Cryptocurrencies like bitcoin have a publicly accessible register of all transactions called the blockchain, meaning that every crypto transaction may be traced. As we will explain in this article, bitcoin mixers, or bitcoin tumblers as they are commonly known, help to regain the anonymity of bitcoin transactions.
A service that mixes various streams of possibly recognizable cryptocurrency is known as a bitcoin mixer (or tumbler). As a result, transactions are more anonymous because the bitcoin source is more difficult to track. Practically, there is no link between transactions since the bitcoin owner sends the funds to the mixing service, which combines them with funds from other users and sends the combined funds to the requested address. The typical rate for the mixing service is from 0.5 to 3% of the quantity to be mixed. Coin mixers work best when they have a lot of users who are all combining roughly the same amount of cryptocurrency.
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What is the popularity of bitcoin mixers?
According to Chainalysis, the 30-day moving average of the money received by BTC mixers reached an all-time high of $51.8 million in mid-April. Researchers also revealed that coins from wallets belonging to government-sanctioned entities and criminal activities almost doubled, and the quantity of cryptocurrency moving through privacy-enhancing services hit an all-time high this year, which brings us to the next question.
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Are bitcoin mixers legal?
The use of bitcoin mixers is not restricted or unethical, yet these coin mixers present a difficult issue for both regulators and cryptocurrency industry participants. There are good privacy considerations for anyone who wants to use a cryptocurrency, especially given how easy it is to track the movement of bitcoin and other coins. Many people use cryptomixers because they prefer or need their privacy. Financial privacy is crucial, particularly for people who live under oppressive regimes or who want to do legal business in privacy.
However, because cryptocurrency is so widely used in online crime, bitcoin mixers have become an essential tool for criminals who wish to cash out without being discovered by the authorities. Despite being used by criminals, crypto mixers are not officially restricted, and most people would agree that financial privacy is more important and that businesses like mixers should be legal. But the real question is whether they are legal or not.
According to the Financial Crimes Enforcement Network (FinCEN), the Bank Secrecy Act (BSA) requires that people or organizations providing custodial mixing services register as money transmitters and adhere to three important requirements.
- Maintain an anti-money laundering and KYC (know-your-customer) compliance program;
- Comply with all applicable reporting and record-keeping requirements;
- Register with FinCEN.
Also, any coin mixer wishing to conduct business in the United States must take precautions to avoid dealing with government-sanctioned entities.
As far as we know, none of the bitcoin mixing services are currently following these regulations. It also appears implausible that one could follow these methods and yet keep his users anonymous, given that many users interact with crypto mixers in order to protect their privacy. Based on the above, the legal status of bitcoin mixers varies from country to country and is still undefined or changing.
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How does the bitcoin mixer work?
Bitcoin mixing services collect, pool, and mix cryptocurrency that many users have placed in a pseudo-random manner. The funds are then transferred to new addresses for a small fee. By allowing users to arrange their withdrawals in randomized amounts at randomized periods, the majority of mixers make it more difficult to track the deposited funds. Others attempt to hide the use of a bitcoin mixer; they usually accomplish this by altering the transaction cost and the withdrawal address type.
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What exactly is CoinJoin?
Thanks to CoinJoin, you have the best chance of keeping your financial privacy when using bitcoin. A CoinJoin allows two or more parties to combine their transactions into one, making it unclear who will ultimately possess which coin. In other words, the CoinJoin transaction is one that is signed by a group of bitcoiners who have coordinated and agreed to spend their coins collectively.
CoinJoin transactions don’t need the bitcoin protocol to be changed, in contrast to many other privacy solutions. There is no chance of money going missing or being stolen since CoinJoins can be done in a trustless way.
Some people worry that blended bitcoins will eventually be branded as “tainted” and rejected by exchanges. That may be the case, but there are simple ways to get around the issue. The more bitcoins that are mixed in this game, the more possible explanations there are for where the coins ended up, and the more challenging it becomes to identify which bitcoin was the original owner.
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Popular CoinJoin services
Wasabi, Whir, or Samourai’s Whirlpool are services built on CoinJoin technology that allow you to send your money to a pool so it can be mixed. Thanks to CoinJoin technology, these services return anonymity to your bitcoin.
Usually, the minimum amount you can mix is 0.001 BTC. Some bitcoin mixers promise to mix up to 1000 BTC at once, others, like Whir, have the maximum limit set for 1 BTC. CoinJoin works relatively fast, and as soon as it receives the first confirmation of your transaction, private bitcoin will be sent to the receiving wallet.
Conclusion: Financial privacy has become very important, especially in light of the fact that bitcoin is not as anonymous as you might have thought. Services like bitcoin mixers or CoinJoin technology offer the perfect way to make your bitcoin anonymous. No matter your motives, everyone has the right to privacy, especially when it comes to your financial matters. Because bitcoin mixers may be prohibited in some countries, the final decision on whether to use one is yours.