UK crime-fighting agency wants to regulate cryptocurrency mixers

The UK’s National Crime Agency (NCA) intends to regulate mixers, software that scrambles cryptocurrency transactions. According to the Bloomberg the purpose of the NCA is to create rules that allow the identification of users of these programs.

Mixers are services capable of obfuscating data that link a user to certain transactions. In theory, they are designed to preserve the privacy of cryptocurrency users. But in practice, this tool has been used for those who commit crimes with cryptocurrencies.

For example, hackers who rob an exchange can use mixers to obfuscate transaction data, preventing it from being tracked. Thus, governments and regulators have expressed concerns about these protocols.

Call the tightest regulation

According to the latest report, the NCA said that mixers must be subject to regulations that allow authorities to exercise certain oversights. In this sense, the body cited the need for customer verification (KYC) and auditing of cryptocurrencies that pass through these platforms.

Gary Cathcart, head of financial investigations at the NCA, has been critical of the mixers. According to him, the tool helps to reinforce the difficulty of identifying transactions

“When it comes to cryptocurrency transactions, the identity of the owner is already obscured. The reality is that regulators need more information that is very difficult to obtain to determine the value of a portfolio and its owner.”

Cathcart was asked whether the regulation might infringe on the rights of innocent users who just want privacy. He called this argument “weak” and said the rules are intended to provide “comfort and security” for those who use cryptocurrencies.

At the same time, the executive said the laws could benefit the mixers themselves. With the regulation, UK authorities will be able to distinguish between legitimate mixers – which are being used to maintain privacy – and illegitimate ones – which facilitate serious criminal activities such as ransomware and terrorism attacks.

Are mixers illegal?

Although associated with crime, mixers are important tools for many users who trade cryptocurrencies. Its use increases the privacy of addresses and makes it more difficult to know who owns a wallet.

The use of these tools has grown since 2020 as the number of exchanges creating KYC processes has increased. These procedures often bring risks such as leaking the submitted documentation and reducing the privacy of users.

However, mixers also serve to make it difficult to track stolen funds, such as in exchange attacks. In fact, the hackers involved in the 2016 Bitfinex theft spent five years hiding the stolen funds through mixers. Only a series of errors caused the authorities to capture them in early February.

This isn’t the first time regulators have expressed concerns about the potential of mixers. But the legal status of these software varies from country to country. Some ban these tools, while others do not have a legal status for them.

In this second group is the United Kingdom, which intends to stipulate usage rules. As the creators maintain sufficient control over the mixers, they are not fully decentralized. Therefore, the country is able to impose compliance rules.

Even the most famous software, like Tornado Cash, still has a degree of centralization that allows this control. Names like the US Attorney’s Assistant Brian Benczkowski took a stand in favor of banning mixers. “Seeking to obscure virtual currency transactions (through a mixer) is a crime,” he said in February.