Bitcoin provides pseudonymity to its users through design. To be anonymous, you’ll need to utilize tools like bitcoin mixers.
The Bitcoin blockchain is completely open. Visit a Blockchain Explorer to see a complete and secure list of all bitcoin transactions that have been completed since the cryptocurrency’s introduction at the beginning of 2009.
This is an essential feature for some, and it’s not a problem. For those who want an extra layer of privacy, the public character that is bitcoin’s Bitcoin blockchain has a major privacy issue.
There are methods to keep bitcoin transactions private and hide who is sending what. A sought-after way is to employ the bitcoin mixer, often referred to as a tumbler.
The tools mix bitcoin amounts in private pools before sending them out to the intended recipients. It isn’t easy to figure out why person A gave 10 bitcoins to person B by moving bitcoin around in the black box.
A search engine can demonstrate that person A has sent bitcoin to the mixer, along with several others, and that person B received bitcoins from a mixer, just as did several others.
Centralized vs. decentralized mixers
Centralized mixers accept bitcoins and then send back various bitcoins in exchange for an amount.
Although they are a convenient solution to tumbling bitcoins, they also pose an issue with privacy because even though the links to “incoming” and “outgoing” bitcoins will not be made visible, the mixer has a record that connects transactions.
The mixer may be able to release the records and expose users’ connections to bitcoin.
Decentralized mixers use protocols like CoinJoin to obscure transactions completely using either peer-to-peer or coordinated methods.
This protocol permits a large group of users to mix a quantity of bitcoin (i.e., 100 people would like to mix one bitcoin at a time) and then redistribute the bitcoin.
Each person gets 1 bitcoin. However, people need to determine who was the source or the source of it.
Problems using mixers
Mixers come with shortcomings. It’s highly unlikely that anyone inside the mixer has sent the same amount of bitcoin you did, except for the tumbler’s cost.
If an agency of law enforcement knows the address of its initial suspect and that second person is the sole person to have received a fraction of the exact amount, reconnecting the flow of money won’t be a problem.
This issue becomes more difficult to resolve when more people use the mixer. Some exchanges will only let mixed bitcoins be transferred between exchanges. Because exchanges can recognize mixers, they label mixed bitcoin as tainted.
Binance is one example. It has barred withdrawals from Wasabi, a secure bitcoin wallet incorporating an extremely popular mixing service.
Other well-known Bitcoin mixers are MixBTC, Samourai, and JoinMarket. It’s important to know that no mixing platforms are legit, and some are less efficient in obscuring financial transactions than others.
Make sure you do your homework before making use of mixing services.
Are bitcoin mixers a crime?
The capability to conceal Bitcoin transactions has made mixers a location for money laundering and attracts tax evaders and criminals interested in concealing the profits of illicit activities.
The question of whether the use of these services is illegal is contingent on the jurisdiction you reside in. On February 20, 2021, then-U.S. Vice Assistant Attorney General Brian Benczkowski said using mixers to conceal crypto transactions “is a crime.”
A few months later, U.S. authorities arrested Roman Sterling, the Russian-Swedish creator of the bitcoin-tumbling company “Bitcoin Fog,” for helping to launder $335 million.
Then, in August of 2021, Larry Harmon, the owner of a bitcoin mixer known as Helix, was found guilty of aiding darknet market criminals to launder about $300 million.
New rules against money laundering, including the Financial Action Task Force’s “travel rule” and the AMLD-5 directive from the European Union, can make it harder to hide money and may make bitcoin tumblers less attractive for those looking to be part of the crypto-based economy that is dependent on well-known exchanges that accept bitcoins.
Alternatives to mixers with bitcoin
The bitcoin mixer’s not the sole method to conceal the bitcoin transactions’ flow. Following hacks, criminals frequently steal funds from exchanges using accounts created using cheaply purchased and stolen identities.
This tactic, also known as chain-hopping, is based on law enforcement agencies taking some time to convince exchanges to close accounts.
It’s also difficult for exchanges to identify suspicious accounts when they’ve been in the know-your-customer (KYC) processes.
Privacy advocates believe that strategies like privacy coins can effectively stop the government from spying on any financial transaction, claiming that they’re not just for criminals.
Monero uses one-time-use “stealth” addresses to obscure the movement of money and blends authentic transactions with fake signatures.
Although one of the first significant dark internet marketplaces, known as the Silk Road, had a bitcoin tumbler integrated into its system, the former darknet marketplace White House Market, known for its security, only took Monero.