Finally, an official statement by Wasabi Wallet. A couple of weeks ago, the privacy-focused project made the news by announcing it wouldn’t allow tainted bitcoin to participate in its CoinJoin service. Doesn’t that action go against everything Wasabi is supposed to stand for? That was the consensus at the time. Now, it’s the company’s turn to speak. Was Wasabi able to turn the narrative around?

Their text is convincing and it sounds like they know something most people don’t. And, surprisingly, it seems like the announcement served as a boost for their CoinJoin service. Let’s explore and comment on exactly what Wasabi said, but first, click here to remember what happened when they made public the controversial policy. An introductory quote:

“It all started with Wasabi’s simple announcement, “The zkSNACKs coordinator will start refusing certain UTXOs from registering to coinjoins.” Translation: the company that runs the centralized coordinator that organizes CoinJoin transactions will not let tainted bitcoin participate in the service.”

The controversial fact here is, coordinators aren’t considered “money transmitters” by law. The service literally never touches any of the participants’ bitcoin. However, according to Wasabi, they have to blacklist. “In order to ensure the survival of the project, we can act in a way that society allows us to do, even if we are not philosophically aligned with that.” Do they know about future legislation? They gave some indications in the text, even though Wasabi noted, “we will not share the legal and regulatory details of the matter.”

What Happened According To Wasabi?

The company starts by acknowledging its sin, but quickly tries to turn the tables:

“By exploiting the only architectural flaw of Wasabi Wallet’s non-anonymously run coordinator: lack of censorship resistance; we broke one of the largest taboos of Bitcoin: blacklisting, to achieve something greater: survival of the best Bitcoin privacy technology.”

Touting their own horn doesn’t look the greatest, and neither does trying to spin what one of the company’s owners told the media at the time of the announcement. 

“In a Bitcoin Magazine article, one of the owners of zkSNACKs Ltd., Bálint Harmat said the decision to blacklist was done proactively. While it is correct that there’s no legislation that specifically says coinjoin coordinators must blacklist their customers’ UTXOs, the challenges encountered operating the business in even the most liberal jurisdictions are numerous and multiplying.”

What did Bálint Harmat say exactly? The referenced article quotes him explaining what the company’s decision was about:

“We were always against using [CoinJoin] for illicit activities, and as far as we could see from the news, lots of actors started to take advantage of the software. And this created really bad press for us.”

And about the proactively done “decision to blacklist,” Harmat said:

“We did our research and really went into the legal details. There are no current regulations on ongoing joint coordinators. However, I’m aware this is going to change in the future.”

So, Wasabi does know something. Or so they say.

BTC price chart for 03/29/2022 on Tradestation | Source: BTC/USD on TradingView.com

And Then, The Company Turns The Tables

By delimiting the problem, Wasabi puts forth information about the privacy of each CoinJoin transaction. As it turns out, the company doesn’t have access to any information that can be tied to identity. 

“The zkSNACKs coordinator having a blacklist does not mean Wasabi Wallet monitors or collects user data. Our architecture is specifically designed to limit the power of what we can do. We still cannot breach our users’ privacy even if we wanted to. For example, all communication still goes through Tor, so the company has no information about coinjoin participants’ identity.”

And then comes the kicker. Instead of killing the company like many predicted, the new policy generated a 3 fold increase in participants. Why was that? Wasabi offers an explanation:

“We expected that after the announcement the liquidity of coinjoins would take a severe hit. Surprisingly, the opposite happened. The volume of new bitcoins being put into Wasabi coinjoins has increased 3 fold compared to pre-announcement levels, and it’s still growing. The theory put forward is based on the fact that the largest deterrence from coinjoining was the fear that users’ coins may be worth less after the coinjoin process due to their “proximity” to perceived “dirty” coins.”

What an interesting turn of events. Does it justify the blacklisting, though? Probably not. That’s “one of the largest taboos of Bitcoin,” and for a reason. Was it necessary? Does Wasabi know something we don’t? We can’t answer that question at the moment. Wasabi placed its bets, though. Stay tuned for new developments in this crucial bitcoin story.