By CoinJoy on The Capital
By analyzing a public blockchain, transactions can be associated with a specific person. There may be a threat to anonymity if a cryptocurrency wallet or a crypto exchange account is used. It can create a clue to real information about a person, moreover, exchanges are forced to adhere to the international rules of KYC, AML and CFT (Know Your Customer, Anti-Money Laundering, Combating the Financing of Terrorism).
It is that there are more chances to track the transactions of old cryptocurrencies like Ripple, Bitcoin, Verge, Litecoin, Peercoin, Dogecoin, etc. So is it possible to increase anonymity?
A cryptocurrency mixer is a service designed for additional anonymization, to make tracking your transactions in a particular cryptocurrency network more difficult. This is primarily associated with Bitcoin mixers due to the total predominance of BTC. However, with the expansion of other cryptocurrencies, their mixing issues appear too. For example, Ethereum creator Vitalik Buterin a mixing scheme that allows users to mix transactions and to hide addresses.
How it works
A mixer is an app or a site that accepts user coins and mixes them with other people’s coins. The classic circuit looks like this:
- the user sends cryptocurrency to the address of the mixer, which is generated separately for each client;
- all coins received for the current day accumulate in the pool;
- all participants confirm claimed operation;
- coins are split into blocks, mixed, and sent out to the set of addresses included in the pool (you can also clear the cryptocurrency and send it to yourself).
Of course, no identification and verification are performed. Cryptocurrencies sent by different users accumulate in the cluster cells of the site. The recipient receives exactly as much crypto as necessary, but this amount will consist of many pieces that previously belonged to unknown participants.
There are two types of mixers (using Bitcoin as an example):
- Centralized services: the first generation (outdated, only a few of them left). The client sends Bitcoins, pays a commission, and the same quantity of coins from another user arrives at the specified address. The more users and coins in the system, the higher the level of anonymity. But even a large number of users do not provide sufficient anonymity.
- Decentralized ( Peer-to-Peer). It allows you to exchange coins without intermediaries, directly contacting other users. The likelihood of fraud is relatively low. There are a number of protocols (CoinSwap, SharedCoin, CoinJoin) that allow several clients to join together and create one common transaction, which is carried out in stages, as the required number of participants is recruited. No one stores the addresses of the recipients or senders. The complication of the operation is done by increasing the number of mixing.
Owners of mixers charge a fee of 0.5–3% of the amount transferred for their services. Somewhere the amount of collection is fixed, but more often a percentage of coins sent for mixing is paid. On some mixers, the client himself sets the commission: this flexibility in choosing a commission gives additional opportunities to complicate the tracking of the transaction.
Do not forget that there is always a chance to lose money if the owner of the mixer suddenly decides to appropriate it. Therefore, it is better to focus on proven services.
After the transaction is completed, the service starts an additional mechanism for ensuring the anonymity of transactions. All information about the latest mixing sessions for all types of virtual currencies is erased.
The main advantages of crypto mixers
- Quick creation of anonymous transactions.
- Acceptable commissions for useful service.
- Regularly updated mixing algorithms.
- Simple and clear procedure.
- The flexibility of mixing settings.
The main weaknesses of crypto mixers
- The prevalence of fraudulent services. In the field of blockchain projects, there is a huge number of criminal sites where coins are stolen. Cryptocurrency laundering resources are in the top 5 here.
- A possibility of tracking clients through Clusterization Analysis, the algorithms by Chainalysis, and Bitfury. It can identify addresses associated with each other with a high degree of accuracy.
- The probability (albeit insignificant) of the return of your own coins sent for mixing.
- The chance of getting coins with a not very good history. If it leads to you this will cause problems.
A few nuances of working with cryptocurrency mixers
The average amount for mixing is approximately 0.001 Bitcoin equivalent. A smaller amount will be considered a donation for the development of the service.
Make sure to close your browser tabs and delete emails from your personal email after the completion. If someone gets access to this mail, unnecessary details about your transactions in the mixer will only harm you. However, remember that the digital transaction identifier indicated in the guaranteed letter is the only evidence of coins sent for mixing. If you lose it and something goes wrong, you won’t be able to return the coins.
How to choose the best coin mixer
- Check the reputation. Remember to read reviews on the right forums.
- Check if a mixer is marked for blockchain analysis for identification. You can use walletexplorer.com.
- Find out the size of the coin reserve. If the transaction is larger than the service coin pool, after mixing, fresh coins will be credited in parts.
As you can see, there is an opportunity to increase anonymity. But it is important to keep in mind all the nuances and all the risks.
Attention! This article is for informational purposes only. We do not encourage the use of the crypto mixers to launder cryptocurrencies or other illegal activities. If you use Bitcoin mixers, then at your own peril and risk.
Originally published at https://coinjoy.io.
Crypto Mixer: Is It A Silver Bullet Or Just A Trap? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.