What are cryptocurrency mixers and why are they considered risky?

Cryptocurrency mixers aim to provide privacy on public blockchains, yet they carry significant technical and regulatory risks.

Cryptocurrency mixers - sometimes called tumblers - are services or protocols designed to make blockchain transactions harder to trace. They allow users to contribute funds to a shared pool or participate in coordinated transactions, then later receive an equivalent amount at a new address, obscuring the link between sender and recipient.

Mixers come in several forms: custodial services, decentralized smart-contract systems and collaboration-based tools. While their methods differ, the core idea remains the same: users blend their funds with those of many others, making it difficult for observers to correlate inputs and outputs.

The motivation behind mixers is understandable. Blockchains like Bitcoin and Ethereum are transparent by design, meaning that every transfer is permanently recorded, searchable and traceable through analytics tools. For users concerned about financial privacy, this openness can reveal holdings, counterparties, and behavioral patterns.

As mixers have evolved, however, so have the regulatory and reputational challenges associated with them.

How cryptocurrency mixers work

Cryptocurrency mixers operate in several ways, but their shared goal is to break the observable link between a user’s deposit and withdrawal.

Pooled mixers (centralized or decentralized)

A user deposits funds into a shared pool or smart contract. After a delay, or after internal offchain shuffling, the mixer sends an equivalent amount to a new withdrawal address (typically minus a 0.5-3% fee). By combining deposits from many users, these mixers make it difficult to determine which withdrawal corresponds to which deposit.

Collaborative mixers  

Unlike pooled mixers, collaborative systems involve multiple users coordinating to construct and sign a single onchain transaction. This transaction aggregates their inputs (such as various UTXOs, Bitcoin's individual “gift cards”) and produces equal-denomination outputs that are sent to new addresses controlled by the participants. Protocols such as CoinJoin, implemented in tools like Wasabi Wallet or JoinMarket, facilitate this process through peer-to-peer coordination or centralized-but-blind coordinators that cannot see input–output relationships.

Because no operator takes custody or maintains transaction logs, it becomes difficult for observers to reliably link specific inputs to specific outputs, especially when many participants take part in the same round and form a large anonymity set. Nonetheless, advanced blockchain analysis can sometimes weaken privacy by applying heuristics based on amount patterns, input–output timing or wallet behavior.

Zero-Knowledge mixers 

Some mixers, such as Tornado Cash, allow users to prove they made one of the previous deposits without revealing which specific deposit they are spending. This prevents double-spending while breaking the observable link between deposit and withdrawal. These systems typically rely on fixed-denomination deposits to build an anonymity set, the group of all deposits a withdrawal could plausibly match. The mechanism works through zk-SNARK proofs, which let a user demonstrate ownership of a valid deposit record without exposing which one it is. Larger anonymity sets offer stronger privacy, although low liquidity or external behavioral analysis can still diminish effectiveness.

Why сryptocurrency mixers are considered risky

While mixers can provide legitimate privacy, they also draw scrutiny from regulators, compliance teams and law enforcement for several reasons.

High association with illicit activity

Hacking groups, ransomware operators and darknet markets have frequently used mixers to conceal funds. For example, the Lazarus Group reportedly routed large amounts of stolen cryptocurrency through mixers following major exchange and bridge exploits. As a result of such cases, blockchain analytics firms often flag mixer-linked addresses as higher risk, regardless of a user’s intent.

Regulatory and legal exposure

In recent years, several mixer services have been seized, shut down or sanctioned. The most prominent case involved Tornado Cash, which the U.S. Treasury sanctioned in 2022, sparking global debate over how decentralized protocols should be treated under anti–money laundering rules. Although the sanctions were later lifted in 2025, the case remains a defining example of how regulators may respond to privacy-focused protocols. The enforcement actions also created compliance concerns for users whose funds interacted with the protocol, especially when later interfacing with regulated exchanges.

Funds at risk

Custodial mixers require users to surrender control of their assets, and some operators have historically disappeared with funds or ceased operations during investigations. Even decentralized mixers carry risks, including smart-contract bugs, low liquidity or possible deanonymization through blockchain analysis.

Are mixers ever appropriate?

There are legitimate reasons to seek greater privacy on public blockchains - for example, shielding salary payments, protecting financial negotiations or reducing the risk of targeted theft. But the landscape has shifted. Today, mixers come with significant risk, especially for users who later move funds through regulated platforms that rely on blockchain analytics.

Privacy remains an essential part of Web3’s evolution, yet the mechanisms that provide it must align with regulatory expectations. The industry’s long-term challenge is not whether users should have privacy, but how to design privacy systems that are decentralized, secure and compliant.

Stay tuned for upcoming guides designed to shed light on how DeFi works!