improve the anonymity of popular cryptocurrencies, usually bitcoin, since they provide a public ledger of all transactions.[3][4]

In traditional financial systems, the equivalent would be moving funds through banks located in countries with strict bank-secrecy laws, such as the Cayman Islands, the Bahamas and Panama offshore banks.

Tumblers take a small percentage transaction fee of the total coins mixed to turn a profit, typically 1-3%.[5]

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 their potential use in illegal activities, specifically funding terrorism,[5] however a report from the CTC suggests such use in terrorism related activities is 'relatively limited'.[6]

There has been at least one incident where an exchange has blacklisted "tainted" deposits descending from stolen bitcoins.[7] Manual or lightly automated mixing methods can make detection of taint more difficult unless the exchange follows the trail but this approach does protect privacy like a true mixing service would.

The existence of tumblers has made the anonymous use of darknet markets easier and that of law enforcement harder.[8]

Alternative implementations

Newer and proposed coin implementations such as Dash - (formally Darkcoin), Zerocoin[9] Cloakcoin and shadowcash have built in the mixing services as a part of their blockchain network.

The Dark Wallet client software for bitcoin was built to natively mix transactions between users to achieve the same effect without relying on a centralised service.[10]

References

  1. ↑ Jeffries, Adrianne (19 December 2013). "How to steal Bitcoin in three easy steps". Retrieved 17 May 2015.
  2. ↑ Schweife, Dr. Johannes. "The taint and the Bitcoin". Retrieved 17 May 2015.
  3. ↑ Bentley, Guy (12 May 2014). "Darkcoin: The cryptocurrency putting privacy first". Retrieved 17 May 2015.
  4. ↑ "AN ANALYSIS OF ANONYMITY IN THE BITCOIN SYSTEM". Retrieved 28 May 2015.
  5. 1 2 Allison, Ian (February 11, 2015). "Bitcoin tumbler: The business of covering tracks in the world of cryptocurrency laundering". Retrieved 17 May 2015.
  6. ↑ Brantly, Aaron (31 October 2014). "Financing Terror Bit by Bit". Retrieved 17 May 2015.
  7. ↑ Buterin, Vitalik (21 May 2012). "MtGox: What the largest exchange is doing about the Linode theft and the implications". Retrieved 17 May 2015.
  8. ↑ IHS Jane's Intelligence Review (30 December 2014). "Law enforcement struggles to control darknet". Retrieved 6 July 2015.
  9. ↑ Greenberg, Andy (13 January 2014). "Bitcoin Anonymity Upgrade Zerocoin To Become An Independent Cryptocurrency". Retrieved 17 May 2015.
  10. ↑ Copestake, Jen (19 September 2014). "Hiding currency in the Dark Wallet". Retrieved 17 May 2015.
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