How Do Bitcoin Mixers Work?
You may have heard that bitcoin transactions are anonymous, but that is absolutely not the case.
In this article, we take a look at how bitcoin mixers can be used to increase transactional privacy for bitcoin payments.
What is a Bitcoin Mixer?
A bitcoin mixer, also known as a tumbler or mixing service, enables Bitcoin users to mix their coins with other users to preserve transactional privacy.
Conventional bitcoin transactions are not anonymous. Instead, they are pseudonymous. They do not disclose your real-world identity but your addresses can be linked to your identity.
For example, exchanges require you to provide your identification papers. What this means is that cryptocurrency sent to or from your account can then be linked to you.
Also, blockchain analysis companies can tell how much bitcoin you own and who you transact with by tracing your linked accounts using a range of deanonymization methods.
The translucent nature of bitcoin transactions makes it a problem for protecting your privacy and information about your personal finance. Fortunately, you can avoid tracking of your bitcoin transactions and maintain absolute privacy using bitcoin mixers.
What Do Bitcoin Mixers Do To Your Coins?
Cryptocurrency transactions start from the sender’s wallet and end in the receiver’s wallet. This direct route can be traced easily using the blockchain.
However, transactions made using bitcoin mixers break the link.
When you send your bitcoin to a bitcoin mixer, the service then combines your coins with that of others and takes them through several internal transactions that generate a long trail of addresses.
At the end of the process, when coins are finally sent to your destination of choice, the recipient will receive the coins from an address that cannot be traced to yours.
Factors that determine the level of anonymity you receive from bitcoin tumbler:
- Firstly, the longer a mixing platform takes to scrumble coins, the harder it is to trace transactions.
- Secondly, the number of separate wallets and addresses used in the mixing process makes transactions more opaque. Some platforms even split your funds during mixing to make it harder to track.
The amount of coins you can mix depends on the platform you select. Most bitcoin mixers do not accept huge sums of bitcoin though.
Why Do People Use Mixers?
There are several reasons why people use bitcoin mixers, but at the heart of all the bases is privacy and security.
Bitcoiners use mixers to prevent the exposure of their personal financial decisions. Every time you perform a transaction with a party, they gain information about your bitcoin holdings. They can check your bitcoin address on the blockchain and see how much you own, past transactions, and who you transacted with.
In extreme cases, people can monitor all inputs and outputs from your wallet to find other addresses you own. Bitcoin mixers make it effectively impossible for other parties to track you after transacting with them.
In a world where censorship is not reserved for any particular group and could happen to anyone, having protection over your bitcoin is very important.
Money has become a political tool used to fund campaigns and operations. In authoritarian regimes where all transactions, even those on the blockchain, are under the microscope, bitcoin mixers serve a vital utility.
Political groups attain full privacy of their funds by using bitcoin mixers for transactions. People who fund these groups also protect themselves through bitcoin mixers. This prevents a situation where governments can target people who fund or run these groups by tracing their wallets.
Finally, blockchain analysis companies spring up more often these days. What that means is that there are more eyes watching transactions on the blockchain. These eyes are always linking accounts and transactions to real identities.
Users concerned about their privacy use bitcoin mixers to detach their operations on the blockchain from their identities.