If you read our previous blog post about Bitcoin privacy, you’ll know we spoke briefly about mixing services. They offer to mix traceability between Bitcoin users by receiving and sending back the same amount using independent Bitcoin addresses. Below, we’re chatting more about Bitcoin mixers and if you should use them.
WHAT IS A BITCOIN MIXER?
Bitcoin mixers are services that jumble up an amount of bitcoin in private pools before sending them on to their intended recipients. The idea is that, by shuffling bitcoin through a pool, it’s difficult to work out that person A sent 5 bitcoins to person B. All a person will see is that person A sent some bitcoin to a mixer, as did a handful of other people, and that person B received some bitcoin from a mixer, as did a handful of other people.
WHY IS IT NEEDED?
Bitcoin transactions are public, traceable, and permanently stored on the Bitcoin network. A Bitcoin address is created privately by each user’s wallet and is the only information used to determine where bitcoins are sent. This level of privacy is known as pseudo-anonymity. However, once an address is used, it becomes marked by the history of all transactions it has been involved with. Anyone is then able to see the balance of said address and all transactions linked to it. Since users usually have to reveal their identity (EG. KYC with exchanges) in order to receive services or goods, Bitcoin addresses do not remain fully anonymous.
This is where Bitcoin mixers come in. Bitcoin mixers are solutions that let users mix their coins with other users, in order to preserve their privacy.
PROBLEM WITH USING MIXERS
There are some flaws to note when it comes to using mixers. Firstly, some exchanges don’t allow mixed bitcoin to enter or leave their platform. They are able to identify mixed Bitcoin and mark it as ‘tainted’. Binance, for instance, has blocked withdrawals to Wasabi, a privacy-preserving bitcoin wallet that integrates a popular mixing service called CoinJoin.
Secondly, the most popular mixing services are currently centralised which does mean they could be shut down relatively easily by authorities. So far, however, many mixing services continue to operate untouched.
It’s also important to note that not all mixing services are legitimate, and some are far less effective at obscuring transactions than others. So, be sure to do your research before using a mixer!
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