BTC Mixer ‘CoinJoin’ Starts Blacklisting BTC Linked to Illegal Activity

The CoinJoin coordinator that facilitates the coin mixing functionality built into the privacy-focused Wasabi Wallet has started blacklisting accounts linked to criminal activity, in a move seen by many in the crypto industry as a blow to user privacy:

The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins. pic.twitter.com/X3kBuQwieO

— Wasabi Wallet (@wasabiwallet) March 13, 2022

Essentially this means that Bitcoin addresses that have been linked to criminal activity in the past will be prevented from using the CoinJoin functionality offered by Wasabi Wallet.

Blacklists to Prevent Legal Trouble

According to blockchain analytics firm Elliptic, Wasabi Wallet’s CoinJoin functionality has likely been used numerous times in high profile thefts and scams to evade authorities. 

Apparently this illicit usage has concerned Wasabi Wallet’s parent company zkSNACKS. According to a series of tweets from one of its developers, the decision to implement blacklists on their CoinJoin coordinator is a bid to avoid legal and regulatory trouble:

No.

We are trying to protect the company and the project by minimizing the amount of these hackers and scammers using the coordinator and getting us in trouble.

This should be in the rights of the company to do but believe me, none of us are happy about this.

— Rafe 🌮⚡🔑🔦 (@BTCparadigm) March 13, 2022

In response to the move, Bitcoin users have aired concerns that it may impact their privacy and result in a slippery slope where legitimate use ends up being targeted by authorities:

if you don't protect hackers and scammers you don't protect anyone, because tomorrow (as we have seen in Canada) anyone can become hackers, scammers, or "terrorists".

— sidewaysram (@sidewaysram) March 14, 2022

The authorities have infiltrated Wasabi through threat of punishment, so to protect yourself longterm, you need chain analysis and monitoring of ins and outs… essentially spying on your users… who use your product for privacy. 🧐

— DJ ₿ooth (@djbooth007) March 13, 2022

Across the broader crypto market, privacy protocols have seen a growth in popularity recently, with the Ethereum-based mixer Tornado Cash surging 94 percent following recent updates.

What is CoinJoin?

CoinJoin is an open-source mixing protocol for the Bitcoin blockchain which allows users to perform anonymous transactions known as CoinJoins. 

CoinJoins create anonymity by obscuring the source and destination addresses used in the transaction – this process is also known more generically as coin mixing. CoinJoin coordinators play a vital role in finding users to participate in transaction pools and ensure anonymity.

CoinJoin Available on Alternative Services

Users do not need to use Wasabi Wallet to perform a CoinJoin transaction. While it is one of the most popular providers of the functionality, numerous other wallets and dedicated mixing services also offer automated CoinJoin functionality. 

Users can manually perform a CoinJoin, though this is difficult and requires advanced technical knowledge.