Cryptocurrency mixers are not inherently illegal, although they are used for illegal activities. According to a July report from Chainalysis, cryptocurrency mixers are a “reference tool” for cybercriminals who trade cryptocurrencies, and illicit addresses account for nearly a quarter of the funds sent to mixers since January. Decentralized bitcoin mixers, on the other hand, use blockchain protocols such as CoinJoin, to hide where the funds come from. CoinJoin is basically an anonymization strategy used to add a layer of privacy to an otherwise public blockchain.
While this was not the first cryptocurrency mixer to be attacked by the United States government, the difference is that, unlike the Bitcoin Fog case, Tornado Cash is not centrally managed. Tumblers have emerged to improve the anonymity of cryptocurrencies, usually bitcoin (hence the bitcoin mixer), since coins provide a public record of all transactions. Peer-to-peer glasses act as a meeting place for bitcoin users, instead of taking bitcoins to mix them up. The CoinJoin protocol allows a group of users to group together a quantity of bitcoins and then redistribute it so that they all recover the same amount of bitcoins.
The ability to hide where funds come from has turned bitcoin mixers into a hotbed of money laundering activities. However, Chainalysis noted in its report that it is “not aware that any bitcoin or Ethereum mixer is currently following these rules.” You can use a centralized mixer, which are third-party services that receive bitcoins, extract other bitcoins from other deposits and return an equivalent amount of bitcoins at the end of the transaction. That's why Bitcoin SV is designed to fully comply with national financial regulations, since Bitcoin must be so to survive. Bitcoin transactions are easy to trace, except when the sender uses a mixer to confuse the link between their cryptographic address and their real identity.
However, this capability has turned bitcoin transaction mixers into hotbeds of money laundering activities. Bitcoin mixing services, such as Bitcoin Fog, allow users to mix their coins with those of other users, making it almost impossible to detect destination addresses.
