Privacy when using bitcoin is one of the most discussed topics. Bitcoin cannot be considered anonymous because every transaction is recorded in the blockchain forever. Numerous studies have been conducted in this field, and none of them have found that using bitcoin is more dangerous than using regular fiat currency. However, it’s important to note that there are tools, such as bitcoin mixers, that can be used to make bitcoin transactions opaque and anonymous.
A cryptocurrency service called “bitcoin mixer,” simply allows you to transfer your crypto assets completely anonymously. Standard bitcoin transactions are only pseudo-anonymous because they are public and can be fully traced. They are certainly not anonymous, even if they don’t explicitly mention the identity of the sender or the recipient.
Thanks to services such as blockchain.com, the addresses from which the transaction was made, the amount transferred, and the address to which it was sent are publicly available to anyone. However, these services only provide information about the wallet addresses involved, not the owners of those wallets.
All past and future transactions could be easy to link to real-world identities once their wallets are connected to a KYC-compliant crypto service or exchange.
90% of all cryptocurrency users currently use centralised exchanges and wallets where KYC is required. As a result, when transactions are traced back to their original source and destination, the person responsible can also be identified. And some people, especially those who value their privacy, find this disturbing.
However, with bitcoin mixing techniques, everything changes: the funds sent are split into segments and combined with similar segments from other randomly selected users. It’s then virtually impossible to keep track of each coin sent this way. Hence the term “bitcoin mixer.”
- What is a Bitcoin mixer?
By combining currencies from different users and hiding the origin and destination of the original coins, bitcoin exchanges allow users to anonymize their cryptocurrency transactions. They won’t mind paying a percentage of the transaction value in exchange for the coin anonymising service.
The intended audience for the bitcoin mixer is those who value their privacy and don’t want outsiders snooping around and tracking their transactions.
To mix bitcoin (or any other cryptocurrency), you simply send a certain amount of funds to a mixer. The funds are then combined with the mixer’s own reserves and other users’ funds. After that, all funds are mixed together in a mixing process, making it difficult to determine where they came from.
The mixer then takes a commission (usually 1-4%) and transfers the equivalent amount of money you have deposited (in small increments) to another wallet address of your choice. This is the general procedure for mixing bitcoin, though some of these steps may differ depending on whether you use a centralized or decentralized mixer.
- Bitcoin mixers: are they legal?
Bitcoin mixers are not technically illegal in most places, but that doesn’t stop the authorities from interfering and blacklisting these services. However, bitcoin mixers are not explicitly prohibited by law.
After learning that the North Korea-based hacker organisation was using Tornado Cash to anonymise stolen funds, the US Treasury Department blacklisted this service in August 2022.
Blender.io and Tornado Cash were among the bitcoin mixers blacklisted by US Department of the Treasury’s Office of Foreign Assets Control (OFAC), a government agency that enforces and monitors foreign sanctions affecting US national security.
This might mean that Americans are prohibited from using bitcoin mixers located in the US. Tornado Cash is an open-source, decentralized, autonomous organization, so it will continue to exist outside of the United States.
- Should bitcoin mixers be held accountable for money laundering?
Some studies show that even if only 16% of the money transferred through bitcoin mixers comes from illicit sources, the remaining 84% comes through legitimate means. Because only 16% of the money going into mixers came from legitimate sources, and because they are frequently used to prevent snooping rather than money laundering, it is not reasonable to conclude that coins from these mixing services come from illegal sources in the absence of additional evidence.
The fact is that bitcoin exchanges can provide a higher level of privacy and anonymity for legitimate users.
Conclusion: Compared to traditional payment systems, the bitcoin blockchain offers a level of transparency that can sometimes be uncomfortable. Knowing a person’s bitcoin address can potentially reveal a lot about how they earn and spend their crypto assets. Thanks to bitcoin mixers, users can make anonymous transfers of cryptocurrency funds between wallets. Depending on the jurisdiction, and sometimes the intent, the use of a bitcoin mixer may be legal or illegal. Asset protection and payment privacy are just a few of the many valid reasons for using bitcoin mixers.
