The input of the Bitcoin mixing service is a Bitcoin with links to its previous transactions. After the mixing process, the output is an entirely new Bitcoin with no relation to its history.
How do Bitcoin mixers work?
Over the years, many different Bitcoin mixing methods have been introduced. The most popular Bitcoin mixers are Centralized mixers, CoinJoin mixers, and Bitcoin anonymizers that use dedicated privacy coins, such as Monero.
Let's look at these three in detail.
Centralized Bitcoin mixers
Centralized mixers are services that accept Bitcoin payments and send different coins in return. The more people that use the Centralized mixer, the more difficult it is to tie the "incoming" and "outgoing" coins.
Let's compare the Centralized mixer to a bank. You send your money into the central bank, which will return you completely different bills. There is no direct link between the old bills (input) you deposited and the new bills (output) you received.
The downside of a Centralized Bitcoin mixer is that you need to trust it. Since the Centralized mixer knows which coins you have sent and received, it can re-establish the trail of ownership. Additionally, if the Centralized mixer refuses to send you the coins back, then you will have not many chances to get them back.
As defined on the Bitcoin Wiki, CoinJoin is a method for combining multiple Bitcoin payments from multiple spenders into a single transaction to make it more difficult for outside parties to determine which spender paid which recipient or recipients.
We can compare this method to a group of people who put their cash into the shared wallet and go shopping. While everyone will spend only the amount of money they gave, the shoppers won't necessarily spend the exact bills they put into the shared wallet.
While CoinJoin is excellent at mixing inputs and outputs, it is not sufficient when mixing unequal inputs. Let's say you send 2.13452 Bitcoins to a mixer and receive the same amount back—the flow of the coins is easily predictable. While some Bitcoin mixers tend to obfuscate this issue, their attempts are uncertain.
If you're looking for a super user-friendly alternative to Bitcoin mixer, you can check out a Bitcoin wallet with a mixer.
Bitcoin anonymizers are services that use a dedicated privacy coin, such as Monero, to anonymize Bitcoins. First, they will convert Bitcoin into a privacy coin, making the funds completely untraceable. In the next step, they turn anonymous Monero back to Bitcoin. After the transaction, the link between the original Bitcoins and new Bitcoins will be lost entirely.
Some Bitcoin anonymizers, such as Tumbler.to, go even further by randomly exchanging Bitcoin to Monero in one place while doing the return conversion from Monero to Bitcoin at another place.
The downside of Bitcoin anonymizers is the higher service fee. Since anonymizers need to pay both the transaction fees as well as exchange fees, the total cost of service is naturally higher. However, if you want perfect privacy, there is no better option than using a Bitcoin anonymizer. With a Bitcoin anonymizer, you pay a premium cost for extra privacy.
How to choose a Bitcoin mixer?
With dozens of Bitcoin mixers on the market, choosing the most reliable Bitcoin mixer can be a little tricky. When making a decision, you should ask these simple questions:
- How long does the Bitcoin mixer keep the logs? Even though Bitcoin mixers usually keep the logs temporarily, for troubleshooting or bug tracking purposes, they should delete them as soon as the mixing process is complete. Find out what is the Bitcoin mixer's policy for keeping the logs.
- What's the reputation of the Bitcoin mixer? How long has the Bitcoin mixer been in operation? What do the forums say? Does the mixer's website look trustworthy? Even though Bitcoin mixers try to stay discrete, you should avoid services that lack information.
- What's the service fee? Does the Bitcoin mixer have a fixed or flexible price? Is the pricing policy transparent enough? Different Bitcoin mixers charge different amounts, but you should be careful of anything that looks too good to be true. Please keep in mind that the cost of the Bitcoin anonymizer is higher due to the extra (exchange) fees involved.
- What are the minimum and maximum amounts? What is the minimum (and maximum) deposit to mix your Bitcoins? You should avoid Bitcoin mixers, which require a very high minimum deposit (0.25 BTC or more) to mix your Bitcoins.
- How many confirmations are required? What is the number of confirmations required by the Bitcoin mixer to mix your coins? Naturally, the lower the number of confirmations, the faster the overall tumbling process would be.
- Does the Bitcoin mixer support a delayed mixing? Some Bitcoin mixers let you set a Delayed output to make the transactions look more natural. Delayed output lets you receive Bitcoins after a time gap you specify.
- Does the Bitcoin mixer provide customer support? This is imperative in case your transaction gets stuck.
Why should I use a Bitcoin mixer?
Bitcoin mixing is the process of breaking the connection between a Bitcoin sending and receiving addresses.
Since the Bitcoin blockchain that stores every single transaction is public, Bitcoin mixing is critical for anyone who doesn't want third parties to know their crypto spending habits.
Bitcoin mixing is highly recommended for anyone who uses free markets (aka Darknet Markets). A leak from Edward Snowden confirmed that the NSA had been tracing bitcoin transactions from Silk Road quite extensively. Even though Silk Road was shut down on October 2013, other dark marketplaces are still in operation and actively monitored by authorities.
However, Bitcoin mixing is not meant for criminals. It's for anyone who wants to protect their privacy.
Bitcoin mixing is essential for dissident journalists who get paid for their articles without the regime in their country knowing.
Bitcoin mixing is also crucial for homosexuals who want to pay for pornography without anyone knowing. Especially in regimes where being homosexual is treated as a crime.
Bitcoin mixing is handy for a teenage girl who wants to buy contraception without her parents knowing, especially if she's from a conservative family.
Bitcoin mixing is handy for wealthy Bitcoin hodlers who don't want anyone to know about their assets. Especially in countries where kidnapping is common among criminal gangs.
The reasons are countless.
There is a whole bunch of blockchain analytics companies, such as Chainalysis, Elliptic, or CipherTrace. They sell their crypto intelligence services to governments and businesses for blockchain surveillance and detection of criminal activity.
Coinbase, one of the world's largest cryptocurrency exchange, recently acquired the controversial blockchain analytics company Neutrino. Shockingly, Neutrino's core executives have previously founded Hacking Team, an Italian firm that sold spyware to governments linked to human rights abuses.
With the growing number of cryptocurrency regulations and tools that help authorities to control the observance of these regulations, it is imperative to keep your Bitcoins private. Therefore, if you haven't used a Bitcoin mixer or anonymizer before, you might consider it for enhanced privacy.