Wasabi Wallet To Eliminate Coinjoin Amid U.S. Regulatory Fears

Wasabi Wallet, a popular Bitcoin wallet, will no longer offer its Coinjoin feature, a service providing privacy for on-chain transactions.

Announced on May 2, ZkSNACKS, the development team behind Wasabi Wallet, said it will discontinue support for Coinjoin transactions from June 1. The team alluded to increasing regulatory hostility towards cryptocurrency privacy protocols from U.S. authorities as the primary motivation behind its decision.

“After years of relentless dedication to improve Bitcoin’s privacy, zkSNACKs… is shutting down its Coinjoin coordination service,” the blog post said. "We have always made efforts to operate under legal clarity. At this point, we need to regain more certainty before moving forward.”

Moving forward, the Wasabi wallet will solely function as a non-custodial Bitcoin wallet without offering Coinjoin transactions, meaning users can continue to create wallets and transfer assets using the protocol.

“Wasabi Wallet is a free and open-source software and will continue to be maintained,” zkSNACKS said.

Coinjoin describes a process combining multiple Bitcoin transactions to obfuscate the flow of funds and provide privacy to users transacting on-chain. The technique was first articulated by Greg Maxwell, an early Bitcoin developer, in 2013.

“A Coinjoin is a special Bitcoin transaction where several peers get together to literally join their coins in a single transaction,” Wasabi’s documentation said. “The goal is to gain privacy by breaking the link of which input ‘pays’ which output so that none of the outputs can be attributed to the owner of the input.”

Third-party wallet clients that previously offered Coinjoin transactions via Wasabi will also be unable to offer the service, including the popular hardware wallet, Trezor, and the payment processor, BTCPay.

War on privacy

Wasabi’s decision to abandon its Coinjoin features comes as on-chain privacy protocols are increasing

In August 2022, the U.S. Treasury Department took the unprecedented action of adding Tornado Cash, a popular Ethereum-based privacy protocol, to its sanctions list, making it illegal for U.S. residents to interact with Tornado Cash. 

The move came in response to Lazarus Group, the North Korean state-sponsored hacking organization, increasingly adopting Tornado Cash as a means to launder stolen crypto assets.

In November, the Treasury Department followed up by sanctioning Sinbad, another cryptocurrency mixer implicated in enabling North Korean money laundering activities. “Mixing services that enable criminal actors, such as the Lazarus Group, to launder stolen assets will face serious consequences,” said Deputy Secretary of the Treasury, Wally Adeyemo.

On April 24, the U.S. Department of Justice charged the two founders of the popular privacy-focused Bitcoin wallet Samourai with money laundering and unlicensed money-transmitting offenses.

The DoJ accuses the pair of facilitating $2 billion in illicit transactions and laundering $100 million in criminal proceeds from darknet marketplaces. They now face sentences of up to 20 years and five years imprisonment respectively.

Non-custodial crackdown?

ZkSNACKS’ move to discontinue Coinjoin also follows the project blocking U.S. residents from accessing its website and wallet on April 27.

The team attributed the move to concerns of a broader crackdown on non-custodial wallets from U.S. authorities. ZkSNACKS alluded to the Wells Notice that the U.S. Securities and Exchange Commission (SEC) issued to Consensys, the company behind the popular MetaMask wallet on April 26. A Wells Notice proceeds the filing of a formal legal complaint.

“In light of recent announcements by U.S. authorities,zkSNACKs is now strictly prohibiting U.S. users from using its services,” zkSNACKS said.

On April 26, Acinq, the developer of Phoenix Wallet, similarly announced its decision to exit the U.S. market. Acinq said the wallet will no longer be accessible via U.S. app stores starting May 3.