Crypto tumblers are services that obfuscate and mix your cryptocurrencies with that of other users in order to make multiple combinations with countless transactions and to obfuscate the source and destination of digital assets. The tumblers are treated as a privacy enhancement but cybercriminals are using them to protect themselves, these services are available on the surface web and in shady forums and it has been used to launder cryptocurrencies as well.
Tumblers charge 1-5% of the fees for the services offered, According to chainanalysis 30-day moving average of funds sent to crypto tumblers hit $51.8 million in April, an all-time high.
There are two different types of crypto tumblers: Centralized tumblers where users send the specific cryptocurrency amount they want to “mix” to the tumbler and the user grants the agent full control to make multiple transactions aimed at “mixing” and the user does not have control, chances of theft are high in centralized tumblers and they have access to users IP address.
Decentralized tumblers avoid intermediaries, users band together and select the crypto assets they want to “mix”, to make small transactions between users of the same platform works usually on smart contract technology, and have a high level of anonymity.
Crypto tumblers are not illegal everywhere, it will depend on the country and jurisdiction. Financial Crimes Enforcement Network (FinCEN) classified tumblers as money transmitters. Therefore, they must register with FinCEN and apply for a state-by-state license to operate while cryptocurrency mixers offer benefits, as they help ensure anonymity, the truth is that these services are not only used by people to secure their privacy but also by money launderers and cybercriminals to hide the transactions.
Tornado Cash is an Ethereum tumbler that has gained great popularity, especially among cybercriminals. launched in 2019, is used for processing millions of dollars a day and was used by the hackers of the attack at Crypto.com, involving withdrawals of about US$34 million, and by the hackers of the attack at Ronin, the blockchain network linked to the Axie Infinity game.
The chart describes the increase in volumes sent to the crypto tumblers from centralized exchanges, Defi protocols, and from illicit addresses, and in Q2 the majority of the funds received are from stolen funds and addresses sanctioned by the governments.
Crypto tumblers can be used for legitimate reasons to protect privacy although the case increasingly for hiding the transaction by money launderers and cybercriminals has been a bit of a red flag for governments worldwide. These services should be registered with the local governments and authorities and making criminal use of the mixers is partly because these services hardly request know-your-customers (KYC) data and it should be made mandatory, scrutiny and strict actions should be taken against those that don’t comply with regulations.
To demix and track the transactions to their source is complicated and impossible, regulators should look into the crypto tumblers’ services on how to regulate them at the earliest to prevent the money laundering and use of them by cybercriminals.