People need financial privacy. (Yeah, even regular people!) Alas, blockchains are panopticon. The entire history of one’s bitcoin or ether is indefinitely engraved on the blockchain so that everyone can see.
Mixing is one way to get the necessary on-chain privacy. In short, a bunch of people use an automated tool such as Tornado Cash or Wasabi Wallet to assemble their crypto and then withdraw it, obscuring each person’s crypto path.
But mixing is an ideal way to gain privacy. When it comes to resolving privacy, the mix introduces another problem; commingling When you use the mixing tool, you are introducing your legitimate funds into the same container as the potentially criminalized funds. That is, you run the risk of serving as a laundering interport for criminals.
This is bad for three reasons: 1) Money laundering is a criminal offense, and if you are a normal person you would probably choose not to do anything illegal. 2) It is also morally questionable. By acting as an adversary to criminals you are helping to protect them from theft or fraud. 3) Reunion can be financially risky for you. Since mixing is visible on blockchain, other people may see that your crypto has been mixed and they may not take the risk of accepting it. In other words, mixed cryptocurrencies may not be as valuable as amixed.
That, in short, is Privacy / Comingling Doubt If you are a legitimate owner of Crypto and you merge, you have exchanged your lack of privacy for a potential criminal complaint, a bad conscience, and degrading money. This is probably not what you were looking for.
The risk of merging crypto increases because mixing is not turned on by default. And so only the most motivated people – criminals and advocates of privacy – turn to the mixing tool. This only exacerbates the disadvantage that a lycite crypto user who inadvertently enters a mixture acts as a counterpart to a crook.
I wrote about the risks associated with Tornado Cash, a non-custodial etherium-based mixer. But the same risk applies to bitcoin-based non-custodial alternatives such as Wasabi. (A Custody The mixer is driven by a person who grabs users’ tokens and then mixes them. A Non-custodial Mixer, like Tornado Cache, is a fully automated protocol. Mixed crypto is not owned by any third party.)
For Lysite crypto users who want privacy but are wary of privacy / related dilemmas, centralized exchange is probably the safest option. Centralized custodians like Coinbase screen out criminals. So you, a legitimate user, can get your coins in a large coinbase mix (without worrying about the risk of money laundering) and then safely retrieve your coin history and return it to a new address. This is a relatively safe version of the mixture.
But centralized exchanges do not provide you with a complete set of privacy. Although they temporarily free you from the blockchain panopticon (i.e. everyone’s eyes), they do not protect your personal information from the exchange. For many, that degree of privacy is probably good enough. For others, it’s not.
Native privacy is the best option. Imagine that your bitcoin or ether was private by default, such as cash or gold. You never have to risk running a service like Tornado Cash or Coinbase. But local privacy is only in his infancy. (I wrote about it here).
Another way to deal with privacy / related dilemmas is to adopt a method recently adopted by Wasabi Wallet, a non-custodial provider of bitcoin mixing services. Historically, Wasabi owner zkSNACKs allowed everyone to access Wasabi’s services. But, in the future, it will screen bad bitcoins by analyzing blockchain for known bad actors:
We have always been against use [CoinJoin] For illegal activity, and as far as we can see from the news, many actors have started taking advantage of the software, and it has created really bad press for us … Wasabi is to protect people’s privacy, and not to hide illegal activity. [source]
zkSNACKs did not provide specific details on how to determine which addresses will be censored. Does the blacklist include known hackers, scammers, addresses of banned evaders and the subject of bans or frozen orders? See you in the end.
However, the introduction of filters can ultimately provide crypto users with answers to privacy / coming dilemmas. Wasabi will provide much-needed privacy while minimizing the risk of money laundering for the crowd.
The anecdotal evidence suggests that a clean mixing service is in demand. Wasabi developers hoped the announcement would annoy their customers and reduce mixed activity. Instead, the company says demand has tripled.
Not only are legitimate users gaining a reputation for clean blends, criminals are eager to get their coins in the Wasabi blends to whiten them. The development of a cat-and-mouse game will happen when Wasabi invents a new way to screen these bad actors, and these bad actors will react. It will not be an easy battle.
JP King
JP Koenig is a financial writer and blogger interested in financial economics, economic history, finance and fintech. He has worked as an equity researcher at a Canadian brokerage firm and as a financial writer and publisher at a large Canadian bank. Most recently, he wrote a number of papers on central bank cryptocurrency and cross-border payments for R3, a distributed ledger company. He founded the popular blog Manines in 2012. He designed economics and financial wallets at Financial Graph and Art.
Koenig holds a BA degree in economics from McGill University.