On May 6, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated a cryptocurrency mixer, Blender.io, as a Specially Designated National (SDN). That sanction follows a series of enforcements and sanctions which we have previously discussed here and here.

The action is the latest in a fascinating back-and-forth between the crypto industry and its regulators, as both sides explore a new world of currency movement and what controls can and should be placed on it. To illustrate the parties’ positions, we provide the following discussion between a crypto enthusiast blockchain lawyer (played by our associate, Gabriel Khoury) and a skeptical regulatory lawyer (played by our partner, Reid Whitten).

Please note, we are not seeking to resolve what is certain to be an ongoing debate, we are simply laying out the landscape of the discussion by elucidating some points of view of the various stakeholders. We are, (to borrow a terribly hackneyed phrase), “starting the conversation.”

Enthusiast: First, some background on Blender, which is a cryptocurrency “mixer.” Mixers obscure the identity of your crypto and reduce the chances of your crypto being tracked by a third-party tracking software. A cryptocurrency mixer is primarily used for legitimate reasons.

Skeptic: Whoah whoah whoah! Objection. That’s a pretty speculative characterization. Feel free to name the legitimate reasons a mixer might be used, but let’s go easy on the editorializing so early. 

Enthusiast: Ok, just the facts then. Many centralized cryptocurrency exchanges track all transactions, which can easily expose a user to illicit actors—persons who might spy on or steal your data. Using a mixer, you are able to hide your crypto transactions hidden from those illicit actors . . .

Yes, and, since I can see you are straining to point it out, they can also be used to hide transactions from intrusive governments. 

Skeptic: Ahem.

Enthusiast: Fine, from governments, intrusive or otherwise. 

With Bitcoin, for example, if a user, we’ll call them User A, sends a Bitcoin to User B, that transaction is recorded and is visible on that blockchain. Mixers are software applications that mix User A’s crypto payment with crypto from other users and sends mix of the crypto to one or more addresses designated by User A. That mixing process breaks the on-chain link between wallet addresses which improves user privacy and autonomy. Thus, the fact user A sent a Bitcoin to user B is not readily discernible from that blockchain record.

Skeptic: Right, so a user, User A, puts in their Bitcoins or Dogecoins or whatever, the mixer tumbles them around with the Bitcoins and Dogecoins and Ethereum and Tether of a bunch of other users, then gives back to User A (or on to User B) an equivalent value of the resulting mix of coins. User A and User B do not know the source of their new assortment of coins, just that it has the equivalent value of what was put in (less, presumably, some fee for the mixing service). Is that right?

Enthusiast: That’s right. Nowadays, blockchain analysis companies pretty easily can track who owns which crypto wallet. So these cryptocurrency mixers revive the original libertarian crypto ideals of privacy, autonomy, and decentralization that were originally promised by the Bitcoin Whitepaper.

Skeptic: Ok, but the mixer is expressly designed to hide where funds have come from! That is not far off from a literal washing machine in that it can mix and clean illicit funds, mask them and make them impossible to track (ok, that’s still a figurative washing machine, but you get the idea).

One can just picture User A saying to the authorities, “What, me? Holding the proceeds of a crime? Why not at all! This is just the random assortment of coins that came out of the mixer! They could not possibly be traced to a crime.”

Enthusiast: Maybe, but let’s think bigger than that. There are actually at least four reasons a person would utilize a mixer to: (1) secure their crypto by hiding the source of transactions in an otherwise open network; (2) avoid hacks by obscuring the movement of their crypto; (3) safeguard their identity; and (4) avoid government regulation by keeping the volume of their transactions private.

Skeptic: Hmmm, that last one might also be termed “tax evasion.”

Enthusiast: Maybe, and I will also concede that money laundering should probably be on that list as a fifth possible use of a mixer. However, OFAC makes clear that most virtual currency activity is licit, and most illicit uses are prevented by implementing appropriate Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) and sanctions controls to prevent sanctioned persons and other illicit actors from exploiting virtual currency to undermine U.S foreign policy and national security interests. It is also worthwhile to note that some private crypto mixers do meet legal requirements of the Bank Secrecy Act.

Skeptic: Interesting, but I would note that, just in the past year, a Bitcoin mixer operator pled guilty to a $300 million money-laundering conspiracy, a Russian-Swedish national was arrested for allegedly laundering $335 Million in Cryptocurrency through a mixer, and a hacker stole more than $33 million from a major Crypto exchange, then allegedly washed the currency through a cryptocurrency mixer. And these examples are just the ones that the federal government has caught!

Enthusiast: . . . and you could take the view that those examples could be considered awesome for the crypto industry! Think about it, market participants don’t want illicit actors stealing their hard-earned money, and mixers help ward off these illicit actors by hiding and protecting participants’ funds. The more illicit actors that are caught using mixers, the more legitimate the mixers can become because they’re screening out the bad actors.

Skeptic: That is an interesting view, but it seems that mixers would have a long way to go before I could see them as much beyond an impediment to law enforcement. I mean, the good part about the blockchain—from a regulator’s perspective—is that once they find the “bad actor,” they can trace the transactions from the actor’s wallet across the immutable record of the blockchain. If the bad actor takes money out of North Korea in crypto, and the FBI can connect that actor to the wallet that brought the money out of a sanctioned country, then there is a permanent and unchanging public record of where that money goes!

And I don’t mean to pick on cryptocurrency mixers. Mixers are not the only way that criminals are using crypto to avoid law enforcement. There are also privacy-focused tokens that offer (ostensibly) total separation between the wallet address and the identity of the holder.

Perhaps we can agree that there are a lot of considerations here, a lot to regulate, but probably also some deference to the advantages of a successful mostly-anonymous means of conducting transactions.

Enthusiast: I agree on all counts. Criminals attempting to avoid law enforcement will happen whether crypto mixers exist or not. I would argue that crypto transactions are generally safer than shady cash transactions because the blockchain enables a literal public ledger. Handing over cash in a briefcase with no witnesses makes it virtually impossible to track funds.[1] At least with blockchain technology, a ledger of some sort is kept.


Cryptocurrency market participants should close pay close attention to the regulatory space in the coming weeks and months. Following President Biden’s Cryptocurrency Executive Order, state and federal crypto enforcement has increased at a faster pace than ever before. This indicates that these agencies are gearing up for a regulatory storm in the coming year. Stay tuned for updates as we continue the conversation here.[2]


[1] Please note, that is definitely not legal advice, or really any kind of life advice. Please don’t hand over or accept briefcases full of cash based on any statement in this article.

[2] *Sigh* We’re sorry, we promise to come up with more original terminology.