Wasabi’s Bitcoin Mixer to Start Censoring Transactions

Wasabi, a Bitcoin-only wallet with one of the most popular transaction mixing implementations, has announced that it will start censoring certain transactions to its CoinJoin mixer.

Wasabi’s CoinJoin to Start Censoring Transactions

Bitcoin has suffered a privacy setback in the wake of Wasabi’s decision to censor certain transactions to its CoinJoin mixer.

Wasabi, one of the most popular privacy-focused Bitcoin wallets, announced Sunday that it would start censoring certain transactions using its CoinJoin mixing service. “The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins,” Wasabi said on their official Twitter account.

The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins. pic.twitter.com/X3kBuQwieO

— Wasabi Wallet (@wasabiwallet) March 13, 2022

Wasabi’s wallet is non-custodial and open-source and therefore can’t block or censor any regular Bitcoin transactions. However, its in-house implementation of the CoinJoin mixing protocol requires a centralized hosting service to run, making the company a potential target for regulators amid increased regulatory concerns around crypto’s role in evading sanctions.

While anyone can theoretically run the so-called “coordinator” protocol used for mixing transactions, the default one is hosted on a centralized server by zkSNACKs, the company developing Wasabi wallet. Per its latest announcement, the company would now start refusing certain CoinJoin transactions via the coordinator protocol it controls, without explaining why or what kind of transactions it would block.

CoinJoin is a privacy-ensuring mechanism originally proposed in 2013 by renowned former Bitcoin core developer Gregory Maxwell. It merges transactions from multiple users into a single big transaction with multiple outputs, allowing users to gain privacy by breaking the link between the transaction inputs and outputs. After mixing their Bitcoin with CoinJoin, users effectively receive “clean” Bitcoins that are supposedly impossible to trace back in history and tie to specific inputs.

That being said, Wasabi recently came under fire after blockchain analytics firm Chainalysis revealed that it was able to break the wallet’s CoinJoin implementation, “de-mix” transactions connected to the infamous “The DAO” hack on Ethereum, and trace them back to four centralized exchanges. “This is yet another example of evidence preserved on the blockchain forever. Confirming we helped trace funds despite the attacker’s attempts to cover his tracks w/ mixers,” Chanalysis tweeted in response to Forbes journalist Laura Shin’s reveal of the firm’s capabilities. 

Wasabi’s latest decision to start blocking certain transactions from its mixing service didn’t fare well with the privacy and freedom-loving Bitcoin community. George Mandrik, for example, one of the earliest Bitcoin adopters and a well-known personality in the space, called the company “stupid” over its decision on Twitter. Even the co-founder and CTO of Wassabi Wallet, Adam Ficsor, acknowledged that the decision was negative for Bitcoin, saying “Blacklisting arrived to coinjoins. IMO it is a major setback to Bitcoin’s fungibility.”

Dealing with the outrage on Twitter, a Wasabi developer going by the pseudonym Rafa said that they understood the community’s frustration. “None of us are happy about this,” he said on Twitter, adding that anyone is “more than welcome” to fork the project and run their own coordinator.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.