The crypto space has over the years generated questions about privacy. This has become the motivation for the development of some tokens that are dubbed “Privacy Coins,” like the Monero (XMR) coin and some other protocols whose focus has been to ensure 100% privacy in the crypto space. Such protocols are Mimblewimble.
However, among the solutions to this issue of Privacy in the crypto space are Bitcoin Mixers, which is developed to allow users to preserve their privacy by mixing their coins with other users’ coins leaving no thread to identify that the coins were from them.
Bitcoin (BTC) addresses are indeed pseudonymous, which means in themselves they do not reveal the identity of the address owner, but even at that, the downside is that they can often be linked to the real-world identities of the users. An example of how this works is with centralized exchanges which hold your identity. If you made any BTC withdrawal from the exchange, they know that the address belongs to you. Outside the involvement with the centralized exchanges, there are other centralized techniques like the Blockchain Analysis that links BTC addresses to identities in the real world.
So, when dealing in the crypto space, it is good to know that when you move coins from these addresses in question, you are at the risk of revealing your personal information of all sorts. Depending on how the coins are spent, these techniques can even reveal how many coins you have to your name on each of these addresses and what you are spending them on.
With the Bitcoin Mixers, users can cut off the ties between their identities in the real world and their bitcoin addresses which allow for more privacy in their dealing in the crypto space.
How Then Do Bitcoin Mixers Work?
Over the years, there has been a number of mixing strategies proposed and developed in the crypto space. These strategies include the fully centralized solutions that conditioned all users to trust a certain mixer. There are other solutions that do not demand trust from the users before using them, some solutions that work like the Lightning Network payment channels, and some that used privacy coins like Monero (XMR) as an intermediary in their mixing processes.
In this guide, we will explore the more prominent and popular mixing options available in the space today.
The Centralized Bitcoin Mixers
The basic task of the centralized mixers is to accept BTC payments from the sender and in return send different coins to the destination address. However, the increasing number of crypto users using a particular bitcoin mixing service could make it extremely difficult for an outsider to tie any incoming coins to any outgoing coins. When this happens, the transaction trail is broken and it affects the privacy offered to the user.
However, there are two great drawbacks with centralized mixers which are unsolved to date. One is that users will need to trust the mixer with their privacy. This is because the mixer knows who exactly sent the incoming coins and also knows who received the outgoing coins, and this means the mixer can share this data with any interested third-party either being obligated by law or in return for payment which will hurt users’ privacy badly. Another drawback with the centralized mixers which is even worse than the first one is that the mixer can refuse to release the payment to the destination address which basically means that can steal coins from its users.
The Chaumian Coinjoin Mixers
In an attempt to solve the drawbacks attached with the centralized mixers, more modern mixers are arising. For example, Chaumian Coinjoin mixers allow a large pool of users to corporate in making a large payment to themselves. This simply means that if a hundred users all corporate to send 0.1 BTC exactly to a new address they can control, and merge the 100 transactions into one big transaction, everyone will get 0.1 BTC back, without any trace of where it is coming from.
To cap it all, the Chaumian Coinjoin BTC mixers can be designed in a way that now even the users that participate in the transaction merging can figure out which coins wen which way. And no one can lose their coins, because users are not required to sign their transactions until they get their 0.1 BTC back.
Some Other Popular Bitcoin Mixers in the Crypto Space
Before diving into this section, this guide doesn’t recommend any of the centralized mixers listed here, they are listed only for information and educational purposes. This is because of the two main setbacks listed above.
Among the popular Bitcoin, mixers are Wasabi Wallet. For Wasabi Wallet, the in-built bitcoin mixer is the Chaumian Coinjoin mixer. And though the infrastructure of Wasabi Wallet is centralized technically, it is designed in such a way that the operator cannot deanonymize users to discover their identity or even still their funds. It has a user-friendly and very simple interface that helps users clarify mixed coins and non-mixed ones.
Also read:Another similar mixer like Wasabi Wallet is the Samourai Wallet which also runs on the Chaumian Coinjoin mixing infrastructure called Whirlpool. While the Wasabi Wallet is available only on the desktop, for now, the Samourai wallet took the game higher with its availability on mobile. One major point of praise for the Samourai wallet is that the users’ privacy is protected by even the wallet team. However, to maximize the privacy made available on the Samourai wallet, there is a need for users to connect their wallets to their own fill BTC node.
Another alternative to these two examples listed above is JoinMarket. The mixing service allows crypto users to merge their transactions into a large transaction using the regular CoinJoin protocol, which helps you hide the trail of your transactions and ensure your privacy is protected. The unique selling point of JoinMarket is the incentives they give their users for offering their coins for mixing. Basically, they reduce the fees payable by users who wanted to mix their coins.
Other popular bitcoin mixers include MyCryptoMixer and BitcoinMix, and these two are basically known for their simple and user-friendly interfaces.
Reasons You Would Want to Mix Your Coins
To begin with, the basic reason you would want to mix your coin is to protect your privacy, and by extension, there is the reason you would want to protect your privacy.
Summarily, you don’t want the whole world tracking how you are spending your own coins, how much bitcoin you hold in your addresses, and how much you are earning.
To make it more practical, consider someone who just got a salary raise, there are tendencies that your landlord will find out which you do not want because he can consider it as a good time to raise the rent. Another example is for some homosexual guys looking to pay for their gay pornography without with knowledge of anyone, especially in some regions where it is a crime to be gay.
A teenage girl who hails from a conservative family might want to purchase contraceptives without risking her parents knowing. A dissident and non-conformist journalist may want to monetize his articles without the government of the country discovering his identity. There might also be reasons for a democrat in a town full of Republicans to donate money to his favorite politician without the knowledge of his neighbors. To end the list of these examples, a wealthy bitcoiner may want to hide his identity to avoid being a target for extortion, kidnapping, or something even worse.
The guide may become overwhelming if the list of reasons why users want to hide their privacy should continue. And as a matter of fact, even if there is no specific reason for you to hide your identity or prioritize your privacy, you might just want to offer your coin to be mixed to devotedly increase the anonymity of those who wanted to enjoy their privacy.
Is Coin Mixing a Service Used Only by the Criminals?
There are tendencies for you to think the use of coin mixing is only for criminals engaging in illicit activities. But it is not. As a matter of fact, enjoying privacy is a fundamental human right as stated in article 12 of the Universal Declaration of Human Rights.
Truth is criminals also benefit from these privacy services as a means of executing their illicit acts flawlessly without being caught. One of the prices we pay to enjoy a perpetually free society is that criminals also share from the freedom.
But truthfully, to opine that a coin mixer is used mainly by criminals is a false statement. Based on research set up by Chainalysis, a blockchain analytics firm, coin mixers are used more by regular BTC users who just desired privacy in the crypto space. Also in the study, it was discovered that coins that are used for criminal activities are represented as the minority of all the coins mixed.s
What is the Future of Bitcoin Mixer; Can They Be Banned?
Being concerned about whether Bitcoin mixers will be banned or not is a legal concern, and not a technical one. This means that the legality of the coin mixing service will differ from region to region. Currently, there are examples of mixers that are already banned as the regulatory authorities claimed they are an instrument of money laundering.
For example, in February 2021, the then Deputy Assistant Attorney General of the United States, Brian Benczkowski said that the use of bitcoin mixers to hide the trail of crypto transactions is a criminal activity. A few months later, the United Stated authorities arrested the Russian-Swedish founder of Bitcoin Fog – a bitcoin mixing service, Roman Sterlingov, for helping criminals launder $335 million. Also, in August 2021, the founder of Helix – a bitcoin mixer, Larry Harmon, pleaded guilty to helping criminals in the darknet market to launder money around $300 million.
The revisiting of the anti-money laundering regulations like the travel rules of the Financial Action Task Force and the AMLD-5 Directive of the European Union could make money laundering more difficult. Also, this will kick bitcoin mixers off the list of those that can help in money laundering as more sanctions will be placed on exchanges for accepting mixed coins.
In the crypto space, most of the popular coin mixing services are the centralized ones (either user trusted them or not), and this means that they stand a higher chance of being shut down by the authorities. But so far, most mixing services are still operating undisturbed and unencumbered.
Judging from another perspective, whatever caused the shutdowns and bans of the centralized coin mixing services would mean the advent of decentralized ones as the replacement and they will be difficult to counter.
Is There a Risk of Having Your Coins Tainted After Using the Coin Mixing Services?
The risk of being left with tainted coins after mixing depends on how the coins were mixed. There are possibilities that your coins can be tainted after getting mixed. There are some mixing infrastructures like the one employed by Wasabi Wallet that leaves an obvious trail that the coin has been mixed. So, while the history of the coins before getting mixed is preserved and obscured, the history after mixing is not.
However, as of the time of this writing, there is no report yet that mixed coins are being labeled as tainted and were refused by BTC merchants or exchanges for their history of mixing. But the modification of the anti-money laundering laws, as mentioned above can lead to more scrutiny of the crypto exchanges which will make coins be labeled as tainted and causes them (crypto exchanges) to reject them.
A Quick Insight into Blockchain Analysis
The BTC blockchain is a transparent and open ledger. The implication of this is that every transaction recorded on the ledger is visible to everyone. This also means that the movement of coins from address to address is visible to everyone.
Of course, the above statement might not be the best way to present it technically, but for the sake of this introductory guide, it is best for preliminary understanding.
More than having a transparent and open ledger, the construction of bitcoin transactions is in such a way that the information of the users is revealed. Also, it is noteworthy to mention that a transaction with more inputs suggests that the same user owns all these inputs. This phenomenon caused address clustering and privacy leaks among many other things it causes.
Having said that, blockchain analysis, as the name suggests, is the act of exploiting the transparency of the bitcoin ledger that potentially caused privacy leaks to analyze the blockchain.
To put in a better and technical perspective, the act of analyzing, discovering, clustering, modeling, and creating a visual representation of data on a cryptographic distributed ledger called blockchain is known as blockchain analysis. Basically, the purpose of this analysis is to discover meaningful information about the many crypto players involved in crypto transactions.
Conclusion
With more discoveries daily, Bitcoin is not as private as it was painted or as many people thought. Tracking crypto transactions has now become easier with the rise of blockchain analytic firms with huge investments going to the sector.
As good as it sounds, this has badly hurt the availability of privacy in the crypto space, hence, the reason the bitcoin mixing services comes in handy, most especially for users concerned about firms harvesting their data on the blockchain.
As mentioned earlier, there are some other alternatives to the bitcoin mixer, when it comes to ensuring privacy in the crypto space. Most of which centered around privacy coins like ZCash and Monero (XMR). Monero uses the one-time stealth addresses that mix actual transactions with some decoy signatures. Though this contributes to the increasing size of data stored on the blockchain and ultimately affects the scalability.
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