Getting Smart With: Crypto Mixers
21 August 2019
“You use your money to buy privacy, because during most of your life you aren’t allowed to be normal.” — Johnny Depp, American Actor.
Who knows the real importance of privacy, other than celebrities, politicians and idealists? Every individual on this planet has a private space, which he/ she doesn’t want to share. Privacy in simple terms means its a “No Man’s Land”.
So, why can’t we keep our money and the way we want to use it, private? Of Course, questions might arise about various laws, regulations that every country and its citizens have to abide, to hold back any criminal activities across the nation and the globe. But, why does it have to be a public information rather than a private information?
There are many reasons to keep money transactions private, especially when dealing with large amounts. We don’t publicly display our bank records, because it’s nobody else’s business. Whatever our motive is, privacy is our right. In the case of cryptocurrency, tumblers can be used as a black box to maintain anonymity.
Cryptocurrencies, when invented were meant to be decentralised, unregulated by any government and free to use digital currencies globally by any entity or person as a mode of payment or a tradable asset.
Today, we see tables flipped the other way round, and cryptocurrencies being part of a nation’s law, jurisdiction, and as a centralised tradable asset. In-fact, there are still countries that do not back these digital currencies and are mum on the purpose of their use.
To the rescue for people who want to keep their crypto transactions anonymous and harder to track, there is “Coin Mixing”.
“Coin Mixing”, the term itself defines the activity associated with the application. It is an excellent way of staying anonymous by mixing cryptocurrencies while making your purchases, donations, and P2P payments, providing higher levels of privacy in a few minutes.
We all know that cryptocurrencies are designed with high levels of cryptographic qualities. They have public, open source ledgers which record all transactions when placed on blockhain, but coin mixers tend to not reveal the identity of any party involved in the actual transaction.
Usually, when we send or receive cryptos,we tend to give out a part of our personal information with each transaction. Every transaction placed with crypto mixing, has a string of numbers and letters associated with your account making each transaction tamper-proof and anonymous.
The big question! Who would use it and why?
In my opinion, I believe anyone who wants to keep their crypto transactions under a secured layer, can use coin mixers. To specify its usage, and to know the entire concept of this new application, let’s first understand it’s user base.
A number of people might be inclined towards using coin mixers. For example, high net worth individuals who want to avoid being a target for hackers. Big companies that deal with large transactions may fear to get traced by competitor companies, making them use facilities like crypto mixers for safer and secured transactions. Coin Mixers are very appealing to idealists who believe that governments and institutions should not be able to track every single transaction. Similarly, criminals are another group of people who value full anonymity for crypto transactions.
This may also be a concern to the cryptocurrency world, which eventually may lead to heavier regulations of Bitcoin and other alt coins by government and institutions.
You might have a question. Are there any alternatives that provide a similar service just like crypto mixer?
And the answer is yes!
Crypto Mixers are not the only instrument traders may use to pump up the levels of anonymity in their transactions. There are other such platforms that provide a service similar to crypto mixers. CoinJoin, Bitcoin Mixers and Madeamaze, are other platforms that provide a similar service with a fine mix of their own.
But before we jump off to learning more about the various coin mixers, let’s first get deeper into the study of coin mixers, how they work, their advantages, disadvantages and how important a role can these mixers play on crypto transactions.
How do coin mixers work?
Coin Mixers / Crypto Mixers take a target transaction and include it in a basket of other transactions of the same value. The major agenda of mixing tokens is to gain anonymity by breaking the connection between the sender and the recipient of a transaction via the participation of a special third party (a coin mixing platform).
Usually, a coin mixing company charges a fee of 2%-5% from the total amount that is put for transaction and the mixing process usually lasts between 30 minutes and 6 hours.
Though these mixers might guarantee anonymity and privacy to crypto transactions, we might still be in a pool of questions about how assured these services actually are and to know about this, read further.
To ensure privacy and anonymity, crypto mixing services employ numerous features, one of which includes the creation of “burner crypto addresses”, i.e., temporary wallets. Also, user information on these platforms are not stored for more than 24 hours.
“In a world where technological transformations are on the go, there is always a drawback that might pull backwards and an advantage that pushes it ahead!”
Therefore, crypto mixers too have their set of advantages and disadvantages! Stated below, you can read more about the positive and pain points of this service:
Since coin mixing is a new concept, it may even be hard to trust platforms that provide these services, leading people to choose private cryptocurrencies like ZCash and Monero to make transactions anonymous. Private coins utilise high anonymity consensus protocols such as zero-knowledge proofs (zk- SNARKs), to create almost total obfuscation of transaction.
Though traders believe that coin mixing is a great innovation and invention to make crypto transactions secure. A few also believe that it will undoubtedly be taken advantage of as a method for money laundering.
Infact, countries like France and Japan have taken steps to ban private coins like Dash, Zcash and Monero. China on the other hand has forbidden blockchain companies from designing anonymity-enhancing features.
Government agencies think of crypto-anonymizing services similar to being involved in illegal activities, henceforth taking steps to curtail efforts to ensure anonymity for crypto payments. This also means privacy and anonymity cannot go hand in hand with governing bodies.
According to a recent report from a renowned news site, mixed BTC transactions constituted about 4.09% of all BTC payments, which also means that they increased more than 300% since Aug, 2018. Also, money laundering reports from Japan’s National Police Agency (NPA) showed money laundering through virtual currency at less than 2% of all recorded cases.
Cryptocurrencies have been in the race of justifying their purpose and confidentiality in many possible ways, but seems like there is still a long way to go for these digital currencies to attain complete acceptance from governmental institutions. In the world of digital currencies, law enforcements are akin to abducting the actual essence of technological growth.
Even after being famous for its decentralised characteristic, Bitcoin has never really offered full anonymity. Various analytical techniques, KYC policies and anti-money laundering practices may certainly reveal identities of BTC users. Also, transactions on blockchain is more pseudonymous rather than anonymous enabling people to track transactions just like any other banking transaction. Therefore, creating a zone to anonymize transactions with the help of coin mixers might turn out to be fruitful.
Talking about coin mixers, there are various platforms that provide you an anonymizing service. CoinJoin, Bitcoin Mixers, Madeamaze are among the few to be named. Of course, coin mixers play a significant role in keeping third party hackers away from your dealings, these platforms can also have a darker side to them.
Last year, one of the most famous crypto mixers in the industry- bestmixer.io, with a turnover of more than $200 million went shut. According to reports from Europol, the platform was accused of money laundering and several forms of illegal financing.
After the incident, Ethereum’s Vitalik Buterin proposed the creation of an on-chain ether (ETH) mixer as a way of improving user privacy on blockchain. The suggested ETH mixer would completely jumble transaction details, ensuring that they don’t appear on the blockchain. But he also mentioned that this would only be possible for smaller transactions.
On the other side, we see the rise of various coin mixers like CoinJoin, which was created in 2013 by Gregory Maxwell, who worked in the development of the Bitcoin Core Network and Blockstream to improve privacy on the Bitcoin Blockchain. He introduced CoinJoin to avoid data breach and personal data clustering.
CoinJoin works on a simple principle. Instead of including “inputs” from only one user in a transaction, the service allows several people to combine their own “inputs”, and the same happens with “outputs”. As a result, it is impossible to establish a connection between a particular “input” and “output”.
For example, if a user sends 180 Bitcoin to a service with a 280 Bitcoin balance, his limit for further use will be reduced to 100 Bitcoin until his funds pass several mixing operations within the service. During this time his bitcoins can be used in other transactions not associated with him, the mixing codes will be removed from the system after about 24 hours, restoring the maximum possible limit of this user to 280 Bitcoin.
This service platform makes clustering and attacking a network difficult for hackers.
Another service provider, Bitcoin Mixers functions on a similar way like a VPN or Tor Browser. You send your coins to the mixer, and receive the same amount of coins in different halves from the service reserve in return. Cutting the connection between the sender and receiver wallets, Bitcoin Mixers work like VPNs for crypto transactions, where you cannot access the current location of a particular user.
There are more such coin mixers that help you in embracing anonymity which governmental institutions and hackers would want access to. But a question that might arise is the durability, efficiency and trustworthiness of such platforms.
Like I mentioned earlier, these platforms are a new concept and are still to be discovered. Just how cryptocurrencies took over the market by a storm, we also witnessed various phases that went pass by. For Example- An ICO, STO, and then the recent emergence of the IEO have all played a significant role in the story of digitisation of money. What we need to wait and watch is how far does the struggle lead to accept the originality and anonymity of these cryptocurrencies.
Coin Mixers or Crypto Mixers as we call them are just another effort to fortify the “decentralised characteristic” of Bitcoin and other cryptocurrencies. The advent of this technology happened to create a secure and private platform for people to invest, trade and earn money, hence coin mixers are just a road to get deeper and darker into the woods. Since coin mixers can be called the darker side of digital currencies, they might also act like a personal vault where nobody gets access to.
