One of the advantages of Bitcoin is its relative anonymity—or, more precisely, pseudonymity. Even though Bitcoin is not entirely anonymous, unless someone traces the transactions back to you, no one will ever know how much Bitcoins you have in your wallet, where you spent your coins, or how you earned them.
Bitcoin's public ledger, also known as the blockchain, is one of the most significant technological breakthroughs of recent times. It cryptographically keeps track of each Bitcoin transaction and makes it publicly accessible so that anyone can see how much Bitcoins have moved from one wallet into another.
Unfortunately, the transparent nature of Bitcoin's blockchain is one of its drawbacks, too. Anyone who knows your Bitcoin address can see how much Bitcoins you received in this address. Additionally, by doing a more sophisticated blockchain analysis, one can tell what the source of your Bitcoins is.
"Regulators are not comfortable with gray." —Tom Maxon, Head of US operations for blockchain security company CoolBitX
There is a whole bunch of blockchain analytics tools, such as Chainalysis, Elliptic, or CipherTrace, that focus on blockchain surveillance and detection of criminal activity. In 2019, the US government alone spent more than $5 million for using Chainalysis, and this amount is growing exponentially every year.
Legal Bitcoin regulation and AMLD5
Before institutional investors can get their slice of the Bitcoin cake, digital currencies need more regulation.
The first concrete step towards the regulation is the Fifth Anti-Money Laundering Directive, or short AMLD5, adopted by all EU member states on January 1, 2020. Its goal is to prevent the use of the financial system for money laundering or terrorist financing.
To conclude the rather lengthy document, the governments want to know your entire financial history across your bank accounts, payment accounts, safe-deposit boxes, and virtual currencies.
The governments require maximum financial transparency from you—even though the transparency might infringe your privacy. They naturally don't want you to protect your privacy too much—and that includes covering your cryptocurrency transactions by using privacy coins or Bitcoin mixers.
The AMLD5 applies to EU member states only. However, another directive referred to as the "Travel" rule applies to 39 member states of the Financial Action Task Force (or short, FATF).
FATF and the "Travel" rule
While the AMLD5 covers the fiat-to-crypto transactions and vice-versa, the guidance from the FATF also addresses crypto-to-crypto exchanges.
The FATF directive recommends applying the data-sharing requirements from the traditional (banking) world to cryptocurrencies. The so-called "Travel" rule forces crypto asset service providers to share their customer data.
"We are seeing some member states going beyond AMLD5 and now including these wider FATF requirements, and I think that is an example, if you like, of where other events overtake some of the slow processes of bringing in EU legislation... I think these FATF requirements will have a much more significant impact on crypto businesses. What might have been, to begin with, the EU taking the lead, the FATF requirements go beyond and apply globally." —Siân Jones, director of xReg Consulting firm
Undoubtfully, sooner or later, the "Travel" rule will disrupt privacy advocates, anonymous tools, and services, as well as dedicated privacy coins, such as Monero.
Is Bitcoin mixing legal?
With the above said, authorities do not want you to use any tools and services that help you to make your cryptocurrency transactions untraceable. This includes both Bitcoin mixers and Bitcoin anonymizers.
In 2019, Europol seized Bestmixer.io, a highly popular Bitcoin mixing service, along with six other services from Luxembourg and the Netherlands. Europol alleged that most of the cryptocurrency passing through those mixers had a criminal origin or destination.
Just recently, Binance, one of the largest cryptocurrency exchanges, temporarily suspended one user's account. Reason? The user violated Binance's anti-money-laundering (AML) policies by sending their Bitcoins to Wassabi, a Bitcoin wallet with a mixer.
"I think the exchanges are slowly coming to a crossroad... Some exchanges may be completely foreclosed... It will be so bad that I can't express." —Gergely Hajdu, Wasabi wallet developer
The Binance case was the first precedent signaling that users of anonymous Bitcoin wallets may soon find it difficult to move coins to and from regulated cryptocurrency exchanges.
Deribit, one of the world's largest crypto exchanges, is already relocating to Panama in anticipation of rising regulatory scrutiny. Other crypto exchanges might follow soon.
Even though Bitcoin mixing is not explicitly illegal, it's undoubtedly not desired by the authorities. This was confirmed in a statement from the event organized by Europol, Interpol, and the Basel Institute on Governance in Qatar:
"All countries are advised to take action against digital currency mixers/tumblers. Such services are designed exclusively to anonymize transactions and to make it impossible for law enforcement agencies to detect and trace suspicious transactions. The existence of such companies should not continue to be tolerated."
Do Bitcoin mixers hide illegal activity?
The way how Bitcoin mixers work suggests they are a tool for criminals to hide their illicit transactions. However, this is far from the truth.
According to the study by Elliptic, only as little as 16% of the coins that passed through Bitcoin mixers were from illegal sources. The remaining 84% of users chose Bitcoin mixing to increase privacy. According to another report conducted by CipherTrace, almost 97% of Bitcoin laundering happens on unregulated exchanges—not on Bitcoin tumblers.
Bitcoin mixing is for anyone who values their assets, freedom, and privacy, including:
- companies who want to hide their large cryptocurrency transactions from competitors,
- wealthy Bitcoin owners who don't want anyone to know about their crypto assets, especially in countries where kidnapping is common among criminal gangs,
- bloggers, journalists, and influencers who get paid for their articles without anyone knowing, especially in authoritarian regimes,
- LGBT individuals who want to pay for pornography, especially in governments where being a homosexual is treated as s crime.
The reasons to use a Bitcoin mixer are endless. However, the majority of people who use Bitcoin mixers do so to protect their privacy. Criminals present only a minor fraction of mixing transactions.
Is our Bitcoin mixing service illegal?
Even though most of the modern world tries to make the Bitcoin mixing services outlawed, Tumbler.to does not need to comply, yet. Incorporated under the Seychelles jurisdiction, we do not need to comply with EU's anti-money-laundering policies or FATF requirements.
However, ignorance of the law is no excuse. Therefore, when it comes to using a Bitcoin mixing service, it is your sole responsibility to comply with all applicable laws and regulations in your country.
Additionally, we advise you to study our Terms of service to make sure that you comply with our rules. We explicitly prohibit the use of our service for illegal or fraudulent activity, including the legalization of illicit income, financing of terrorism, participation in schemes of phishing, forgery, falsification, manipulation, spamming, or pyramid schemes.
Even though we cannot check the quality of Bitcoins you're mixing, if we ever suspect that your coins come from an illicit source, we will send you the Bitcoins back, unmixed.
Ready to use a legal Bitcoin mixer?
If you are ready to use our legal Bitcoin mixing service, please click on the buttons below. Choose between standard Bitcoin mixing that shuffles your coins cryptographically, or use a Bitcoin anonymizer that makes your Bitcoins untraceable through a dedicated privacy coin.
Update from February 18, 2020
The U.S. Financial Crimes Enforcement Network (FinCEN) is preparing to unveil "significant new requirements" around cryptocurrencies. Their goal is to monitor suspicious crypto transactions and prosecute terrorists and other criminal organizations financing illicit activities with cryptocurrency.
In February 2020, the Department of Justice has arrested Larry Harmon, the developer behind the Bitcoin mixer Helix.