You can use Bitcoin anonymously, but it's like using the web anonymously i.e. it takes a lot of effort and a single mistake screws it up.
I don't really get it, but you have a "money out" problem like any fraud.
Even if you buy bitcoin in untraceable in cash, you transfer it to wallets, you have two eventual issues. You'll either buy something and ship it to yourself, or you'll need to get real cash out. The former leaves a vendor ready to give you up, and the latter only works with exchanges that have your ID.
Am I missing something?
The problem is that most people don't do either of those things, instead, they buy and sell it at exchanges with very traceable credit cards.
You will?
Also, you have an infinite number of trivially easy to make BTC wallets that are not registered to anyone. That's how you can make it anonymous.
That's not a problem. The problem is that if you are not trading with yourself whoever gets your bitcoins has a connection between a physical "you" and and a wallet that "you" used to transfer money. Now the opsec of the transaction depends not only on "you" but also on opsec of that other person. Eventually someone in that path decides it to cooperate with whoever leans on them in the real, not bitcoin world and the security of that stage is blown. Repeat until "you" is discovered.
Evil Criminal Mastermind amasses wealth in BTC. --> They have that BTC in a wallet. --> The Feds know that Dirty Money has gone to that wallet's address. --> ECM makes a new wallet, transfers BTC to it. --> Feds know that BTC went from wallet A to wallet B.
However many wallets Evil Criminal Mastermind makes, they're still going to be traceable by the Feds, right?
They don’t. A wallet can have infinitely many addresses with nothing linking them together externally - only the holder of the wallet knows they’re related.
Think of a Bitcoin wallet as macOS’ Keychain or a LastPass account - and a Bitcoin address as the login credentials of each site you visit: provided you use a distinct login for each site, each site owner has no idea what other sites are in your LastPass/Keychain store.
Similarly: provided you use a new address for each bitcoin transaction then people you transact with have no knowledge of other transactions you’ve had.
People do often reuse addresses - however. Creating new addresses is free and instant - but consolidating your funds becomes a pain, especially if you have a lot of low-value transactions where the amount associated with each address would be eaten-up by the bitcoin network’s transaction fees.
And dumb criminals reuse addresses too - sometimes you see those “I have your password, send me bitcoin” emails using leaked passwords - and they all use the same (or a small number of addresses) - if this scam was run better they’d generate a new ransom address for each mail recipient. And I think that’s how they busted the operator and customers of the website in question: because they used a single address to receive funds at.
Yes, if:
>>ECM makes a new wallet, transfers BTC to it.
But if ECM initiates a new wallet with cash or other methods and doesn't tie their identity to it, then no.
It may not be traceable directly through the blockchain(s), but the exchange destination will be, and they're almost certainly going to be complying with local laws which means they'll respond to a subpoena for data and give law enforcement whatever info they have on you, and most exchanges require KYC verification to handle any significant amount of funds.
You can earn bitcoin anonymously by mining it - at least this was more feasible a couple of years ago than it is now - but in 2011-2017 if you were to buy $4,000 worth of graphics cards you could mine $4,000 worth of cryptocurrency on Nicehash in a few months (and keep going to make a profit too). No ID required (though they probably track your IP address somewhere...)
...after spending a few thousand on GPUs first, right before the crash. Ouch.
Now, the rules of operation of the mixer may (and in practice, definitely do) invalidate that link in reality, but it still exists in the protocol and can be the subject of legislation.
[1] For example, if the mixer wallet is created with nothing and receives 100 BTC from 8 other wallets, there's no record that looks like "Mixer Wallet: 100 BTC". Instead, there's a set of records that looks like this:
Mixer received 52 BTC from tx 5d41 [which deposited 2,000 BTC in Kingpin]
Mixer received 20 BTC from tx 402a [which deposited 20 BTC in Whore]
Mixer received 10 BTC from tx bc4b [which deposited 100 BTC in Hitman]
Mixer received 13 BTC from tx 2a76 [which deposited 2,000 BTC in Kingpin]
Mixer received 5 BTC from tx b971 [which deposited 8 BTC in Smuggler]
Which IMO just makes everyone liable, the law usually doesn't look favourably upon intentionally tricky bullshit.
A transaction has only one source, so that payout is obviously attributable to the source transaction. If the mixer gave you 5 BTC from Whore, you're holding Whore bitcoins. If the mixer gave you 5 BTC from Kingpin, you're holding Kingpin bitcoins.
In your example, the original owner of the whore coins would end up with the kingpin coins and vice versa.
It is described here: https://en.wikipedia.org/wiki/Cryptocurrency_tumbler
But the protocol doesn't reflect the reality of the mixer; the mixer is built on top of the protocol. Within the protocol, those coins are still linked, allowing perfect tracking of coins as they pass through the mixer.
You can argue in court that your kingpin coins aren't really kingpin coins, but you'll always be hamstrung by the evidence. What you really have are plainly-labeled kingpin coins and an admission to purposefully receiving contraband.
At the end of the day that new wallet needs to be converted to cash or use to pay for something to be useful, which makes it traceable, which ties the person to using a mixer which I have no doubts will become illegal itself if it becomes a problem.
Actually, that is kinda scary. The bitcoin I just got for selling a shirt could be one transaction away from child pornography. And it is all in a pubic database.