The arrest of a Cryptoverse resident has brought to the surface yet again the questions of both the legality and the future of coin mixers, as well as the responsibilities of their developers.
As yesterday, Larry Harmon of Akron Ohio, the CEO of media site Coin Ninja and founder of crypto wallet provider DropBit, was arrested on suspicion of money laundering, according to a press release from the U.S. Department of Justice (DoJ) released Thursday.
The indictment indicates that Harmon’s cryptocurrency ‘mixer’ firm Helix worked to obscure the source and destination of more than BTC 350,000 (valued at over USD 300 million at the time of the transactions) from 2014 to 2017. The company was reportedly linked to ‘Grams’, a darknet search engine which was also operated by Harmon.
“For those who seek to use Darknet-based cryptocurrency tumblers,” warned U.S. Attorney Timothy J. Shea of the District of Columbia, “these charges should serve as a reminder that law enforcement, through its partnerships and collaboration, will uncover illegal activity and charge those responsible for unlawful acts.”
As we previously , mixing (aka coin tumbling) is offered by third parties as a service and a way to make cryptocurrency transactions more anonymous and harder to track. Cryptos on their own are already designed to bring privacy to its users – but many have open-sourced and public ledgers. It’s these ledgers that are recording every single transaction that occurs on a blockchain.
A cautionary tale, end’s beginning, and setting an example
‘But all they see is a bunch of letters and numbers. How can they find me then,’ I hear you say. There are ways to identify the person or persons who made a transaction, via blockchain analysis, linking IP addresses to bitcoin wallets, wallet address clustering, as well as a number of KYC (know your customer) and AML (anti-money laundering) measures being adopted, exactly for the situations when a dishonest player needs to be identified by, let’s say, an exchange on the request of the law enforcement.
Adopting these measures within the Cryptosphere is regularly by regulators across the world to whom cryptos are already a gigantic thorn in the eye. And it wouldn’t be outrageous to now expect Harmon’s example to be used as a cautionary tale and a reason for strictening such and similar measures and against any services that may in any way hide transaction history.
This means that simply creating such a service may set off regulators’ alarms and be deemed suspicious, regardless of the service’s potentials or benefits. For example, Bitcoin Core contributor Matt Corallo commented that “setting precedent that tumblers (aka “still-worse-privacy-than-cash-machines”) are illegal to own/operate would be the beginning of the end.”
It's important to remember the presumption of innocence, but DOJ at least alleges he was directly involved in criminal activity & intended to launder the proceeds of crime. That makes it a tough case. But DOJ is going too far by charging unlicensed money transmission offenses.
— Jake Chervinsky (@jchervinsky) February 13, 2020
Using a third-party service comes with risks of its own, as well as concerning fees, but many people, honest or otherwise, don’t want their identities discovered by any means, most often if they hold a lot of crypto, as it could make them targets. But some services call darknet their home, and one such service was Helix. According to Don Fort, Chief of the Internal Revenue Service Crimes Investigation division (IRS-CI), Helix was focused on illegal activities only. He said, “The sole purpose of Harmon’s operation was to conceal criminal transactions from law enforcement on the Darknet, and because of our growing expertise in this area, he could not make good on that promise.”
