Thread by @FatManTerra

🧵 Today, I'm sharing my long-standing theory behind a US government covert operation designed to partially crack Bitcoin privacy and deanonymize transactions. I believe that popular Bitcoin mixer ChipMixer is actually a United States government honeypot. Here's why.

I saw this tweet the other day, and a few projects that I've been observing came to mind. But ChipMixer is one I'm absolutely sure about, as it was created when the government was newer to crypto, so they didn't obfuscate the telltale signs of a honeypot very well...

The US government goes to great lengths to have access to flows of online information. This includes the ability to access history and private conversations on most social media platforms. For example, their warrantless internet surveillance rooms: en.wikipedia.org/wiki/Room_641A

Cryptocurrency usage surged in 2016 and 2017. Smart governments noticed that anonymous cryptocurrencies would eventually allow criminals to move around large amounts of money in a manner that renders capital controls worthless. I believe this is when the US formulated this move.

In May of 2017, ChipMixer was released by a brand new anonymous account on the Bitcoin Talk forum. It quickly rose to prominence, offering mixing via fungible outputs, large reserves, a smooth UX, clearnet access, and true anonymity (when it came to external analysis).

Interestingly, ChipMixer released with a "pay what you want" model, which is uncommon for mixers. Users were not charged a mandatory fee for mixing and instead could donate to the website. As any tech entrepreneur will tell you, donations are usually not a viable business model.

The story starts getting suspicious when you look at ChipMixer's expenditure. With zero revenue, ChipMixer paid out several large alpha tester bounties, bought ad space on the forum, and ran a large signature campaign, with expenses in the tens or hundreds of bitcoins.

After looking at ChipMixer's history, it's clear to me that they are being bankrolled by an extremely wealthy entity who doesn't care about profitability and has a lot of money to burn on making the service popular - millions spent, but revenue coming solely from small donations.

Running a centralized Bitcoin mixer is extremely illegal, and the risk/reward doesn't check out if you don't care about making profits. UHNW individuals will all tell you that committing loss-making crimes for the sake of altruism isn't ever worth the risk of jail time.

$10m is a lot of money for most, but for the CIA or the NSA, it's a rounding error. As a government, how much would you pay to potentially get access to the underbelly of an anonymous, decentralized payments network sometimes used by criminals to launder massive amounts of money?

In crypto, there are better mixing methods out there, such as CoinJoins or zero-knowledge proofs. The most popular zero-knowledge mixing protocol was Tornado Cash. Tornado Cash gave users complete obfuscation & anonymity - even from the operator of the service.

Earlier this year, the US government cracked down on Tornado Cash, adding it to the OFAC sanctions list. I suspect this is because they felt highly threatened by the advent of true anonymity, which Tornado Cash provided. There is no data to subpoena from an open source protocol.

On the other hand, even though ChipMixer provides external anonymity, there is one big difference. The operator of ChipMixer has complete access to every transaction - deanonymized! Despite privacy tech's availability, ChipMixer still runs a model where the owner has god mode.

ChipMixer has been used by several high-profile criminals, such as the Ronin bridge hackers (from North Korea!) & the Binance hackers. Some have even been identified and caught after using it, such as the Twitter hackers. It's no joke and is affiliated with serious crime groups.

Many large mixers have shut down due to legal action or unprofitability. Tornado Cash has been sanctioned, and their developers have been unfairly demonized. Yet - ChipMixer is running normally (on the clearnet, at that!) and no regulatory action has been taken whatsoever.

So, why attack Tornado Cash and other mixers and leave ChipMixer alone despite both being used by similar groups? I think the answer is clear - ChipMixer is the US government's ace in the hole. A secret weapon that nobody knows about and can be used when necessary.

This is a covert operation, so there will be no open admission or provable link, but based on the reasoning above, as well as private conversations I've had with Bitcoin OGs, it is clear to me that ChipMixer is a honeypot owned by a major world government, most likely the US.

While I obviously support criminals going to jail, I also think optional anonymity is important and would prefer to have less covert privacy-breaking efforts out in the wild rather than more. For those interested in alternatives, check out CoinJoin tools like Wasabi Wallet.

I hope you enjoyed reading my theory. It's been on my mind for a while and I find the topic fascinating. I would love to hear thoughts and opinions on this, especially from Bitcoin OGs, so drop your comments below if you can! Thank you.