Bitcoin Mixers: How Do They Work and Why Are They Used?

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Bitcoin Mixers

Bitcoin Mixers, by design, offers anonymity to users. To be fully anonymous you will need to use a Bitcoin Mixer.

The blockchain is publicly open. All bitcoin transactions since 2009 can be found on the blockchain explorer.

For some, the public nature of Bitcoin is a pro rather than a con. However, for those who want anonymity, Bitcoin’s blockchain is has one big privacy flaw.

Utilizing bitcoin mixers can obscure recipients and senders of the transaction. To find a bitcoin mixer, all you need to do is put in “Bitcoin Mixer” into Google.

Bitcoin transfers get scrambled by a black box, making it difficult to decipher which person A’s address gave bitcoin to person B. Instead, the public explorer shows that a dozen people sent some bitcoin to a mixer and a dozen people received some bitcoins from the mixer.

Centralized vs. decentralized mixers

Centralized mixers are companies that take your bitcoin and send different bitcoins back. Mixing is an easy way to make sure you have anonymity when spending, but they still present a privacy challenge because the company knows that you’re sending your coins from one place to another.

Problematically, centralized mixers take over custody of the coins during the process and require sign-ups to prove one’s identity. Alternatively, decentralized mixers use protocols such as Coinjoin to identify when a wallet receives bitcoin from a transaction before releasing it back into the system.

Problems with using mixers

Mixers are not without their problems. Data is mixed before it gets released. Law enforcement can work backwards from someone in the mixer to connect the dots between two people involved. Proximity makes this easier, but becomes harder with more people participating in a mixer.

Are bitcoin mixers illegal?

The ability to encrypt bitcoin transactions makes mixers a hotbed for money laundering. This attracts tax dodgers and criminals interested in hiding their proceeds.

The legality of using these services is dependent on where you live, as specific laws apply to each jurisdiction. However, in February 2021 U.S. Deputy Assistant Attorney General Brian Benczkowski said that the use of mixers to hide crypto transactions is a crime.

Recent arrests by U.S. authorities paints the murky future of cryptocurrency. Criminals have reportedly laundered up to $300 million through bitcoin mixing services, and more than one might be involved in a single transaction.

New anti-money laundering methods such as the Financial Action Task Force’s “travel rule” will make laundering money easy to detect, and might offset many bitcoin tumblers because exchanges that take your coins need to abide by AMLD-5.

Alternatives to bitcoin mixers

There are other, more scalable methods for anonymizing bitcoin transactions.

After hacking and siphoning funds, the money is often successively circulated through various exchanges by creating an account on each with a fictitious identity.

Privacy coins are often utilized by criminals and those who want to conceal their financial transactions. They allow one-time use “stealth” addresses and mix genuine transaction signatures with decoys to obscure the flow of funds. These methods were utilized by a dark web marketplace, the Silk Road, and they were also supported by White House Market – a website renowned for its security.

New AML rules such as the Financial Task Force’s “travel rule” and the European Union’s Directive on Anti-Money Laundering and Counter-Terrorism Financing, or AMLD-5, will make money laundering more difficult. This could make best litecoin mixer less popular for people who want to take part in the wider cryptocurrency economy.

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