An Introduction to Crypto Mixers: Understanding Centralized and Decentralized Mixing Services

The entirety of the Bitcoin blockchain is open to the public. Any regular individual can visit a blockchain explorer website and locate a comprehensive record of all Bitcoin transactions processed since the cryptocurrency's inception in early 2009 (Stevens, R., 2023). However, if you aim to uphold your privacy regarding your transaction, the use of "mixing techniques" becomes essential for you.

Mixing techniques, often called Bitcoin mixing, tumbling, or laundering, are online services that allow users to enhance the privacy of their cryptocurrency transactions. the concept involves blending one's coins with those of other users to hide the transaction trail (Abhishek, R., 2023). Here's how it works: the user sends their cryptocurrency to the mixer's address, which could be Bitcoin or any other supported cryptocurrency. The mixer then combines the cryptocurrency with that of other users who are using the service at the same time. subsequently, the mixed cryptocurrency is sent to the receivers' wallet through multiple transactions, typically utilizing different addresses (Abhishek, R., 2023).

An article by Draupnir, M. (2017) illustrates one popular method, using a .onion mixer, and outlines each step of the process:

1.      Create a wallet on the clearnet ( referred to as wallet #1 )

2.      Purchase Bitcoins and send the desired amount to wallet #1

3.      Create a second wallet over the Tor network ( wallet #2 )

4.      Directly transfer bitcoins from wallet #1 to wallet #2

5.      Create a third wallet over the Tor network (wallet #3 )

6.      Choose a mixer, and set up the transaction using addresses from wallet #3 , utilizing multiple addresses and random time delays

7.      Send coins from wallet #2 , over Tor, to the address generated by the mixer

8.      If sending coins to a darknet market, login, disable JavaScript, obtain the deposit address, and restart Tor before sending the coins to the market address.

Considering step 6, the selection of a mixer, it's essential to note that there are two types of bitcoin mixers: centralized and decentralized.

• Centralized mixers are operated by a single entity and utilize a central server to pool funds from various cryptocurrency users. Subsequently, the funds are divided into different wallets before being sent to your intended receiver (Abhishek, R., 2023).

Figure 1: A visual representation illustrating the function of centralized mixers (O’Sullivan, A., 2020).

• Decentralized mixers, such as CoinJoin, a popular mixer known for being used for money laundering, employ a protocol that allows large groups of users to combine their bitcoin amounts (e.g. 100 people each wanting to mic 1 bitcoin). The mixer then redistributes the combined funds, ensuring that each participant receives 1 bitcoin bac. This process conceals the origin and destination of the bitcoins, providing a higher level of privacy (Stevens, R., 2023).

Figure 2: A visual representation illustrating the function of a CoinJoin transaction (O’Sullivan, A., 2020).

References:

Stevens, R. (2023). Bitcoin Mixers: How Do They Work and Why Are They Used? CoinDesk. https://www.coindesk.com/learn/bitcoin-mixers-how-do-they-work-and-why-are-they-used/

Abhishek, R. (2023). Your Ultimate guide to crypto mixers | Kryptoskatt - Ravi Abhishek - Medium. Medium. https://kryptoskatt.medium.com/your-ultimate-guide-to-crypto-mixers-kryptoskatt-98ff58a7fcb5

Draupnir, M. (2017). A simple guide to effectively and safely mixing bitcoins.

https://www.weusecoins.com/a-simple-guide-to-effectively-and-safely-mixing-bitcoins/

O’Sullivan, A. (2020). What are mixers and “privacy coins”? Coin Center. https://www.coincenter.org/education/advanced-topics/what-are-mixers-and-privacy-coins/