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

Abstract

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. 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. 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.