Bitcoin mixers as the name implies are used for mixing Bitcoin in order to create anonymity for Bitcoin transactions and also make them untraceable to their final destinations.
Bitcoin mixers are software or services that allow users to mix their coins with those of other users while maintaining their privacy.
While Bitcoin addresses are “pseudonymous” in the sense that they don’t expose the owner’s identity in and of themselves, they may easily be linked to real-world identities. If you withdraw Bitcoin from an exchange where you’ve identified yourself, for example, the exchange knows the withdrawal address belongs to you.
Users can hide the links between their Bitcoin addresses and their real-world identities by mixing their currencies. This allows people to use Bitcoin in a more discreet manner.
What is a Bitcoin Mixer
A Bitcoin mixer, also known as a tumbler, is a service that mingles untraceable quantities of cryptocurrency with others. This is done to improve Bitcoin transaction anonymity by making them more difficult to track. The holder sends bitcoins to the Bitcoin mixer.
This combines the quantity of money with that of other users of the service and sends a mixed amount of bitcoins to the desired address, implying that the original transaction and the new address are no longer linked. For this, the service charges a fee, which is normally between 0.25 and 3% of the amount to be combined.
As a result, the user obtains bitcoins from other people. He does, however, incur the risk of getting “dirty” bitcoins, which could have been used for illicit actions with which he is now involved. As a result, anti-smurfing legislation in some jurisdictions may make the practice of mixing unlawful.
How do bitcoin mixers work?
In a typical trade, bitcoins are transferred from Person ‘1’ to Person ‘2,’ and the transaction is recorded on the blockchain in this way. A Bitcoin mixer, on the other hand, collects bitcoins from Person ‘1’ in a private pool and then jumbles them up with bitcoins from other users before sending them to Person 2.’
As a result, inspectors will see that Person ‘1’ sent bitcoins to a mixer when they examine the transaction. They’ll also notice that Person ‘2’ was given bitcoins via a mixer. They will not, however, discover any direct transaction between Person ‘1’ and Person ‘2.’
Why are Bitcoin mixers used?
Bitcoin mixers are mostly used to make cryptocurrency transactions more private. Coin mixers work by combining your cryptocurrency with a big amount of another cryptocurrency before sending you smaller units of cryptocurrency to an address of your choice.
Coin mixing is similar to money laundering, However, simply because someone mixes coins does not mean they are committing a crime. Instead, it just indicates that they wish to make their cryptocurrency transactions more private.
Categories of Bitcoin Mixing services
Bitcoin mixing services are categorized into two types, which are:
- Custodial
- Non-custodial
Custodial mixing
Custodial mixing happens when users hand over their “tainted” currencies to a trusted third party, who then returns “clean” coins after a set period of time. This strategy, however, is insufficient because the consumers’ money is lost during the mixing process. As a result, in the case of custodial mixers, the trusted mixing party may take funds.
Non-custodial mixing
To replace the trusted mixing party, noncustodial mixers use publicly verifiable and transparent smart contracts or secure multi-party computation. There are two steps in the noncustodial mixing process.
Users must first deposit the equivalent amount of Ether (ETH) or other tokens from address A into a mixer contract. They can then withdraw their deposited coins via a withdrawal transaction to a new address B after a user-defined time interval.
Types of Bitcoin Mixers
There are two main types of Bitcoin mixers:
- Centralized mixers
- Decentralized mixers
Centralized mixers
Companies that receive Bitcoin and send back different bitcoins for a fee are known as centralized mixers. While they provide a simple solution for tumbling Bitcoin, they also pose a privacy risk, because while the ties between “incoming” and “outgoing” Bitcoin will not be visible, the mixer will keep a record of the transactions. That means the corporation might hand over those records in the future, revealing a user’s relationship to the currency.
Decentralized mixers
Decentralized mixers use protocols like CoinJoin to completely obfuscate transactions using either a coordinated or peer-to-peer approach. Essentially, the protocol allows a big group of users to pool some amount of Bitcoin (for example, 100 people wish to mix 1 Bitcoin each) and then redistribute it such that everyone receives 1 Bitcoin, but no one can know who received what or where it originated from.
Examples of Bitcoin mixers
- Wasabi Wallet
- Samourai Wallet
- JoinMarket
Wasabi Wallet
Wasabi Wallet is a well-known Bitcoin wallet that includes a Chaumian CoinJoin mixer. While Wasabi Wallet’s infrastructure is technically centralized, it has been intelligently engineered to prevent the operator from deanonymizing users or stealing cash. It also has a user-friendly interface that makes it easy to tell the difference between mixed and non-mixed coins.
Samourai Wallet
Whirlpool is a Chaumian CoinJoin mixing function offered by Samourai wallet. Wasabi Wallet is only available on the PC at the moment, although Samourai is also available on mobile. Users do not need to connect their wallet to their own full Bitcoin node to truly use Samourai Wallet in a privacy-friendly manner (where users’ anonymity is secured even from the Samourai Wallet company).JoinMarket
JoinMarket
Users can utilize JoinMarket to combine transactions into larger ones using (normal) CoinJoin, which also helps conceal their coin trail and preserves their privacy. Participants in such mergers are financially driven to offer their coins to be mixed, which is a noteworthy benefit of JoinMarket. Users who want to combine their currencies will have to pay a small fee in order to do so.
Problems with using mixers
Mixers don’t come without drawbacks. It won’t be difficult to reconnect the money flow if a law enforcement agency knows the first suspect’s address and the second suspect is the only one who received a little less of a particular amount.
The more people who use the mixer, the more difficult it is to overcome this problem. Mixed Bitcoin cannot be deposited or withdrawn on several exchanges. Because exchanges can detect mixers, mixed Bitcoin is usually labeled “tainted.”
Binance, for example, has disabled withdrawals to Wasabi, a privacy-preserving Bitcoin wallet that also includes CoinJoin, a popular mixing service.
It’s vital to keep in mind that not all mixing services are legitimate, and some are significantly less effective than others at concealing financial transactions. Before you use a mixer, be sure you do your own research (DYOR).
Is it illegal to use a Bitcoin mixer?
Bitcoin Mixers are an obvious hub for money laundering due to their capacity to conceal Bitcoin transactions, enticing tax evaders, and criminals looking to hide the proceeds of unlawful activities.
The use of a Bitcoin mixer being illegal is determined by the jurisdiction in which you reside. Using Bitcoin mixers to disguise crypto transactions “is a crime,” according to then-US Deputy Assistant Attorney General Brian Benczkowski in February 2021.
Larry Harmon, the owner of the Helix Bitcoin mixer, pled guilty in August 2021 to assisting darknet market criminals in laundering $300 million.
New anti-money laundering rules, such as the Financial Action Task Force’s “travel rule” and the European Union’s AMLD-5 directive, will make laundering money more difficult, potentially making Bitcoin mixers less viable for people who want to participate in the larger crypto-economy, which relies on popular exchanges accepting your coins.
