Are Bitcoin Mixers Traceable?

Bitcoin tumblers or mixers were designed to address cryptocurrency users’ anonymity. So, what is a bitcoin mixer? They are called mixers for a reason. Tumblers jumble up users’ coins and distribute them randomly back to the participants. This process avoids easy tracking of their transactions.

However, traders must take extra precautions when choosing a bitcoin tumbler; many so-called "services" take your cryptos but never give anything in return. Government authorities are implementing tightened restrictions on cryptocurrency transactions so that users can avoid phishing scams, hacks, or, worse, robberies.

Are My Bitcoin Transactions Private?

Many believe crypto transactions are anonymous, but they are even more transparent and trackable than traditional banking transactions. Why? Because services from crypto exchanges and “block explorers", in which you can easily search for Bitcoin information such as addresses, block numbers, and more, have been spawned as fast as mixers. For one, it helps traders ensure their cryptos land at the right address. Second, you can tell how efficient or delayed each transaction will be, helping you decide if you should continue using the same provider.

Why Are Bitcoins Trackable?

Cryptocurrencies are as trackable as fiat money. They hold a value you can exchange for the same things you use fiat money for. Tracing bitcoin ensures every transaction’s legitimacy and legality. It also assures traders about getting their real return (or loss) on investments. Though traceable, traders’ identities are not fully revealed. They use pseudonyms through addresses or a transaction hash, uniquely identifying each transaction.

How do You Trace Bitcoin Transactions?

As mentioned earlier, several block explorers and crypto exchanges have been around, allowing easy tracking of cryptocurrency transactions.

This type of digital currency exchange is called virtual asset service provider (VASP). A VASP is a business entity acting performing various functions for its clients. Among these functions are virtual assets and fiat currency exchange, virtual assets safekeeping, sales, and transfer.

VASP users must comply with Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) and Know-Your-Customer (KYC) regulations. These laws require disclosing specific customer information associated with virtual assets transactions. This means each user has only one wallet, with every transaction in this wallet traced back to its owner.

Some users don’t use VASPs, which makes tracing more complicated but not impossible. Advanced software algorithms can analyze huge blockchain data fields, showing patterns. These patterns can provide answers linking trades back to a user, especially when utilizing big-time services such as Chainalysis.

Although cryptocurrencies have been used for nefarious purposes, recent technological advancements have armed government authorities with the means to crack down on these illegal activities. Moreover, government authorities can subpoena all suspected illegal transactions' records, revealing users' identities.

How to Gain Bitcoin Anonymity?

Achieving complete anonymity forever has become impossible with various software services and tools used by government authorities or any tech-savvy entity. These tools can uncover a wallet holder’s identity.

Although coin shuffling can't guarantee automatic or complete anonymity, using coin mixing services makes it burdensome for scammers to breach users' privacy. Pairing off a mixer with a privacy protection approach, such as refraining from re-pooling your freshly mixed unspent transaction output (UTXO), can safeguard your transactions.

Also, privacy-oriented mixing services providing anonymity, such as UniJoin, still exist. These services come with a fee, usually about 1-3% of your earnings.

How to Mix Bitcoins

To use a bitcoin blender, you must identify what type of mixing fits your style or needs. Coin mixers are categorized as centralized or decentralized. Centralized mixing is when you use privately-owned coin tumbling software, which sends cryptos to the mixer's address and is thrown into a pool before new random coins are sent to the intended recipient. However, users face a risk of not getting their funds back.

Decentralized mixing requires technology known as Coinjoin. and a large traders group pooling in their digital currency for one big transaction. These requirements conceal transactions through a coordinated method or peer-to-peer approach. When traders get their coins back, they won't know who got which coin and who it came from. One service provider using the Coinjoin technology is UniJoin.

Unfortunately, decentralized mixing has its share of challenges. Aside from some Coinjoins having telling patterns, blockchain analysis services can reveal a Coinjoin sender’s identity.

Decentralized mixing fees are significantly lower than for the centralized type.

Centralized or decentralized, you should research various blending services. Look for the best bitcoin mixing service, meaning a mixer with a good track record and reputation within the industry.

Can You Trace a Bitcoin Mixer?

Yes, you can trace it.

Bitcoin mixing should make cryptocurrency transactions much more difficult, if not impossible, to trace. But this feature caused an increase in illegal activities, such as money laundering.

Government authorities in the United States have applied regulatory sanctions on crypto tumblers. Block explorers and advanced cryptocurrency tracking systems were put in place to track certain addresses government authorities deem illegal or threatening.

Additionally, innovative blockchain technology was developed when unscrupulous parties tainted coin shuffling's intention. This technology is integrated with the Know Your Customer (KYC) regulations, making it easier to trace transactions. Eventually, coin tumblers were rendered less beneficial.

Are Bitcoin Blenders Legal?

Bitcoin blending, which involves mixing cryptocurrencies, randomly delivering to various addresses, and receiving new ones in exchange for your pooled cryptos, is not inherently illegal.

It becomes illegal when users take advantage of its privacy feature to commit fraud or money laundering. The 2022 Crypto Crime Report indicated that illicit transactions reached an all-time high of $14 billion in 2021. Government authorities pressure cyber crime agencies to reduce or eradicate illegal transactions through the blockchain.

While the amount received from illicit transactions doubled from 2020’s figure, the rate of legitimate mixing and regular bitcoin transactions have also scaled and brought in significantly higher values than the illegal ones.

The Downsides of Mixing Bitcoins

The constant changes in the blockchain systems, mixing services, and national policies worldwide have made participation in coin mixing more difficult. Furthermore, these changes have sowed fear about coin blending becoming less relevant.

Hacking is another facet that mixing cryptocurrencies should protect against. However, scammers from the dark web or elsewhere may send small amounts to addresses of unsuspecting users, hack into the recipients' data, and threaten them.

While it is true that individuals using crypto coins are entitled to privacy just as much as those transacting in banks, having coin tumbling become more traceable is not an entirely bad prospect. It can help traders ensure their coins are sent to the right address and not receive tainted coins in return.

If block explorers continue to trend upward, coin tumbling might either end or become re-purposed for the traders' changing needs.

Can You Mix Non-Bitcoin Blockchains?

Non-Bitcoins are called “altcoins”, meaning alternative coins.

There is no known "altcoin mixer," but when altcoins grew, privacy coins were developed, promising anonymity. Like cash transactions in a bank, privacy coins are deposited and withdrawn from a blockchain, with each transaction recorded. But how you use withdrawn coins is kept private.

Whether you use privacy coins for online shopping, availing of healthcare services, or buying a big-ticket item, trackers cannot trail your purchases.

Monero and ZCash are good examples of privacy coins.

The Takeaway

Coin mixing promised anonymity, but despite its technology, hackers and thieves have broken its protective layer. This proves that digital currency is not immune to cybercriminals.

Cybercrimes have gone beyond data breaches as they launder money and commit theft. These illegal acts have forced government authorities into enforcing stricter guidelines. Coin blenders must now disclose information about crypto users suspected of these crimes.

If you are interested in investing in digital currencies but are wary about exposing yourself to these criminals, look for reputable service providers recognized by industry experts for their regulatory compliance, expertise, and trustworthiness. One such provider is UniJoin.