Privacy wallets are becoming a more frequent tool for criminals to launder bitcoin, says Elliptic

A new guide by blockchain analytics firm Elliptic claims more than 13% of all funds in bitcoin garnered from criminal activity are being laundered through privacy wallets.

The guide, entitled "Financial Crime Typologies in Cryptoassets," looks at over 35 so-called "financial crime typologies" that involve the use of cryptocurrencies, including the increasing use of mixers as a means of laundering digital assets. 

Mixing services generally work by "mixing" the crypto funds of multiple users before redistributing them, making it more difficult to track the source of funds on the blockchain. Although these services have been around for a while, they've recently come under fire for the roles they've played in recent high-profile crimes, including the $4.2 billion PlusToken Ponzi scheme and the $280 million KuCoin exchange hack.

According to the report, CoinJoin transactions have presented a safer alternative, whereby funds from multiple users are mixed in a single transaction, rather than by combining funds in a mixer controlled by someone else.

The disadvantage of this method, according to the report, is that it can be difficult to find other parties to be involved in these transactions. Privacy wallets like Wasabi Wallet make things easier by connecting and carrying out CoinJoin transactions for users.

Source: Elliptic

According to the report, criminals have moved from traditional mixers to privacy wallets over the past four years, At least 13% of laundered funds in bitcoin being sent through privacy wallets in 2020, increasing from two percent in 2019.

"This year's 13% of all proceeds of crime represent over $160 million in bitcoin from darknet markets, thefts and scams being laundered through privacy wallets," the report states. 

"I think this together with the recent use of DEXs marks a shift towards more decentralised money laundering," Elliptic co-founder Tom Robinson told The Block. "Centralised mixers that can be taken down by law enforcement are being shunned in favour of open-source software that is not dependent on a single intermediary."