The recent shutdown of the cryptocurrency mixer Samourai Wallet and the subsequent arrest of its co-founders have sent shockwaves through the industry. Cointelegraph Research delves into the inner workings of Samourai Wallet, the reasons behind its closure by U.S. authorities, and the potential impact on privacy and self-custodial cryptocurrency tools.
The co-founders of Samourai Wallet, Keonne Rodriguez and William Lonergan Hill, were taken into custody on charges of money laundering and operating an unlicensed money-transmitting business on April 24. While Rodriguez, the CEO of the company, pleaded not guilty and was released on a $1 million bond, Hill, the chief technology officer, is awaiting extradition from Portugal where he was apprehended.
The Federal Bureau of Investigation issued a warning to Americans cautioning against using cryptocurrency money-transmitting services that are not registered as money services businesses following the indictment. This move has raised concerns that U.S. regulators may push for money transmitter licenses to be mandatory for non-custodial cryptocurrency tools in the future.
Samourai Wallet was known for its privacy-enhancing features, such as Ricochet and Whirlpool, which set it apart from traditional wallet applications. Ricochet added intermediary transactions to obscure the sender and recipient, while Whirlpool implemented CoinJoin, a method that pools inputs and outputs from multiple parties to obfuscate ownership of unspent transaction outputs.
Whirlpool, the CoinJoin service offered by Samourai Wallet, used a coordinator server to facilitate transactions. Each user’s wallet would submit input and output addresses to the server, which would then verify the validity of the participants without revealing specific inputs. The goal was to enhance privacy and decentralization, with plans to transition to a decentralized coordinator in the future.
The indictment against Samourai Wallet’s founders revolves around the accusation of operating an unlicensed money transmitting business. While the company could not control user funds, it had the capability to pre-screen transaction inputs for its CoinJoin service. This led to concerns about regulatory compliance and the legal definition of a money transmitter in the cryptocurrency space.
In addition to the money transmitter charges, both founders are facing allegations of money laundering, which carry significant prison sentences. The indictment claims that Samourai Wallet was used by individuals involved in illicit activities, although the platform itself did not conduct financial transactions and did not have direct control over funds.
The accusations against Samourai Wallet highlight the legal complexities surrounding non-custodial cryptocurrency products and the extent of legal responsibility for illicit activities conducted through these platforms. The case raises questions about the role of privacy tools in facilitating criminal activities and the legal implications for developers and providers of such services.
Ultimately, the closure of Samourai Wallet and the legal actions against its founders underscore the challenges and uncertainties facing the cryptocurrency industry, particularly in relation to privacy, regulation, and law enforcement. The outcome of this case could have far-reaching implications for the future of self-custodial cryptocurrency tools and the broader digital asset ecosystem.