Coin mixers were once a popular solution to Bitcoin’s imperfect privacy features. Bitcoin uses pseudonymous addresses, which reveal key data such as transaction amounts and destinations. That doesn’t reveal user information, but analysts can piece together who owns each address by looking at how Bitcoin has changed hands.
That’s where coin mixers come in. For a fee, coin mixing services will allow you to deposit Bitcoin that has been “tainted” by past activity. Once you make a deposit, you’ll receive “clean” Bitcoin in return. They may sound legally risky, but they’re also widely-used services that operate in plain sight.
Mixers accept Bitcoin from various users, circulate it according to an algorithm, then return Bitcoin to the original holders. This process doesn’t hide transaction data – everything can still be seen on a block explorer – but it does make it harder to piece that data together.
Do Coin Mixers Really Prevent Bitcoin Tracking?
To some extent, coin mixers do accomplish what they set out to do, as crypto analytics firm Chainalysis has admitted. Last year, Chainalysis’ CEO stated that coin mixers make it very hard for the company to track criminals: “It definitely makes it difficult for us…[but] nothing’s ever impossible,” he told the Unchained podcast last year.
But it’s still possible to trace bitcoin, even after it has been run through a coin mixer. In 2017, Felix Maduakor illustrated several ways to attack or analyze coin mixers. Bitcoin Wiki also identifies a few other approaches. For example, it’s possible to trace Bitcoin activity by observing correlations between transaction amounts.
There’s one other way mixers can cover their tracks. Some coin mixers have engaged in dusting, in which they distribute small amounts of tainted bitcoins to thousands of addresses. The idea is to “foil blockchain analytics tools” and make it impossible to distinguish the users of mixing services from other hodlers. However, it’s not clear if this strategy has succeeded or not succeeded.
The Problem With Centralization
There’s another problem: coin mixers are usually custodial services. That means that when you deposit cryptocurrency to a mixer, the owner of the mixer takes control of your funds. Since many mixers are short-lived and keep a low profile, it’s fairly easy to steal your bitcoin. It can be quite difficult to decide which coin mixers to trust.
On top of that, centralized mixers don’t just hold your coins: they hold your personal data, too. Often, mixers will keep a log of user activity, IP addresses and blockchain addresses.
It’s not hard to find mixers that periodically delete their logs, but you’ll still need to trust that the service will follow through and erase that data. You can also use the Tor browser for extra privacy.
They also make an easy target for law enforcement. Just like any other online service, authorities can locate and shut down a centralized coin mixer. BestMixer, for example, was recently shut down by Dutch authorities. The police also collected user data in the year leading up to the closure.