What is a Bitcoin Mixer and How Does It Work?

Introduction

Bitcoin is the flagship or firstborn cryptocurrency that made its first appearance in 2009 in the form of an open-sourced blockchain network. The creator of Bitcoin, Satoshi Nakamoto, who is a pseudonymous contributor, also published a White Paper to share the vision of the digital tokens with the world. Nakamoto intended to create a trust-based and decentralized financial payment system.

At the time of its introduction, Bitcoin’s price was valued below $1 per unit. At the peak of the bull market last year, Bitcoin prices reached $69K per unit. While Bitcoin generates high market returns for its investors, decentralized transactions are still not completely anonymous or untraceable. Therefore, investors and tech experts have come up with the protocols like Bitcoin mixers to hide their transaction history.

What is a Bitcoin Mixer?

A Bitcoin mixer is present in many forms, and its underlying function is to serve as an anonymity tool for all crypto-related transactions. Many people are raising concerns over the matter of their data getting recorded and sold by social media platforms. In the same manner, many digital currency traders are concerned about keeping their financial transaction history private.

A Bitcoin mixer is a pool of cryptocurrency funds that allow investors to put all the Bitcoin reserves in one place and make incognito Bitcoin payments. In essence, a Bitcoin mixer is a liquidity pool that contains a random amount of Bitcoin available at all times. Any person wishing to send their Bitcoin to another person can wire their BTC into the pool, and it will be transferred to point B on the other side without detection.

How does a Bitcoin Mixer Work?

Bitcoin mixers can use several different methods to keep the Bitcoin transactions a secret. One of the best ways to keep Bitcoin transactions anonymous is to make all the transactions as random as possible. In a simple Bitcoin mixer design, a group of individuals can send and receive payments in the form of Bitcoin from a pre-existing liquidity pool. The liquidity pool accounts can act as an escrow for the transaction makers.

At one point, a random number of users can send and receive Bitcoins from the mixer. Therefore, any person who is tracing a Bitcoin wallet is less likely to trace the transaction or prove its origin. A Bitcoin mixer is also known as a tumbler colloquially. In layman’s terms, Bitcoin mixers allow the digital currency holders to blend their Bitcoins with one other to preserve the privacy of all the participants. Even if a person can identify the Bitcoin transaction on account of the amount, it is impossible to ascertain it legally.

Types of Bitcoin Mixers

There are two types of Bitcoin mixers, depending on their origin. Here are the details for both classifications:

• Centralized Bitcoin Mixers

Centralized Bitcoin mixers are provided by regulated financial institutions or regulated cryptocurrency exchanges. These companies possess a practice license under their respective financial regulators and are subject to regular financial audits. The centralized Bitcoin mixers allow the investors to put their money into an anonymity pool for a specified amount of fee.

It is important to note that these Bitcoin transactions are more likely to be used by investors who are already trading on the same exchange platform. Therefore, centralized Bitcoin mixers are often less anonymous in comparison to their decentralized alternatives. It is also worth noting that the centralized Bitcoin mixer providers are legally required to keep a record of all the cryptocurrency transactions taking place on their platforms.

On a yearly basis, these regulated service providers must hand over their records to the government auditors for scrutiny and accountability. Centralized Bitcoin mixers are ideal for investors who do not wish to share their transaction history with advertisers and marketing companies that are trying to create an image of their personality that can be misused by advertisers and political campaigns. Centralized Bitcoin mixers are often regarded as tumblers due to the presence of a verified third-party funds distributor.

• Decentralized Bitcoin Mixers

Decentralized Bitcoin mixers are the anonymity pool that does not require any type of registration process. Decentralization means that there is no central supervision or regulating authority involved in running the mixer. Like centralized mixers, decentralized mixers do not ask their users to submit any type of information through KYC (Know Your Customer) verification or registration process.

Most decentralized mixers operate as peer-to-peer transaction channels where a series of private Bitcoin pools allow the digital currency transaction makers to send and receive cryptocurrencies from one person to another without the presence of a third-party service provider. A decentralized mixer employs an automated algorithm that allows Bitcoin senders and receivers to put their money into one place and redistribute it anonymously.

Origin of Bitcoin Mixers

Bitcoin mixers are fashioned after their traditional financial counterparts, such as Hedge funds and Venture Capitals. The idea of a Bitcoin mixer is to create a pool that invites the investment of several contributors who want to make their financial contracts untraceable. The first-ever Bitcoin mixer that gained a considerable amount of popularity among investors is known as Bitcoin Fog. The service was started by a Russian-Swedish founder named Roman Sterlingov, who operated it for a decade before closing down. Bitcoin Fog allowed the investors to use the platform for a specified fee. However, IRS officials eventually investigated and identified the owner of Bitcoin fog.

The financial regulators in the United States prosecuted Strelingov for his involvement in several illicit cryptocurrency transactions. He was found guilty of facilitating black crypto washing for the robbers of Sheep marketplace in 2013 and Chinese cryptocurrency exchange loot cleaning in 2015. Furthermore, IRS also produced evidence of Strelingov paying server fees for Bitcoin fog with illicit money in 2011. Bitcoin Fog services came to an end in 2021 after the incrimination and incarceration of Strelingov.

Top 7 Bitcoin Mixers in 2022

It is important to note that countless scammers are operating false and fake Bitcoin mixers to trick the investors. Therefore, digital currency holders should check the authenticity of a Bitcoin mixer before proceeding to send any funds into a private liquidity pool. Here is a list of the top seven Bitcoin mixers on the basis of their performance in 2022:

• UniJoin

UniJoin is popular among Bitcoin investors all around the world as it does not require any type of data or information from its users. Anyone can use the service with the help of their public Bitcoin address or a crypto wallet address. UniJoin uses a chain form of a Bitcoin pool that sends the Bitcoins from the sender to the end of the chain and compensates the receiver from the start of the chain.

In this manner, the transaction cannot be traced back to the original sender. To make the transactions more untraceable, UniJoin provides a manual time gap method to grant greater control over the service to the sender. In addition, the UniJoin sender can withdraw the money in as many as eight installments for an additional cost of 0.00008 Bitcoin per transaction, which can increase the anonymity of the transactions significantly.

• BitMix

BitMix is a centralized Bitcoin mixer that invites users on its platform with the help of a letter of guarantee. The users who are sending or receiving funds on this platform need to have the letter of guarantee first. Every letter of guarantee contains a code that allows the sender to wire the money into the anonymity pool and the receiver to withdraw funds. BitMix also provides a time delay feature and has a minimum transaction limit of 0.1 Bitcoins.

• BitBlender

BitBlender has been operating since 2013; the service requires a two-factor authentication process. Furthermore, the people who do not wish to go through the hassle of installing hefty applications on their mobile phones can use BitBlender directly on the web. The users, however, need to create an account first. The commission fees on BitBlender are as low as 1-3% of every transaction. Digital currency holders can also choose to convert a specified part of their reserves into another currency before making the payout.

• Wasabi Wallet

Wasabi is an open-sourced Bitcoin wallet that allows users to access it on a wide range of operating systems such as Windows, Linux, and OSX. Wasabi is a mixer that is dedicated for usage on the Tor or dark web extension. Payouts on Wasabi are highly secure due to BIP 157-158 protocol. The service also ensures that all transactions are verified beforehand to attest that the sender does not bail out on their part of the bargain.

• PrivCoin

PrivCoin is a decentralized and P2P cryptocurrency mixing service. It is one of the first mixing platforms that enabled 360-degree Bitcoin transaction anonymity for all Bitcoin-related transactions. The highlighted feature of PrivCoin is a propriety algorithm that can mask the source of Bitcoin transfers from one end to another with great efficiency. PrivCoin does not have a single centralized server that further strengthens its anonymity claims.

• BitCloak

BitCloak is another mixer that is dedicated to the users of the Tor browser. One of its interesting features is the fact that it does not employ any JavaScript code in its construction, which makes it less hackable. The users can choose to send their Bitcoin transactions in two ways, first with a regular time delay stamp that can last for up to 5 transactions.

The other option is to use only a randomly selected digital currency wallet address where the money is going to be sent to the sender. Furthermore, BitCloak ensures that the transactions take place without generating a trail. Users have a maximum limit of 100 BTC and a minimum limit of 0.1 Bitcoin.

• CryptoMixer

CryptoMixer is a digital currency mixer that is also effective for Bitcoin. The unique feature of CryptoMixer is its three rounds Bitcoin mixing service that allows the users to perform encrypted deposits, withdrawals, and transactions on the exchange markets. Users can choose to mix their tokens before or after adding them to the pool.

In this manner, the receivers can have the option to withdraw an additional transaction from the mixer using any cryptocurrency of their choosing. Another interesting feature is that CryptoMixer is a charges free platform that does not cut any amount from the users for making deposits or withdrawals.

Why Do You Need a Bitcoin Mixer?

The idea that all Bitcoin mixers are illegal is a wild exaggeration and a common misconception. Since the arrival of the internet, people have started to depend more and more on online services for everyday tasks. Furthermore, social media platforms ensure that people are posting about their personal preferences on the network without any reserve.

In recent years there have been campaigns like Wikileaks and Facebook paper that indicated that both the government and the private companies collect the data from the users without their consent or knowledge. This data is used to conduct experiments and influence the decision-making of the people who can be more susceptible to the advertisements and political campaigns using keywords and psychological tickers to manipulate their responses.

The financial data is also considered important, and it can be used to influence a larger population to agree with unsavory and destructive financial policies of the state or a private organization. Therefore, there are many cryptocurrency investors and Bitcoin proponents who want to ensure a private channel for conducting crypto transactions. Furthermore, with the ability to trace financial transactions, the state can block journalists, activists, politicians, and minorities who are speaking against their interests.

Therefore, Bitcoin mixers warrant greater autonomy for such people to ensure that they can keep operating without getting hindered by the government. Even if a government official can view the cryptocurrency transaction, they can’t stop the digital coins from going from one place to another. Bitcoin mixers add a layer of privacy and intractability to ensure the safety and financial autonomy of the stakeholders.

Are All Bitcoin Mixers Illegal?

Bitcoin mixers have received a considerable amount of criticism from financial crime writers like Jeffery Robison. In his book, ‘The Naked Truth about Bitcoin’, he opposed the idea and interjected that Bitcoins mixers should be criminalized. On the contrary, there is no shortage of alternative opinions on this matter.

Former CIA acting director Michael Morell reported that only 4% of the total Bitcoin transactions account for illicit trades and activities. He further claims that with time, more and more criminals are going to distance themselves from the network, especially the threat actors who are not very technology savvy. For an average crypto investor, the regulatory boundaries differ from one sovereign nation to another.

For the people of China, trading, holding, or using Bitcoin in any way has been marked as illegal by the government since last year. Likewise, many countries have also banned the use of all Bitcoin mixers, while some are still allowing financial enterprises to keep operating decentralized and centralized Bitcoin mixers. It is a question of where a person is present that determines whether using a Bitcoin mixer is illegal or not.

How to Pick the Best Bitcoin Mixer?

When it comes to choosing the best Bitcoin mixer that ensures top-quality services, the choice can be tricky as there are countless options. However, by using these seven simple tips, anyone can use to make sure that they are getting the best results out of their Bitcoin mixing experience:

• Look for mixers that charge a 1-3% fee per transaction rather than charging additional fees.
• Ensure that your mixer does not require the addition of personal information or maintains an archive or data logs.
• Prioritize mixers that enable multiple output addresses for withdrawals.
• Best mixers provide a combination of cryptocurrencies to make multiple conversions before completing one transaction cycle.
• The tumblers with the least amount of transaction confirmation protocols are more secure.
• Tumblers that issue a letter of guarantee can warrant insurance for the receivers that the sender is not going to default on their payment.
• Try to use the Bitcoin mixers that have been around for a long time, which makes them more reliable and less likely to be run by fraudulent organizers.

Limitations

Bitcoin mixers are not always a fool-proof way to send and receive cryptocurrencies without a trace. IT experts can look at the amount and timing of the Bitcoins sent and received in a mixer to trace the transaction. It is less likely that other users have sent the same amount of Bitcoin as others at a given time. Furthermore, some Bitcoin mixers are subject to financial audits that can allow lawmakers to trace transactions. Also, exchanges like Binance have marked cryptocurrencies processed by mixers like Wasabi as tainted money that isolate them from the rest of the circulatory supply.

Alternatives for a Bitcoin Mixer

There are several alternative options to send and receive Bitcoins with greater anonymity. Here are some options:

• Privacy Tokens

There are several popular privacy tokens such as Monero and Zcash that allow cryptocurrency investors to cover their tracks by converting their digital tokens. Monero takes advantage of a stealth protocol that generates several decoy addresses in addition to the real one that ensures greater privacy for conducting transactions. Zcash makes the cryptocurrency transactions untraceable by using a zero-knowledge method where the blockchain network cannot reveal any user information at any point during the transaction.

• Chain Hopping

There is another technique called Chain hopping, where the cryptocurrency payment maker can transfer their funds to pseudonymous accounts. These accounts are sold by users that can be used as a fake cover, and they can be bought in places like the dark web for a small price. Since these pseudonymous IDs are generated under fake names and addresses and comply with the KYC registration process, they are fairly difficult to trace.

Conclusion

Bitcoin mixer is a technology that ensures financial privacy for digital currency users. All Bitcoin mixers are not illegal; however, there are a considerable amount of threat actors who use these platforms to wash their illicit money trail or conduct financial crimes like money laundering. It is best to obtain the services of legal counsel before using such a service in your area.

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