The American governments long-running war on privacy escalated this week following the arrest of Coin Ninjas Larry Harmon on money laundering charges. A Department of Justice statement that seeking to obscure virtual currency transactions in this way [using mixers] is a crime means that bitcoiners risk prosecution simply for exercising their right to privacy.

Also read: Treasury Secretary Mnuchin Gives Testimony on Cryptocurrency, New Regulations Rolling Out Soon

The cryptosphere was rocked on Thursday by the news that Coin Ninja and Dropbit CEO Larry Harmon had been arrested on charges of laundering $311 million from darknet marketplace (DNM) Alphabay. Despite having no direct connection with Alphabay, the Helix mixer Harmon had developed was recommended by the DNM. Coin mixers, or tumblers, are legally used by bitcoin owners to merge their transactions with those of other users, providing a degree of onchain privacy that Bitcoin does not provide by default. Mixers can also be used by criminals for the same purpose.

The grand jury indictment served in Washington, D.C. is a nightmare for Harmon and his family (his wife has since faced telephone threats from blackmailers demanding bitcoin), as well as for Coin Ninjas employees and customers. Dropbit, described as Venmo for bitcoin, sponsored the What Bitcoin Did podcast hosted by Peter McCormack and had a high industry profile. Both of Hamons companies have had their assets frozen, including those of customers which were in Dropbits custodial Lightning wallet. But the repercussions of Harmons arrest threaten to extend much further, affecting anyone whos ever taken measures to enhance their privacy through deploying onchain obfuscation techniques.

This indictment underscores that seeking to obscure virtual currency transactions in this way [using a mixer] is a crime, said Justice Department Assistant Attorney General Brian Benczkowski in a statement on Thursday. The day before, in testimony before the Senate Finance Committee, U.S. Treasury Secretary Steven Mnuchin said We want to make sure that these [cryptocurrencies] are not used as the equivalent of secret bank accounts We are working with FinCEN and we will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isnt used for money laundering.

Commenting on the indictment against Larry Harmon, Bitcoin developer Matt Corallo tweeted Setting precedent that tumblers (aka still-worse-privacy-than-cash-machines) are illegal to own/operate would be the beginning of the end. Prominent bitcoiners have long warned that U.S. regulators will seek to cripple the currency however they can, attacking it indirectly through asymmetric warfare against exchanges and centralized mixers whose operators can be cowed into compliance, under threat of imprisonment; Harmon faces up to 30 years if convicted. Centralized bitcoin tumbler Bestmixer.io was shut down last year in similar circumstance.

It remains to be determined whether Harmons Helix mixer was knowingly complicit in laundering darknet drug money; the service shut down in 2017, the same year that Alphabay bit the dust. Whatever the case, it appears that a chilling precedent is being made in criminalizing the innate human desire for privacy. If seeking to obscure virtual currency transactions is a crime, as the DoJ claims, what other privacy practices could be outlawed? Is using noncustodial mixers such as Samourais Whirlpool or Wasabi Wallets Coinjoin implementation illegal? Does generating a new bitcoin address for each new transaction count as a crime?

In a world where citizens were forced to hold their dollar bills in see-through plastic wallets, no one would feel safe stepping outside. The DoJ is effectively trying to enforce the digital equivalent on bitcoiners, conflating all attempts at concealment with criminality.

What are your thoughts on the latest DoJ statement? Do you think the U.S. is trying to outlaw onchain privacy? Let us know in the comments section below.

Images courtesy of Shutterstock.

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Kai's been manipulating words for a living since 2009 and bought his first bitcoin at $12. It's long gone. He's previously written whitepapers for blockchain startups and is especially interested in P2P exchanges and DNMs.

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US Department of Justice Is Criminalizing Onchain Privacy, Starting With Mixers - Bitcoin News