Cryptocurrency mixers are not inherently illegal, although they are used for illegal activities. According to a July report from Chainalysis, cryptocurrency mixers are a “reference tool” for cybercriminals who trade cryptocurrencies, and illicit addresses account for nearly a quarter of the funds sent to mixers since January. However, cryptocurrency mixers and cups have a bad reputation, as they can be used to launder money or mask huge amounts of profits. Although not illegal by law, service providers have the potential to be involved in a crypto money laundering investigation.
There have been several cases in which cryptocurrency mixers and their users have been subject to scrutiny by various jurisdictions and governments. You can use a centralized mixer, which are third-party services that receive bitcoins, extract other bitcoins from other deposits and return an equivalent amount of bitcoins at the end of the transaction. The way cryptocurrency mixers work is that they break down the funds sent with the mixer and mix them with other transactions. Centralized mixers receive cryptocurrency from users to the mixer and return different cryptocurrencies for a fee.
According to Cathcart, subjecting mixers to anti-money laundering laws would ensure that mixing services carried out comprehensive anti-money laundering controls and audited all transactions that go through the mixer. However, Chainalysis noted in its report that it is “not aware that any bitcoin or Ethereum mixer is currently following these rules.”.