For a long time, the crypto universe was considered a kind of "wild west", a kind of lawless space where anyone can do whatever they want. But since the FTX bankruptcy and the collapse of Terra Luna, in which billions of dollars were burned, authorities around the world have been taking a close look and are sometimes imposing drastic penalties. The former founder and CEO of FTX, Sam Bankman-Fried, for example, was sentenced to 25 years in prison.
The head of what was once Turkey's largest crypto exchange, Faruk Özer, was even sentenced to 11,000 years in prison in his home country. In November of this year, the founder of Bitcoin Fog, Roman Sterlingov, was sentenced to 12.5 years in prison in the USA - for money laundering. He also has to pay a fine of around 395 million US dollars. In addition, cryptos worth around 1.76 million dollars were confiscated.
Bitcoin Fog Operator Sentenced for Money Laundering Conspiracy
Operator of Notorious Darknet Cryptocurrency “Mixer” Laundered $400M in Cryptocurrency since 2011
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— Criminal Division (@DOJCrimDiv) November 8, 2024
What are crypto mixers?
Bitcoin Fog was a so-called crypto mixer. This is a service that serves to conceal the origin and destination addresses of cryptocurrencies such as Bitcoin. The main idea behind it is to bypass the transparency of the blockchain, which makes it possible to trace transactions, and thus protect the privacy of users. Users first send a certain amount of cryptocurrency to the mixer. This deposit is thrown into a large pool along with many other deposits from other users. Within this pool, the cryptocurrencies are broken down, divided into smaller pieces and mixed with the deposits of other users.
This process ensures that there is no longer a direct connection between the amounts deposited and those withdrawn. After the mixing is complete, the user receives his cryptocurrency back, but not on the same address and not in the original structure or amount. Instead, the withdrawals are made from different addresses and in different amounts. The catch: Not only private individuals who want to protect their data use these crypto mixers, but also criminals. This is exactly what was Roman Sterlingov's downfall.
The mixer of choice for criminals
Sterlingov operated Bitcoin Fog for around 10 years and over time Tumblr became the preferred choice for criminals. The proceeds laundered there came from drug and arms trafficking, trafficking in child pornography and identity theft, among other things. The mixer is said to have laundered around 12.5 million Bitcoin. According to the verdict , Sterlingov even advertised the website by saying that Bitcoin Fog was aimed at people who had "serious legal problems" and wanted to offer them "the best possible protection and maximum anonymity".
People with such difficulties could deposit their Bitcoins into a shared pool that was mixed with the deposits of other users. The funds from this mixed pool would then be transferred back to other accounts to cover the original trail. The largest "customers" included Silk Road and Agora Market. The fee Sterlingov charged for his services was between 2 percent and 2.5 percent. Sterlingov had already been arrested in 2021. Incidentally, Ilya Liechtenstein, the Bitfinex hacker, also testified in the trial. Liechtenstein had laundered some of the stolen cryptos at Bitcoin Fog.
The hosting was the downfall
The investigators tracked down Sterlingov via server hosting. He paid for this with the now defunct cryptocurrency Liberty Reserve. Another company that gained notoriety due to bankruptcy also appears in this context: Mt. Gox. Sterlingov bought Bitcoin on the now defunct exchange, which he then used to buy Liberty Reserve. This transaction was still stored in the blockchain, although it took place in 2011.