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What are bitcoin mixers and are they legal?

What are bitcoin mixers and are they legal?

Bitcoin mixers are gaining a lot of popularity and appealing to many users because of the unique propositions it offers. Today’s guide will explore everything you need to know about Bitcoin mixers, including their pros and cons. Let’s get started, shall we?

Bitcoin mixers are brilliant blockchain solutions that allow users to mix their digital assets with others to preserve the cardinal objective of Bitcoin: anonymity.

While Bitcoin rode into popularity, because of the anonymity and exclusivity it offers, it is still very possible to link bitcoin to real-world identities. Take, for instance, if you initiate withdrawal via an exchange where you have completed KYC requirements, the exchange can easily identify that you withdrew some Bitcoins using a specified wallet. More than this approach, there are now more advanced techniques called blockchain analysis, which can tie Bitcoin wallet addresses to real-world users.

The next time a digital asset leaves a marked wallet address, users of such wallets risk the possibility of giving up their personal information. And depending on what they use their coins for, it’s pretty easy to figure out how many coins they own, what they spend their digital assets on, and more.

But guess what? By mixing Bitcoins, users will enjoy absolute anonymity as it would be almost impossible to link their Bitcoins to their real-world identities. So with Bitcoin mixers, people are able to use Bitcoin more privately.

Bitcoin Mixers: How do they work

There are quite a number of Bitcoin mixers that have been launched since Bitcoin mixers began to generate a lot of buzz. These mixing strategies range from fully centralized Bitcoin mixers, where users trust a mixer, to solutions where users don’t need trust to use the platform. More so, there are also solutions designed to resemble Lightening Network style payment channels. Again there are privacy coin options like Monero, which has given rise to crypto mixers.

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While it would be great to highlight the potential of all these solutions, today’s guide will focus on two of the most popular options on the market.

Centralized mixers

Centralized mixers are becoming insanely popular among users of Bitcoin mixers. This type of solution accepts bitcoin payment and sends different coins in return. Typically, centralized mixers are more reliable if they have a lot of users.

If centralized bitcoin mixers have a lot of users using their services, it makes it almost impossible for an outsider to link incoming coins to any of the outgoing coins. The goal of centralized mixers is to break the transaction trail and provide anonymity to users.

While centralized mixers offer a lot of exciting perks, they have failed to address two big problems. On the one hand, users need to trust the mixer with their privacy. This is because the mixer is able to know which users sent and received which coins. Armed with this information, the mixer can easily re-establish the ownership trail. Assuming that the mixer agrees to share this information with interested parties either in return for money or compelled by the law, it means a user can end up losing his/her anonymity.

On the flip side, the mixer can even decide not to return the payment, which is even worse. So before using a Bitcoin mixer, particularly a centralized one, make sure you do your due diligence.

Chaumian CoinJoin Mixers

Given the lapses of centralized mixers, more modern mixers are providing solutions to some of the cardinal shortcomings of centralized mixers. With Chaumian CoinJoin mixers, a large group of users can come together to make one large payment to their selves. Let’s assume for a minute that a hundred users send 0.2 Bitcoins to a new wallet address they control and merge these hundred transactions into one big transaction, every single person will receive 0.2 bitcoin back, and no one will be able to establish where these coins came from. How convenient can that be?

The icing on the cake is that Chaumina CoinJoin mixers can even be designed in such a way that even the platform that merges the transaction can’t figure out the origin of a coin or its destination wallet address. Another cool thing is that the entity that merges the transaction can’t steal the coins, as users won’t sign the merged transaction if they don’t receive their 0.1 Bitcoins back.

What are some of the leading Bitcoin mixers?

With the increasing popularity of Bitcoin mixers, you can explore many options on the market. And in this section, we will use the opportunity to highlight some top Bitcoin mixers you should know. But before we delve deeper into that, we want to bring you up to speed on some things you should know.

While some of the mixers we will be highlighting are centralized, we don’t endorse these options or recommend them in any way, given some of the lapses we highlighted above. That said, here are some of the top Bitcoin mixers out there.

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Wasabi Wallet

Wasabi Wallet is a leading Bitcoin wallet with a Chaumian CoinJoin mixer built within its ecosystem. Although Wasabi Wallet’s infrastructure is primarily centralized, it is designed in such a way that operators of this platform cannot deanonymize users or steal their funds. And yes, they have a user-friendly interface that helps users easily differentiate mixed coins from non-mixed coins.

Samourai Wallet

Like the Wasabi Wallet, the Samourai Wallet offers a Chaumian CoinJoin mixing service called Whirlpool. What we like most about the Samurai Wallet option is that it is available for mobile, so you don’t always have to be on the laptop like you do with Wasabi Wallet to use it. To enjoy complete anonymity with Samourai Wallet, users have to link their wallet to their own full Bitcoin node.

JoinMarket

JoinMarkert has emerged as one of the top options for mixing Bitcoins. Using JoinMarket, users can seamlessly merge transactions into one big transaction via CoinJoin. This option obfuscates their trail of coins, protecting their anonymity and privacy. The cool thing about using JoinMarket is that you are incentivized for offering your Bitcoins to be mixed. How cool can that be?

Why would anyone want to mix their Bitcoin?

If you’re a sucker for privacy, then it does make sense to mix your Bitcoins to protect your privacy. In today’s budding crypto space, there are a lot of reasons why anyone would want to mix their coins. To start with, you may not want people to know what you earn, how much Bitcoin you own, or how you spend your money.

Let’s look at a solid example of someone who just got a raise. There is every likelihood that such an individual wouldn’t want their landlord knowing how much they now earn, as that could result in the landlord increasing such an individual’s rent. Some users may want to pay for explicit content without people judging them for their choices.

Also, an investigative journalist may want to receive payment for his/her work without the regime in his country finding out who he/she is. People may sometimes want to buy contraceptive pills without their loved ones knowing.

There are many scenarios that warrant individuals using Bitcoin mixers, and we will spend an entire day if we decide to highlight all of the use cases for Bitcoin mixers. Even an average individual who doesn’t care about privacy can use Bitcoin mixers to help other users maintain their privacy.

Is coin mixing for malicious users?

There are a lot of arguments as to whether Bitcoin mixers are designed for criminals, and the answer is a resounding no. A lot of people mix their coins for reasons other than just committing a criminal act. Everyone is entitled to privacy as enshrined in the Universal Declaration of Human Rights.

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But while Bitcoin mixers serve greater purposes and benefits, there is no denying that criminals also benefit from the privacy offered by coin mixers. By using Bitcoin mixers, criminals enjoy all of the perks that legitimate users of mixers enjoy. And to be honest, that’s the price we get to pay to live in a free society.

Notwithstanding, the perception that Bitcoin mixers are only used by criminals to launder their criminal proceeds isn’t true. Research conducted by blockchain analytics giant Chainlysis shows that the majority of people who use Bitcoin mixers are legit users and are simply using it because of the anonymity and privacy it offers. Chainlysis further added that coins that have been illicitly laundered via coin mixers represent a small number.

Can authorities ban Bitcoin mixers?

Whether or not authorities can ban bitcoin mixers is a legitimate legal question and not a technical one. So, it would differ from one jurisdiction to the next. Of course, a number of Bitcoin mixers have been banned as authorities believe such platforms are being used to launder money.

Again, most of the leading coin mixers we have right now are centralized, which means authorities can shut down their services. Nonetheless, many mixing services have continued to operate without authorities clamping down on their activities.

Should we ever reach a point where centralized mixing services are banned, we will see a rise in decentralized mixing services, which will be much harder to shut down.

Alternatives to bitcoin mixers

Despite their apparent benefits, Bitcoin mixers aren’t the only way users can hide the flow of bitcoin transactions. After a successful hack, hackers are able to launder their funds through exchanges using accounts created with stolen identities. This method is known to experts as chain-hopping and relies on the fact that authorities take a much longer time to force exchanges to shut down accounts linked to the hack. More so, it isn’t always easy for exchanges to spot dodgy accounts, especially if such an account has passed KYC requirements.

More so, privacy enthusiasts maintain that methods like privacy coins are brilliant ways individuals can prevent the government from snooping on their financial transactions, asserting that these options aren’t only for criminals.

To protect users’ anonymity and obscure the flow of fund, privacy-centric projects like Monero uses one-time use stealth addresses and mixes genuine transactions with decoys. Similarly, a prominent dark web marketplace, Silk Road, featured a bitcoin tumbler baked into its ecosystem. Also, the darknet White House Market only supports Monero payment to guarantee users’ security and privacy.

On the flip side, we have Zcash, which provides optional private transactions that rely on zero-knowledge proofs and is designed not to share users’ transaction information. Similarly, Dash offers private transaction functionalities that function just like CoinJoin.

 

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