The Satoshi laundromat: a review on the money laundering open door of Bitcoin mixers

Abstract

Purpose The purpose of this paper is to examine the currently known techniques to tackle money laundering in Bitcoin mixers, and examine what gaps exist that would allow a criminal to get away with laundering Bitcoin obtained through illicit activities. Design/methodology/approach This paper first establishes the relevant properties of Bitcoin, how transactions occur over the Bitcoin network and then introduces the Bitcoin transaction graph as an important data structure for any analysis of Bitcoin transactions. Next, the paper outlines how Bitcoin mixing works, along with the relevant properties of mixers that would be relevant for money laundering. The paper then assesses the known methods for identifying mixed transactions within the Bitcoin network, followed by an assessment on identifying money laundering activities on known mixed transactions. Findings This paper argues that there remains a gap for criminals to launder money through Bitcoin mixing services as known methods would unlikely be able to trace a tainted transaction that goes through a decentralized mixer that uses off-chain communication techniques to coordinate the mixing and charges randomized mixing fees. Research limitations/implications The study of known methods is restricted to literature published in the public domain. There are private organizations that are tackling similar problems, but their methods are not published and therefore cannot be included in this paper. Originality/value To best of the author’s knowledge, this is the first paper that performs a contemporaneous review on anti-money laundering in the context of Bitcoin mixing. This paper could assist regulators and policymakers in their understanding of Bitcoin mixers and provide guidance on where they should focus their resources to address the money laundering problem of Bitcoin mixing.