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Crypto-myths: the crypto-mixer is a new concept.

Nigel Morris-Cotterill

Much store is placed on "mixers," which are also known as "blenders" and "tumblers." Let's strip away the myth.

In everyday banking, your notes and coins go into the bank's safe where they are commingled with everyone else's deposits and the bank's own reserves. When you go to withdraw some, you don't get the same notes and coins back. If you did, that would be a safe deposit box.

What you get is similar value and perhaps similar notes and coins. Or you could get different denominations or, if you ask, even a different currency.

That is exactly what a crypto-mixer does. It provides a common vault into which crypto-holdings are transferred so they do not sit in a specific wallet. Then the assets may be transferred to a different wallet - just like an ordinary bank pays out once it receives a payment instruction.

This works because there is no such thing as money: there are only tokens which represent value. OK, so that's an argument for another day and it's as much a matter of philosophy as it is of economics. Suffice it to say that those tokens only have value because two people agree to assign a value to them. So, 400 of token X equals a washing machine but one washing machine equals 750 of token Y.

It follows that what is in the vault has no intrinsic value - its value is in what it represents.

It also follows that what is in the vault does not, of itself, belong to any specific customer. So an enforcement raid on a bank vault cannot confiscate specific notes and coins; it's the same with a mixer even though what is in the mixer is intangible.

So, the mixer is not, of itself, a novel scheme.

Nor, in principle, is dealing with one. The difficulty is because the books of record might be obscured.

That, too, is not new: the Medici bankers were famous for having secret books for their special customers. So have hundreds of years of private bankers - so much so that under the old Swiss model, an individual banker kept the records of individual customers and did not reveal those records even to the bank's management. And ownership of the accounts, while known to the banker, was hidden from the outside world by false names or accounts known only by numbers. The false name technique was used by a large US bank for its celebrity customers and - so far as we know - probably still is.

But just because nothing is new doesn't mean that nothing has changed.

There are many techniques for following crypto-assets but those techniques run into trouble - just as following the money runs into trouble - when it hits a common vault or mixer.

Cryptomixer.io says on its website "CryptoMixer is a Bitcoin mixing service (also known as a tumbler or blender) that is centred around the idea of making your digital assets hidden from the public eye for good. As the name implies, it works by mixing your coins with those in our cryptocurrency reserves to ensure private transactions without a trace."

It works by the issue of what in normal banking we would call a certificate of deposit.

OK, let's go back to look at a bit more history. The Financial Action Task Force became very agitated when one of its members, Austria, was dilatory in banning "sparbuch" accounts. This type of account was issued by banks without any form of identification at all. The word translates to English as "passbook" account and they were bearer accounts: whoever had the book had control of the account. Similar accounts were in common use across much of the world until the 1990s. But Austria's were special: they had no limit. The FATF threatened to expel Austria if it didn't take action to close all accounts unless they were subject to effective ownership Know Your Customer processes.

So, what Cryptimixer.io is doing is to create what amounts to an electronic sparbuch account for which the only proof of ownership and authorisation to operate is a digital certificate.

This is the firebreak that worries law enforcement and investigators. Crypto.io says "We are 100% committed to our zero-logs policy — we never log the activities of our users to ensure their ultimate privacy and security." So that means that there are no records of the IP address, for example, of the persons to whom digital certificates are issued nor of anyone using the certificate.

That does not mean that there are no records of transactions. While there may be no record retained of the digital certificate's ownership or, even, use transactions into wallets do appear on the blockchain.

Also, the mixer's own vault appears on the blockchain - usually not all in one place. And anything on the blockchain can be tracked.

This is where the mixer's money-changing service comes into play. Users can pay in bitcoin and withdraw Ripple, for example.

But, again, that is no different in principle to someone holding a Post-Office deposit book decades years ago and depositing foreign currency into a savings account, only to take out domestic currency when needed.

So, mixers are nothing new, they do nothing we haven't seen before and they present no novel threat. But they do present technical challenges that were enormous only a decade ago but which are now almost routinely defeated by today's investigators.

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