What are bitcoin mixers and why are exchanges banning them?

One of the original attractions of cryptocurrencies is that its use provides anonymity to the sender or recipient, However, this is a common mistake in the industry.

In fact, Bitcoin (BTC) and many other cryptocurrencies can be easily tracked.

Proof of this came earlier this week When the US authorities arrested the mastermind behind Bitcoin Fog, a Darknet-based BTC mixed service, on April 27th. The authorities managed to capture the operator after analyzing the data available on the BTC blockchain for ten years.

What are bitcoin mixers and why are exchanges banning them?
What are bitcoin mixers and why are exchanges banning them?

You don’t have to be a forensic analyst to know whatthat all transactions are linked to addresses in the blockchain and stay there forever. Although government agencies cannot find the IP address or personal address information, these currencies are often used to pay for products or services. This is the trace that leads back to the sender and recipient.

In the case of Bitcoin Fog, authorities were able to determine the server hosting costs paid for with digital currency. Bitcoin mixing services like Bitcoin Fog allow users to mix their currencies with those of other users so that destination addresses are barely recognizable. This confuses the connections between the inbound and outbound directions and provides a higher level of privacy.

Example of a merge transaction. Source: TarushTech-Medium

Mixing services are offered in a variety of methods, From fully centralized solutions that require trust, to coinjoin mixers that rely on a large group of users to self-collaborate and act at the same time. There is even the possibility of using it decentralized exchange (DEX) in order to practically rule out any possible persecution.

Mixers come with a number of risks

Central mixers present the obvious single point of failure problem. Even if you trust the entity to use multiple signature addresses, users will lose their privacy if the service is ready to share your data or if it has been compromised.

CoinJoin This issue has been resolved by merging contributions from multiple users into a single transaction. The service takes these coins, converts them into a transaction and has them signed by each participant before transmitting them to the network. These transactions are later merged into one, and each user receives the original amount in return. However, no one can tell the origin of these currencies, not even the company that is bringing the transaction together.

Although CoinJoin is not exactly traceable, it offers a plausible denial as no one can determine exactly which entity owns which expenditure. The greater the number of participants, the higher the degree of rejection.

Screenshot of the CoinJoin function of Wasabi Wallet. Source: WasabiWallet.

Also, some cryptocurrency users require anonymity to send tokens to their wallets Wasabi Wallet has long been used for its built-in CoinJoin functions.

Although the infrastructure is technically centralized, the design ensures that operators cannot de-anonymize users or steal funds. At the moment Wasabi Wallet is only available for desktop solutions. So, as with anything cryptocurrency-related, watch out for clones!

A similar service is offered by Samourai wallet that also offers a Chaumian CoinJoin blending service called Whirlpool. For a complete data protection solution, users need to connect the samourai wallet to their own full bitcoin node. However, desktop and mobile versions are offered.

Although these shuffling services are not illegal in most countries, some exchanges and services reject users associated with addresses associated with coin shuffling activities.

The more people realize the importance of having a certain level of privacy in order to protect themselves, the less incentive companies need to keep their customers from using mixers.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade movement is associated with risks. You must do your own research when making a decision.

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