Initially, Bitcoin mixing has been a popular method of hiding transactions among dark web users. Today, when people understand that the Bitcoin is not anonymous and how Bitcoin's blockchain works, more and more people are using mixing services to protect their privacy.
How do Bitcoin mixers work?
Each Bitcoin transaction consists of two parts:
- Input—the account that performs the transaction,
- Output—the account that receives the transaction.
Every Bitcoin transaction is permanently stored in the public ledger known as the blockchain. Anyone can access the blockchain and inspect these transactions, as well as the amounts and Bitcoin addresses used.
If the Bitcoin address in the transaction is ever linked to your real-world identity, all the past transactions could be traced back to your identity. Therefore, if you don't want third parties to learn about your spending habits, it is crucial to mask them. And the best tool to do so is using a Bitcoin mixer.
Bitcoin mixers work by taking your Bitcoin, mixing it with a giant pile of other Bitcoins, and then sending you "mixed" Bitcoin to an address of your choosing.
After using a Bitcoin mixer, the link between your original Bitcoin (transactions) and the new Bitcoin (transactions) gets erased.
The "mixed" Bitcoin you receive is usually reduced by a fee the Bitcoin mixer takes. The cost, usually ranging from 1-5%, is generally taken as a profit.
Do Bitcoin mixers work?
The principle of a Bitcoin mixer is to cut the link between "incoming" and "outgoing" coins. Over the years, many different Bitcoin mixing methods, with various effectiveness, have been introduced.
With many Bitcoin mixers on the market, two important questions arise: How effective are Bitcoin mixers? And, which mixer is the most efficient?
The most powerful type of mixer is Bitcoin anonymizer, followed by a CoinJoin mixer and a Centralized mixer. Let's take a look at these below:
#1 choice: Bitcoin anonymizer
First, the anonymizer converts Bitcoins into privacy coins, making the funds completely untraceable. Next, it exchanges anonymous coins back to Bitcoins. Once the transaction is complete, the link between the original Bitcoin and the new Bitcoin is erased.
While Bitcoin anonymizer is the most efficient mixer, its downside is the higher service fee. Bitcoin anonymizer needs to pay both the transaction fees as well as exchange fees. Therefore, the total cost of its service is naturally higher. However, if you want extra privacy, the premium cost is undoubtedly worth it.
#2 choice: CoinJoin Bitcoin mixer
The second most efficient Bitcoin mixer is a CoinJoin mixer.
CoinJoin mixer combines multiple Bitcoin payments from multiple spenders into a single transaction to make it more difficult for other parties to determine which spender paid which recipient or recipients.
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 by returning the coins in multiple transactions, their attempts are uncertain.
#3 choice: Centralized Bitcoin mixer
The third, least efficient of the three, is a Centralized mixer.
A centralized mixer accepts Bitcoin payments and sends different coins in return. The more people that use the Centralized mixer, the more difficult it is to tie the "incoming" and "outgoing" coins.
The downside of a Centralized 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, and provide it to interested parties.
Why should I use a Bitcoin mixer?
Since every single Bitcoin transaction is stored in public ledger known as the blockchain, Bitcoin mixing is crucial for anyone who doesn't want third parties to identify their crypto spending habits.
Bitcoin mixing is critical for anyone who uses darknet markets. A leak from Edward Snowden confirmed that the NSA had been tracking bitcoin transactions from Silk Road quite extensively. Even though Silk Road has been offline since 2013, other marketplaces on the dark web 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. The online world is full of hackers looking to steal private information and use it to perform crimes. Therefore, to feel secure, people use Bitcoin mixers to get complete protection while doing transactions with Bitcoin.
Bitcoin mixing is vital for companies that are making large cryptocurrency transactions. Such companies prefer to use Bitcoin mixers to keep their business dealings hidden from the prying eyes of their competitors.
Bitcoin mixing is handy for wealthy Bitcoin owners who don't want anyone to know about their crypto assets. It is especially crucial in countries where kidnapping is common among criminal gangs.
Authoritarian governments around the world are actively monitoring bloggers, journalists, and influencers to suppress the freedom of thought and speech of the masses. Therefore, Bitcoin mixing is essential for dissident journalists who get paid for their articles without the regime in their country knowing.
Additionally, there are still regimes where being a homosexual is treated as a crime. Therefore, to avoid prosecutions, Bitcoin mixing is crucial for LGBT individuals who want to pay for pornography without the authorities knowing.
The reasons are countless. Bitcoin mixing is for anyone who values their assets, freedom, and privacy—even for a teenage girl from a conservative family who wants to buy contraception without her parents knowing.
How often should I use a Bitcoin mixer?
It all comes down to how many Bitcoin transactions you do.
Some people prefer to mix their Bitcoins regularly. While this makes sense for some individuals, for an average Bitcoin user, it's unnecessary.
However, if Bitcoin mixing makes sense to you, then you should mix your coins before using them with your real identity.
You should have at least one "public" and one "private" Bitcoin wallet. Every time you receive Bitcoins to your "public" wallet, you should mix them and transfer them to your "private" wallet. Only after you mix your Bitcoins, you should use them for transactions that link to your real identity.
How to use a Bitcoin mixer?
Even though each Bitcoin mixer is slightly different, a typical Bitcoin mixing workflow includes these six steps:
- Provide the withdrawal address of your "clean" wallet. The withdrawal address is where the Bitcoin mixer sends the anonymized coins.
- Optionally, provide the address of your "public" wallet. The "public" wallet is where the Bitcoin mixer refunds the unmixed coins automatically, in case something the Bitcoin mixing process cannot proceed. Some Bitcoin mixers do not offer this option, and you need to contact their customer support in case something goes wrong.
- Optionally, choose the mixing strength and time delay. The mixing strength determines how many transaction loops the Bitcoin mixer performs to mix your coins. Typically, the greater the mixing strength, the higher the service fee and the longer the time it takes to anonymize your coins. The time delay determines how long the Bitcoin mixer should wait before sending coins to your chosen account.
- In this step, the Bitcoin mixer usually displays the Transaction ID. Make sure to write down the Transaction ID in case you'd ever need to contact the customer support, should your transaction get unconfirmed or stuck. Some Bitcoin mixers let you even check the status of your transaction by entering the Transaction ID.
- Send the coins to the deposit address. Once the Bitcoin mixer receives your payment, the mixing process is initiated.
- You receive your mixed coins back. Based on the Bitcoin mixer, the coins will arrive in single or multiple transactions.
Even though Bitcoin tumblers usually don't keep the track record of transactions and their corresponding IP addresses, your IP may remain stored in a temporary log for debugging or troubleshooting purposes. Therefore, it is crucial to conceal your real IP address.
Is Bitcoin mixing worth it?
Whatever the reason is, if you want to keep yourself and your coins safe, then using a Bitcoin mixer is always worth it.
If the extra fee is not an issue, then we recommend using a Bitcoin anonymizer, as it gives your Bitcoins the anonymity of a real, dedicated privacy coin. And if you'd like to spend a little less, then you should stick with a good-old Bitcoin mixer.