What Are Cryptocurrency Mixers? How Do They Work?
Trading in cryptocurrency has seen a stupendous rise over the past two years. Besides seeing an opportunity for lucrative returns, investors flock to the new industry as it offers more anonymity than trading via standard means, for instance, shares and stocks. Also, there is a greater degree of transparency in crypto trade because of the decentralised blockchain technology. But some people want more anonymity. This can be accomplished by using a cryptocurrency mixer. A cryptocurrency mixer essentially makes the transaction harder to track, thus, giving higher levels of privacy to the investor.
How Do They Work?
Take for example Bitcoin. All trades made in Bitcoin since its launch in 2009 are recorded on its public ledger and can be found there. Some see this as not a feature but a privacy flaw. To overcome this, they use a Bitcoin mixer, also known as a tumbler, to make the transactions entirely private, meaning they hide who has sent what to whom.
Bitcoin mixers are tools that jumble up an amount of the coin in private pools before sending them out to their intended recipients. The idea behind this is to hide the digital signatures of a trade by passing them through a “black box”. After doing this, all a Bitcoin explorer, which has records of all the trades in the crypto coin, will show that person A sent some Bitcoins to a mixer, like many others, and person B received some Bitcoins from a mixer, as did others.
What Are The Problems?
If a law-enforcement agency knows the address used by a suspect, it is possible to find the flow of money. How? It’s less likely that someone else will transact the same amount of Bitcoin as you in the mixer. Knowing the address, the agency could connect the dots. However, this problem becomes harder when more people use the mixer.
Crypto exchanges can identify mixed Bitcoin. And some of them block mixed Bitcoins from entering or leaving their platforms because of this opacity around using mixers. Also, not all mixers are legitimately set up.