Having heard about the anonymity of Bitcoin, many users decided that using cryptocurrencies would be a great way to hide their income. You don’t need to be a guru in blockchain technologies to track transfer data, get acquainted with the current balance, and find out exactly how funds are withdrawn from the place of storage. However, many techniques make it possible to confuse the traces of transactions, and the so-called Bitcoin mixer, an anonymization service that attracts more and more users, is considered very effective.

Bitcoin Anonymity Vulnerability

There is no need to enter personal data when using cryptocurrencies, and the system does not control transactions and their purpose. However, the blockchain itself is, in fact, a database where the history of all transactions performed is stored. There is no personal data; the wallets are not personalized, but it is enough to link them once with any transaction, for example, by paying for goods or sending money to a card, so that the information becomes available to control structures.

Therefore, there was a need for additional privacy protection, which is provided by special services like crypto tumblers and the like. They are called mixers because they work on a similar principle, mixing all incoming digital money and crushing it into small parts. After this process is completed, the cryptocurrency arrives at wallets as a set of coins that make up the required amount—traces of transactions in such mixing need to be clarified.

Why is privacy needed?

Blockchain technology does not imply anonymous cryptocurrency. Once the user has left his real data linked to a wallet or Bitcoin address, he can be tracked using services and algorithms. The purpose of tracking can be different; law enforcement agencies and criminals mainly do it. Moreover, the latter is even more common since compelling reasons are needed to launch the state machine. This explains the desire of many users to maintain privacy when making financial transactions.

Another reason is the desire to obtain “clean” crypto” that has not previously been involved in illegal transactions. Freshly mined coins are more expensive – the markup sometimes reaches 30%. But this factor is essential for significant crypto and institutional investors – when investigating a crime, being part of a chain is at least unpleasant. Although, according to Chainalysis research, only 2.7% of all bitcoins are used in criminal transactions, one must remember that the blockchain stores the entire history from the moment the coin was created.

Different approaches are used for anonymous Bitcoin and other anonymous cryptocurrencies. Most of them require actions from the user, but only some have enough knowledge to perform them correctly. So, the best option is a unique service – a Bitcoin mixer. You will find an overview of those currently working at the end of the article.

Types of Bitcoin mixers

There are two types of such services: decentralized and centralized. We’ll talk about these options in more detail below.

In the first case, the Bitcoin mixer works more efficiently, so the level of user anonymity becomes as high as possible. This may be because there are no intermediaries within the system, and users interact with each other directly, using the details issued by the service. Also, when using a decentralized Bitcoin mixer, the likelihood that the digital currency will be stolen by scammers when transferring it to another user is reduced. It’s also worth adding that the best Bitcoin mixers are decentralized services.

Centralized platforms for mixing cryptocurrency have a single center where all information about platform users and their transfers is stored. The risk of data leakage is quite high. Such Bitcoin mixers are not very popular among cryptocurrency enthusiasts. There are only a few similar services left that are used from time to time. They can be found on large virtual platforms for exchanging funds. There, the user can pay so that his funds are exchanged and undergo a “mixing” procedure.

How does a Bitcoin mixer work?

It is based on an algorithm that “mixes” the received coins, thus “obfuscating the tracks.” It is pretty difficult to track the path of cryptocurrency that has passed through the mixer in the blockchain. However, the quality of mixing depends on the service algorithm.

  • Simple mixer. It works on the principle of exchange. Clients send Bitcoin addresses; the crypto mixer divides the money into parts, which it distributes among service users. The disadvantages of this approach are obvious: not all algorithms protect receiving your money. And if they do, they save a code tied to the client, which increases the chances of de-anonymization. There is also no asset scoring: receiving money with a dubious past is possible. Another factor is the presence of a mixing code tied to the transaction. It can be classified as identification information, which reduces the degree of anonymity.
  • Difficult mixing. The funds sent are in a pre-mixer and crushed into parts. Then, the blocks are sent not to other clients but to exchanges. New coins come from the service’s funds, from private investors or traders. The algorithm protects receiving your bitcoins and checks the “purity” of the coins you receive.

Accordingly, the higher the level of privacy you need, the more serious the algorithm should be.

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