How Do Bitcoin Mixers Work and Why Are They Used?

How Do Bitcoin Mixers Work and Why Are They Used?

Bitcoin News
December 12, 2022 by Diana Ambolis
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The Bitcoin blockchain mixers are open to everyone. The complete history of every bitcoin transaction since the cryptocurrency‘s introduction in early 2009 may be found by visiting a blockchain explorer. That isn’t a problem; it’s an essential characteristic for some. However, the public aspect of the Bitcoin blockchain poses a severe privacy problem for individuals
How Do Bitcoin Mixers Work and Why Are They Used?

The Bitcoin blockchain mixers are open to everyone. The complete history of every bitcoin transaction since the cryptocurrency‘s introduction in early 2009 may be found by visiting a blockchain explorer. That isn’t a problem; it’s an essential characteristic for some. However, the public aspect of the Bitcoin blockchain poses a severe privacy problem for individuals who require a bit more secrecy. There are ways to obfuscate who sends what to whom and keep bitcoin transactions confidential.

Utilizing a bitcoin tumbler, also known as a mixer, is one of the most common techniques. These tools mix up a certain quantity of bitcoin in private pools before disbursing it to their target audience. Individual B received some bitcoin from a mixer and a dozen additional individuals. It’s difficult to determine who that person is. A delivered person B 10 bitcoins by shuffling bitcoin through a black box, according to the theory. A public explorer will show everyone who sent bitcoin to a mixer and a dozen other places.

Dispersive vs. centralized mixers

There are primarily two categories of bitcoin mixers:

  • Centralized mixers, such as Blender.io.
  • Decentralized mixers: examples are JoinMarket and Wasabi.

For a price, centralized mixers are businesses that accept your bitcoin and send back various bitcoins. They offer a quick way to lose bitcoin. Still, they also pose a privacy risk since the ties between “incoming” and “outgoing” bitcoin transactions will not be made public; the mixer will still keep a record of the connections between the transactions. In other words, the business could give out these records and show how a user is connected to the currency.

Decentralized mixers use protocols like CoinJoin to hide all transactions. They can do this in a coordinated or peer-to-peer way. The protocol lets many people combine a sum of bitcoin (say, 100 people each want to connect one bitcoin) and then redistribute it so everyone gets one bitcoin back. There is no way to tell who got what or where it came from.

Using mixers can be problematic.

Even the best mixers have drawbacks. The more people use the mixer, the more challenging it is to overcome this issue. It’s doubtful that another user in the mixer also sent the same amount of bitcoin as you, less the tumbler’s fee. It won’t be too challenging to resume the flow of funds if law enforcement knows the second suspect is the only one who received a little less of a specific amount and has access to the first suspect’s address.

Some exchanges forbid mixed currencies from entering or leaving the business. For example, Binance has stopped people from putting money into Wasabi, a bitcoin wallet that protects user privacy and includes the popular CoinJoin mixing platform. JoinMarket and Samourai are two additional well-liked bitcoin mixers. Since discussions recognize mixers, they classify combined bitcoin as “tainted.”

It’s essential to remember that some mixing services are legal, while others are not significantly less successful at hiding money transactions than others. Do your homework before using a mixer, please.

Also Read: All About Mining Bitcoin And Other Crypto From Home

Are bitcoin mixers prohibited?

Due to their capacity to conceal bitcoin transactions, mixers are a clear-cut hotspot for money laundering, drawing people like tax evaders and criminals looking to hide the proceeds of their illicit activities. Using these services can be prohibited depending on the country you are located in. Using mixers to hide cryptocurrency transactions “is a crime,” according to Brian Benczkowski, the U.S. deputy assistant attorney general, in February 2021.

The inventor of the bitcoin tumbling service “Bitcoin Fog,” Roman Sterling, a Russian-Swedish, was detained by American officials for aiding in laundering $335 million two months later. The owner of a bitcoin mixer named Helix, Larry Harmon, admitted guilt in August 2021 to assisting criminals on the dark web market in repurchasing almost $300 million.

The Financial Action Task Force’s “travel rule” and the AMLD-5 directive, two recent anti-money laundering regulations, will make money laundering more complex and may reduce the appeal of bitcoin tumblers for those looking to participate in the broader crypto economy, the kind that depends on well-known exchanges taking your coins.

Substitutes for bitcoin mixers

The flow of bitcoin transactions can also be concealed without using a mixer. Following hacks, thieves frequently siphon money via numerous exchanges and accounts made with cheaply purchased or stolen identities. Chain-hopping relies on the fact that it can take a while for law enforcement to force businesses to close accounts, and that it can be. If suspect accounts have already undergone know-your-customer (KYC) checks, exchanges may find it challenging to identify them. 

Advocates believe privacy coins are effective ways to stop the government from monitoring your financial transactions and that they are not just for criminals. Monero employs fake transaction signatures and one-time use “stealth” addresses to mask the movement of money. While the Silk Road, one of the first significant dark web marketplaces, had a bitcoin tumbler built into its infrastructure, the formerly famous darknet market White House Market, which was renowned for its security, exclusively accepted Monero.

Alternatives include optional private transactions in Zcash that rely on zero-knowledge proofs and don’t divulge transaction data. The personal transaction options in Dash work something like CoinJoin.