Why crypto exchanges flag coin mixers, and is it justified?

Why crypto exchanges flag coin mixers and is it justified

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The Crypto community erupts in anger when exchanges flag coin mixers. But why? Cryptocurrencies have always been about financial privacy. In their quest to achieve higher anonymity during a crypto transaction, users often resort to coin mixers. These privacy-oriented tools promise to boost anonymity credentials by amalgamating numerous Bitcoin payments from various spenders and create a single transaction. The exchanges process them as one transaction. Thus, one transaction hides many users and multiple BTC transfers.

The technology gained traction in the early Bitcoin days. However, as regulations crept in and crypto exchanges became compliant with local ‘Know-Your-Customer’ guidelines, these tools were seen in a negative light. Most crypto exchanges now flag coin mixers and view them as suspicious. However, there has been no solid proof correlating coin mixers with malicious activities.

To flag coin mixers is to flag the concept of privacy

The trend of flagging coin mixer users emanates from the ‘better-safe-than-sorry’ psychology. Unfortunately, the involvement of cryptocurrencies in illicit activities gives weightage to this thinking behavior.

Cryptocurrencies have been used for illicit weapons trade, drug money, white-collar crimes, and similar criminal activities. No wonder authorities are on edge. Thus, in their fight against criminal elements, exchanges are denying breathing space to reasonable crypto technology.

The question remains – should coin mixer users be flagged by crypto exchanges? Rafael Yakobi of ‘The Crypto Lawyers’ believes that crypto exchanges should respect the privacy-focused tool. He adds that CoinJoin users should not be flagged under the suspicious activity category.

Segregating a transaction just because it emanates from CoinJoin isn’t fair. There must be reasonable grounds to classify such payments as suspicious and flag coin mixers.

Privacy and anonymity is at the heart of the crypto industry

Binance Singapore faced a lot of flak recently when it blocked a user’s withdrawal. The exchange cited that the transaction was suspended because it originated from CoinJoin, and it is classified under the ‘risk management’ category. The community, however, took notice of this phenomenon, and a public backlash caused a considerable online furor.

And this privacy debate goes beyond CoinJoin. Coins such as ZCash and Monero have also been subjected to intense scrutiny by the crypto exchanges. Recently, Monero was delisted by Huobi Korea, citing low trading volume. But market participants said that it was Monero’s recent involvement in suspicious transactions that cause Huobi to delist Monero.

Privacy-focused initiatives are undeterred by such negative press. Coin mixers, wallets, and privacy coins will continue to remain in demand. These innovations are driven by the fundamental ethos of the crypto realm – privacy, autonomy, and anonymity.

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Gurpreet Thind

Gurpreet Thind is pursuing Masters in Electrical Engineering at University of Ottawa. His scholarly interests include IT, computer languages and cryptocurrencies. With a special interest in blockchain powered architectures, he seeks to explore the societal impact of digital currencies as finance of the future. He is passionate about learning new languages, cultures and social media.

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