Criminal use of privacy wallets on the rise — research shows

Criminal use of privacy wallets on the rise — research shows

By Alice Leetham - min read
Image of Bitcoin and money pegged on a line

Privacy wallets such as Wasabi Wallet are fast replacing coin mixers as a means to hide crypto money trails

The use of privacy wallets by criminals has risen sharply this year, according to research published last week by blockchain analytics firm Elliptic. Their data showed that while just 2% of all proceeds of crime in Bitcoin were sent through privacy wallets in 2019, that figure rose to at least 13% this year, representing the laundering of more than $160 million from scams, theft and darknet markets.

Evidence of this rise has been seen in the headlines this year – there was the Twitter Bitcoin scam in July in which 130 high-profile accounts were hacked, netting criminals more than $110,000. Then in September, Singapore-based cryptocurrency exchange KuCoin was hacked for $280 million in cryptoassets.

In both these cases, the stolen funds were subsequently laundered through Wasabi Wallet, an open-source, non-custodial privacy wallet. Wasabi Wallet connects people seeking to make CoinJoin transactions – a trustless method of combining multiple Bitcoin payments from different senders into a single transaction to make the sender and receiver of specific payments hard to determine for outside parties. Wasabi Wallet makes the process easier for users by creating the transactions for them.

Bitcoin laundering is nothing new – the public and immutable nature of the blockchain where transactions are recorded means that privacy can be easily broken through the use of IP address monitoring nodes, “taint” analysis, tracking payments, web-spidering and many other mechanisms. Thus, criminals have often looked for ways to conceal the money trail from law enforcement agents.

Previously, this has mostly been through the use of mixers or tumblers – services that disassociate coins with the owner by mixing their Bitcoin with other users in the mixing pool for a fee of between 0.5% and 5%. So far, more than $2 billion in Bitcoin has been sent through mixers.

However, there are risks to using mixers, such as the anonymous operator disappearing with the deposited Bitcoin or turning out to be undercover law enforcement. Indeed, many financial regulators are cracking down on mixing services such as Helix, which was hit with a $60 million penalty in October for violations of the Bank Secrecy Act.

So it’s perhaps not surprising that criminals have shifted from using mixers to using privacy wallets over the last few years, presenting an evolving challenge for the law enforcement agencies, financial regulators and compliance professionals trying to stamp out financial crime in the crypto space.

In order to protect data online and reduce the risk of hacks, services like PrivacySavvy can help protect and encrypt online data to keep it out of the hands of hackers.