Privacy wallets like Wasabi Wallet are rapidly replacing coin mixers to erase crypto trails
Use of privacy wallets by criminals has surged this year, according to research published last week by blockchain analytics firm Elliptic. Their data shows that while only 2% of all criminal proceeds in Bitcoin were sent via privacy wallets in 2019, that share has risen to at least 13% this year — representing over $160 million laundered from scams, thefts, and darknet markets.
Evidence of this increase has surfaced repeatedly in the news. In July, the high-profile Twitter Bitcoin scam compromised 130 prominent accounts, enabling criminals to collect more than $110,000. In September, Singapore-based crypto exchange KuCoin suffered a hack that drained roughly $280 million in crypto assets.
In both incidents the stolen funds were subsequently laundered through Wasabi Wallet, an open-source, non-custodial privacy wallet. Wasabi Wallet facilitates CoinJoin transactions, a widely used technique that combines multiple Bitcoin payments from different senders into a single transaction. By mixing inputs and outputs in this way, CoinJoin makes it much harder for external observers to link specific senders with recipients. Wasabi streamlines the process by coordinating these transactions on behalf of users.
Bitcoin laundering itself is not new: the transparent and immutable nature of blockchain records means transaction flows are often exposed through IP monitoring nodes, “taint” analysis, payment tracing, web crawling, and many other investigative techniques. For that reason, criminals have long sought methods to obscure the money trail from law enforcement.
Historically, many turned to mixers or tumblers — services that break the link between coins and their original owners by pooling and redistributing Bitcoin among users for fees typically ranging from 0.5% to 5%. To date, more than $2 billion in Bitcoin has reportedly passed through such mixers.
Mixers carry significant risks, however. Operators can abscond with deposited funds or be undercover law enforcement. Regulators have increasingly cracked down on these services; for example, Helix was fined $60 million in October for violating the Bank Secrecy Act.
Given those dangers, it is unsurprising that criminals have shifted from mixers toward privacy wallets in recent years. This trend presents a growing challenge for law enforcement, financial regulators, and compliance professionals working to combat financial crime in the crypto space.