Are Bitcoin Mixers Real? How Do they Work?

Mixing tokens is not as complex as most people think it is. Here, we summarize the mixing process in five steps.

Step 1: Create an anonymous digital cash wallet to store your tokens.
Step 2: Go to the website of your chosen mixing service. Double-check if you have the correct website address.
Step 3: Configure the destination of mixed tokens by specifying your anonymous Bitcoin wallet address, funds distribution, time delay, and other information the service provider might require from you.
Step 4: Send the required amount of unmixed coins to the specified address. The mixing process begins upon your confirmation.
Step 5: Wait for the mixed tokens to be sent to your anonymous wallet.

How do Bitcoin Mixers Work?

A crypto tumbler collects coins from each user and places them in a private pool. These coins are jumbled before they are sent to another user. So, while agents would know that these crypto users have coins in the private pool, they won’t know of any direct transaction between two users.

However, there are nuances to bitcoin mixing depending on the type of bitcoin blender; there are two types:

Centralized Mixers

A centralized mixer is a privately-owned Bitcoin mixing service that accepts cryptocurrency payments, mixes them with other users’ payments, and sends different coins to the intended recipients.

Typically, you will be asked to provide your address in a form on the platform, prompting the service to send you the address where you can send your digital cash payments, from which a service fee ranging from 1 to 3% of the deposited amount is charged. A random amount of crypto coins shall be sent to the users through the specified address.

The more users of the mixing service, the more difficult it becomes to trace the users. However, the platform can access your IP and Bitcoin addresses, allowing it to trace ownership. Even worse, the tumbler might sell or share the users' information with interested parties, putting your privacy at risk.

Therefore, users must select a reputable Bitcoin tumbler they can trust. Unijoin is one of the most trusted services in the crypto community.

Decentralized Mixers

Decentralized mixers use more advanced blockchain technology operating on a peer-to-peer protocol. Coinjoin is an example of a decentralized mixer.

They run like cooperatives in which several Bitcoin users participate to pool their coins for a large transaction. The coins in the pool are shuffled and returned to each pool member. Since the mixing process is automated and randomized, you will likely be getting coins different from what you've put in the pool. As the number of pool members increases, coin distribution becomes more random.

Its single, large transaction results in several outputs that make it challenging to trace the source of the coins. Although it provides better privacy protection than centralized mixers, a decentralized mixer does not guarantee 100% security either. The level of security depends on the number of pool members. But since it is automated, it becomes less expensive to use a decentralized Bitcoin blender.

Are Crypto Mixers Legal?

Technically, cryptocurrency mixers are legal. However, it becomes illegal when a Bitcoin mixing service uses it for unlawful purposes, such as money laundering, or when the service provider fails to comply with relevant regulations. Government regulations on using crypto tumblers may vary from place to place.

In the United States, individuals and mixing service providers are expected to comply with three basic requirements:

• Register with the Financial Crimes Enforcement Network (FinCEN) as a money transfer service under the Bank Secrecy Act (BSA)
• Implement and update Know Your Customer (KYC) and Anti-Money Laundering (AML) programs; and
• Comply with all relevant reporting and documentation requirements

Besides incurring criminal charges, violators may be sanctioned with server confiscation and civil penalties depending on the nature of the offense.

Legitimate Uses of Crypto Coin Mixers

Coin mixers were developed mainly to ensure the users’ anonymity. They work to prevent identity tracing during cryptocurrency exchange. These platforms are most helpful for people seeking privacy or wanting to protect themselves from data breaches and similar cybersecurity risks.

The process helps cryptocurrency users prevent unauthorized parties from monitoring their purchasing and financial behavior, which can lead to life-threatening risks.

Issues Facing Cryptocurrency Blenders

Bitcoin mixing may serve to keep one’s privacy, but it’s far from perfect.

Some mixing services have been involved in unlawful practices, raising whether the technology is a sanctuary for modern-day money launderers. Others may be legitimate but lack the infrastructure for effectively masking cryptocurrency transactions.

Another issue to contend with is the growing concern about the legitimacy of cryptocurrency mixers. Some exchanges, like Binance, have disallowed mixed cryptocurrencies, which they call "tainted."

Centralized mixers are operated by a single entity, posing a few risks that involve loss of funds. If the service provider's network shuts down for whatever reason, you may lose the funds you have placed in the pool. An even uglier scenario is when the mixer itself steals your funds. Moreover, operating as a single entity makes a service provider more prone to hacking; you risk having your funds and identity stolen.

On the other hand, decentralized mixers must maintain a large member base to ensure that transactions cannot be traced to the users.

Are Transactions in Crypto Tumblers Traceable?

Ideally, the traceability of transactions in a Bitcoin mixer should be at zero level. But that is not so.

As mentioned earlier, a centralized mixer's access to its users' Bitcoin and IP addresses can make the transaction traceable. Similarly, if a decentralized mixer has only a few participants, transactions can be traced to the user through a process of elimination.

Best Bitcoin Mixer Alternatives

Several bitcoin mixing platforms are available apart from the crypto blender. You may consider the alternatives listed below:

1. Electron Cash

Designed for Bitcoin Cash holders, this alternative features a tool called CashFusion that makes traceability difficult. It also boasts no wallet downtimes because of its redundant and decentralized servers.

2. Lightning Network

The main pride of this alternative is the Layer-2 scaling solution, which enables faster and less expensive transactions. Lightning Network is intended for the Bitcoin blockchain.

3. Privacy Coins

This option features unique privacy technologies like ring signatures and shielded addresses to conceal users' identities. Unfortunately, some countries have banned or restricted the use of privacy coins. These countries include Australia, Japan, and South Korea.

The Bottomline

The coin mixing technology provides the cryptocurrency community with a solution for addressing privacy and traceability issues.

However, some unscrupulous parties have abused the solution's benefits and used it for unlawful acts. These acts have led to the bad publicity that coin mixing has been getting lately.

But instead of looking at the solution as a sham, let's treat it like any other new technology. Understand it, research the reputation of the service providers before jumping in, and keep a watchful eye.