Obfuscation 101: How Investigators Unravel Crypto-Privacy Tactics

Apr 22

Explanatory journalism—nothing here is legal or financial advice.

When Tornado Cash Walked Free

On 21 March 2025 a U.S. appeals court scrapped Treasury’s 2022 sanctions against Tornado Cash. Overnight, a tool once branded a national-security threat slid back into semi-legality and reignited an old argument: How private can programmable money really be?

Cypherpunks, Bitcoin and the Transparency Bug

Back in 1992, the cypherpunks—Eric Hughes, Tim May and John Gilmore—argued that code, not courts, would defend privacy. Satoshi Nakamoto’s 2008 white paper promised money with no banks, borders or permission. Yet the very feature that made Bitcoin trustworthy—its public ledger—also created a forensic treasure trove. By 2013 the paper A Fistful of Bitcoins showed researchers could link “anonymous” addresses to real people. The dream of anonymity already had cracks.

Everything Evolved—Except Privacy

Ethereum super-charged crypto with DeFi, NFTs and DAOs, but it kept Bitcoin’s weakness: every swap, stake or mint is etched forever on-chain. High-speed networks like Solana and BNB Chain followed the same blueprint. Most users shrugged—until exchanges froze funds and compliance engines flagged wallets, prompting a new question: Can blockchains still feel like freedom if every move is public and permanent?

Privacy Coins: Different Code, Different Trade-offs

Projects that put privacy first did appear. Monero hides every transaction by default, which is why blockchain-analytics firms still struggle to trace it. Zcash lets users switch to a shielded mode, yet fewer than one in ten transfers touch that feature. Dash added an opt-in mixer called PrivateSend, but private transfers now account for well under one percent of its traffic. In short, strong privacy exists—just not on the chains where most liquidity sits.

Mixers and the Rise of On-Chain Obfuscation

For users who stay on Ethereum or Bitcoin, mixers emerged. Tornado Cash breaks the link between a deposit and a withdrawal with zero-knowledge proofs. It worked so well that it attracted both legitimate users and hackers—and a temporary OFAC ban.

A newer protocol, Railgun, went live on main-net in January 2022. Instead of sending funds elsewhere, it cloaks balances inside smart contracts, letting users lend, stake or swap without broadcasting their histories. Think privacy wall, not escape tunnel.

How People Actually Hide Their Tracks

Here’s what shows up again and again in case files—and why it works:

Break the money into crumbs. Big, single transfers shout “track me.” Smaller amounts look like normal traffic and slip past basic filters.
Let the crumbs sit. Wallets may go silent for days or weeks. Waiting throws off timing tools that match a deposit on one chain to a withdrawal on another.
Jump from chain to chain. Funds can start on Ethereum, hop to BNB Chain, land on Avalanche, then loop back. Each detour forces investigators to stitch together a new set of records.
Wash through Monero. Once value passes through Monero, it leaves the public dashboard world. Coming back out, it looks like fresh money with no past.
Cash out off-the-grid. Instead of an exchange, sellers meet buyers in Telegram chats or in person—no KYC forms, no exchange logs.
Layer tricks on top of tricks. A single trail might run Tornado → Railgun → DEX swap → stablecoins → Monero → cash. Each step erases a little more of what came before.

Put together, these moves don’t make someone untouchable, but they can blur the trail enough that even well-funded investigators lose the scent.

And that’s why courts are paying attention. Alexey Pertsev was convicted in the Netherlands (he’s appealing). Roman Storm, out on a $2 million bond, goes to trial in July 2025. Prosecutors aren’t charging them for moving dirty money—they’re testing whether writing privacy code can be a crime.

Why It Matters

When you pay with cash, no one can pull up a public ledger to see what you bought. With most blockchains, every tip, salary, donation or late-night purchase lives forever in plain sight.

Privacy advocates argue that this swaps banks for an even nosier record-keeper: a global spreadsheet that never forgets.
Regulators worry about the flip side: if money can vanish without a trace, it’s easier for ransomware crews or sanctions-breakers to get paid.

Both sides are really debating the same thing—how much daylight is healthy.

Privacy tools don’t hand law-breakers a free pass; they let ordinary users keep personal spending personal: the books you read, the causes you back, the paycheck you bring home. Using those tools adds steps and can raise eyebrows, but for many, the trade-off is worth the peace of mind.

Who gets to mind your business—you, or the whole world?

Need help untangling suspicious flows or building a compliance playbook?

Book a consult → contact@ferdienervida.com

Ferdie James Nervida