The Good Tech Companies - Educational Byte: What are Crypto Coin Mixers? Are They Legal?

Episode Date: May 5, 2025

This story was originally published on HackerNoon at: https://hackernoon.com/educational-byte-what-are-crypto-coin-mixers-are-they-legal. Crypto mixers are tools designed to make cryptocurrency transactions more private. Are they legal, though? Check more stories related to web3 at: https://hackernoon.com/c/web3. You can also check exclusive content about #crypto-mixing, #crypto-mixers, #tornado-cash, #cryptocurrency-regulation, #crypto-law, #blockchain-censorship, #obyte, #good-company, and more. This story was written by: @obyte. Learn more about this writer by checking @obyte's about page, and for more stories, please visit hackernoon.com. Crypto mixers are tools designed to make cryptocurrency transactions more private. They take coins from different people, mix them all together, and then send out new coins, hiding where the money originally came from. Most jurisdictions don’t explicitly ban them, but regulatory bodies like the U.S. Financial Crimes Enforcement Network impose strict rules on custodial mixing services.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. Educational byte. What are crypto coin mixers? Are they legal? By obyte? Despite some anneal assumptions from beginners, let's remember that most crypto networks aren't really private by default. Bitcoin, Ethereum, Polygon, Obyte. You can see a very transparent transaction history with full details online. Some people, as expected, need to protect their financial privacy, so they use crypto mixers or tumblers for that matter, when they're available. Crypto mixers are tools designed to make cryptocurrency transactions more private, especially for

those coins that aren't by default. Privacy coins are a different thing. They take coins from different people, mix them all together, and then send out new coins, hiding where the money originally came from. If a crypto mixer was a physical object, we could imagine something like a giant blender in which people would throw their coins to be mixed and shuffled with those of others. This way, identifying the origin of any individual coin would be nearly impossible. Several companies dedicated to tracing crypto transactions could still do it with dedicated tools, in some cases. However, crypto mixers are a good way to obscure transactions, enough for it to be legally concerning.

Legal challenges, crypto mixers exist in a legal gray area, as most jurisdictions don't explicitly ban them. Yet, regulatory bodies like the U.S. Financial Crimes Enforcement Network, FINCEN, impose strict rules on custodial mixing services, requiring registration, anti-money laundering, AML, compliance, and know-your-customer, KYC, procedures. Since privacy is a primary reason for using mixers, these requirements often conflict with their purpose, making compliance rare. Additionally, sanctions against mixers, such as those imposed on Tornado Cash and Blender.

I.O. further complicate their legality, as even decentralized, non-custodial tools can face restrictions if linked to illicit activities. Authorities have targeted crypto mixers through server seizures, criminal charges, and sanctions. For example, Bitcoin Fog's operator was convicted of money laundering, while Tornado Cash faced OFAC sanctions for allegedly laundering funds stolen by North Korean hackers. These cases highlight the risks for mixer operators, even if their tools are decentralized. The arrest of Tornado Cash developers and the legal battles surrounding Bitcoin fog demonstrate how regulators are aggressively pursuing mixer-related activities,

raising concerns about the precedent it sets for open-source privacy tools. While mixers like tornado cash can enhance financial privacy, useful for avoiding surveillance or protecting sensitive transactions, their association with illicit activities increases risks. U.S. sanctions make it illegal for their citizens to interact with certain mixers, and exchanges may freeze funds linked to them. At the very least, U.S. sanctions against tornado cash were declared void in November 2024.

Still, decentralized alternatives, such as accessing tornado cash via IPFS or using non-censored RPC providers, allowed users to bypass restrictions since the beginning. Despite these workarounds, users may still face censorship inside the crypto network itself. Also, they must weigh the legal and financial risks, as authorities increasingly employ blockchain forensics to trace mixed transactions, potentially exposing individuals to scrutiny. Some solutions for privacy. Crypto mixers aim to improve transaction privacy by breaking the link between senders and receivers, but on many chains, they face serious risks. Systems like Ethereum depend on middlemen,

builders, relayers, and, validators, who can block or ignore transactions tied to mixers if they feel legal pressure. Dejan also refused to build on top of blocks that include such transactions. This means that even if a mixer works properly, its transactions could be censored before they are ever confirmed. A different approach comes from obite, a crypto network that doesn't rely on block production. Built on a directed acyclic graph, DAG, obite lets users attach their own transactions without needing approval from miners or validators.

Since no intermediaries are deciding which transactions are valid, privacy services could operate without fear of censorship. The network is truly decentralized. To strengthen privacy even further, obite includes BlackBytes, a digital asset designed for private peer-to-peer payments. BlackBytes never exposes recipient or amount details on the public ledger, so there's no public data to analyze. Instead, the sensitive information is sent directly between users.

Without needing centralized exchanges or third-party servers, BlackBytes creates a safer way to keep transactions hidden, offering users more control over their financial privacy. Featured vector image by StorySet, free pick and thank you for listening to this Hacker Noon story, read by Artificial Intelligence. Visit hackernoon.com to read, write, learn and publish.