Bitcoin mixing, the practice of scrambling one’s bitcoin with others in order to obscure the connection between an individual’s identity and coin address information, has seen a number of innovations over the last decade. Some of the early mixing efforts took the simple form of two coin holders privately agreeing to swap coins in like amounts and led to the formation of transaction[1] aggregation[2] services[3], crypto tumblers[4], Lightning, and the practice of moving coin balances through interim coins like Dash[5] or Monero[6], or others. There are also logless VPNs[7], Tor[8], and using HD (“Deterministic[9]”) wallets. Each of these practices comes with a set of costs and benefits, and none are perfect; thus, many cryptocurrency users and devotees employ several or all of these means to maintain their anonymity.
And so it is that the recent arrest and indictment of DropBit CEO Larry Harmon several weeks back sent a chill down the spines of crypto users and privacy entrepreneurs alike.
Between 2014 and 2017, Harmon operated a custodial tumbler service, Helix, a sidecar to a darknet search engine called Grams and eventually to the darknet marketplace AlphaBay (among others). This service allowed users to search, buy and sell on the unindexed deep web with new addresses generated for each transaction.
The indictment against Harmon claims, among other things, that over 350,000 BTC was received into custody, tumbled and then transmitted by Helix without a license from the Superintendent of the Office of Banking and Financial Institutions of the District of Columbia (some of his customers having been located there), without being registered with FinCEN (the Financial Crimes Enforcement Network), and in violation
