Anonymity and decentralization are the key differences between cryptocurrencies and Fiat money. But it should be clarified that all data about transactions made are still stored and reflected in the blockchain registry, which allows you to track the path of each unit to its final storage location. In this regard, services and programs aimed at tracking operations within the system have been actively developed recently.
What is a bitcoin mixer?
The indirect anonymity of bitcoin has misled many users. Often, some system participants use blockchain to accept illegal payments or avoid tax. Even if all the received transactions are completely legal, it is worth thinking about the anonymity of transactions, since with an initial knowledge of blockchain technology, any user can track the transfer data, find out the current balance and see where funds are stored and how they are withdrawn, which makes users vulnerable to fraudsters and regulatory authorities. In order to confuse the traces of transactions, a lot of techniques are used, and special services have been developed — bitcoin mixers. (other currencies also have mixers)
Bitcoin mixer is an anonymization service that makes it difficult or impossible to track transactions in the blockchain, it works by dividing transactions into small amounts and repeatedly moves them between different addresses.
Thus, users can enter coins assigned to one transaction into the mixer, and output completely different ones, there will be a huge number of transactions between tokens, which will break the identification ties with each of the participants.
Types of mixers
All transaction anonymization services are divided into two types based on the principle of operation.
Centralized bitcoin mixers are the first generation of services where the level of anonymity depends on the total number of users, and the security of use depends entirely on the professionalism and integrity of the developers of the service.
Peer-to-peer bitcoin mixers are an improved model of centralized services, using which anonymization is carried out without the intermediary cooperation of developers.
How a bitcoin mixer works
When using centralized bitcoin mixers, anonymization of funds is achieved by mixing all transactions received from users. This way, the user sends their funds to the service, pays a set commission fee, and receives exactly the same amount of funds, but only in other coins.
When mixed, all funds are split into small parts, and then randomly distributed to wallets created by the service. This operation can be repeated dozens of times, and only then the coins are sent to the address specified for receiving the participant. The service must be reliable and technically secure, since this method of mixing is associated with the risk of theft of funds sent by the platform developers, and insufficient technical security can become the basis for hacker attacks and break-ins. Also, no one guarantees that the service does not keep records of transactions.
Peer-to-peer mixers were developed as an alternative to the imperfect model of centralized bitcoin mixers. Bitcoin tumbler in this case, serves as a platform where users who wish to anonymize funds can interact without an intermediary. To do this, several users join a peer-to-peer group and form a transaction that goes through several stages before being sent to its destination from one user to another. None of the participants in the transaction knows any data about other users and mixing stages, and the lack of participation of the service in mixing eliminates the possibility of theft of participants funds. Payment of anonymous transactions are carried out at random on a random number of coins, which add up to the required amount for payment.
Why use a mixer?
Everyone has heard about the anonymity of bitcoin, but few people know that it's practically a myth. Since this concept was created by developers in a completely different sense than modern token holders, who believe that all their transactions in the network are not identified. Anonymity of bitcoin consists in the absence of the need to enter personal data and the lack of control of the system over transactions and their purpose. But the blockchain itself is a database that stores the history of all transactions made. Of course, the blockchain registry does not contain personal data of transaction participants, and the address of a bitcoin wallet is not personalized.
At first glance, this looks fairly secure and anonymous, because blockchains do not provide any personal data about coin holders. However, once you link your data to any transaction, for example, pay for home delivery of goods or withdraw funds to a bank card, all transactions in the system can become personalized when tracked by regulatory authorities. This already provides an opportunity to track the method of earning, entering and withdrawing funds, as well as all payment assignments and existing savings of each bitcoin holder, with proof of belonging to a specific person.
The wave of arrests of criminal elements who accepted payment in bitcoins is proof of this. It's worth noting that law enforcement agencies mainly focus on transactions for fairly large amounts. Even if the user does not commit illegal actions, no one guarantees that the transactions made will not seem strange to the special services.
How to use a bitcoin mixer?
When connecting to a bitcoin mixer, it's recommended to use a connection via proxy servers. Some services have a built-in connection via Tor. Then you should go to the official website of the chosen service and complete an easy registration of new users.
Each service offers individual interaction methods, but in most cases it is necessary to deposit funds into your personal account, mix them and withdraw anonymous coins in the preferred method. The address of a bitcoin wallet generated inside the system is often only available for 24 hours. For some services, minimum transactions and additional terms of cooperation are set.
An important element in the use of bitcoin mixers, is a guarantee letter with an indication of the wallet address and a special code, which is issued by the service when participating in mixing. You should download the email or copy its text. When withdrawing funds, the service requires you to provide it as proof. If you lose an email, your funds will also be permanently lost.
The speed of the services depends on the transfer amount and the number of necessary confirmations. To make tracking more difficult, users may also be offered deferred transactions.
In addition to in-service mixing, you can use other techniques to increase your privacy:
Withdraw funds from the service after a long period of time.
Divide the deposit into several parts.
Divide the withdrawal of funds into several separate parts with the withdrawal to different wallets.
Anonymity of bitcoin ends if the user once associated his wallet address with personal data when making a transaction. Therefore, in order to ensure sufficient privacy and confuse transaction traces, you should use additional services. The choice should be made in favor of proven platforms, since there is a possibility of fraudulent actions in favor of developers.
Another risk that bitcoin mixers carry is insufficient mixing of coins. There is a possibility that transactions can still be partially or completely tracked if there is insufficient mixing. In this case, users are additionally at risk to be in the account is not his legally-earned tokens, and coins received for illegal actions. For example, those who participated in paying for drug trafficking. Additionally, you can protect yourself by making deposits and withdrawals through services with different time intervals and random amounts.