The blockchain was designed to be a public ledger where all transactions ever made can be referred to by anyone who wishes to. Perhaps, the blockchain’s public verifiability is one of its most attractive features; regardless, some users want to enjoy the borderless usage of the blockchain without compromising their privacy or anonymity.
When Bitcoin was created, it was said to be anonymous since users were not recognized by names or email addresses but with a string of alphanumeric characters called the “public key.” However, with the emergence of government-compliant Centralized Exchanges (CEX), customers must register with real names and KYC documents. Hence, tracing transactions to a person is very possible, especially if they interact with the blockchain using CEXs. As a result, many people regard the blockchain as pseudonymous (false anonymity).
As a result, many people find a way to go around the system to keep their transactions private and anonymous, and this birthed the emergence of cryptocurrency mixers. These mixers shuffle the crypto of several users in a single wallet before redistributing it to a new address. Hence, the trail is lost in the mixer, and privacy is assured.
What is a Cryptocurrency Mixer?
Cryptocurrency mixers are services that facilitate anonymity in blockchain transactions by mixing several people’s cryptocurrencies in a “tumbler.” For example, imagine if ten people came together to mix several identical $100 bills in a bucket; each person can take out the exact amount they put in without picking the set of notes they put in the bucket – that is the exact way crypto mixers work. As a result, if you send your funds into a crypto mixer, it would be extremely difficult for anyone to decipher where you withdraw the tokens to.
Similarly, some persons may request that you send their tokens to a crypto mixer before initiating a withdrawal; this helps them hide the source of their income and remain anonymous.
A crypto mixer may be centralized or decentralized;
Centralized mixers are regulated companies that facilitate crypto mixing services. Typically, when using a centralized mixing service, your details will be logged with the company; hence, your data is not available to the public but is available to a company’s data center. As a result, centralized mixing services don’t offer complete anonymity. Moreover, since they are subject to government regulations, they could be made to submit data of all their customers to the government.
On the other hand, decentralized mixers are completely private; they are protocols that allow people to access crypto mixing services without having to register or sign up; also, they don’t store user data.
Is Crypto Mixing Illegal?
Crypto mixing has sparked numerous debates about the use of cryptocurrency for money laundering and other illegal financial activities. In truth, crypto mixers help to achieve near-perfect anonymity on the blockchain; however, criminals have begun to use this as an opportunity to mask their illicit transactions.
The debate has gotten hotter, and as a result, some Centralized Exchanges (CEXs) do not allow withdrawals/deposits to and from a crypto mixer. This helps them to ensure that they remain compliant with “know your customer (KYC)” and “anti-money laundering (AML)” regulations.
Some founders and owners of cryptocurrency mixing services have been apprehended and arrested in the past. In April 2021, the U.S. Department of Justice (DOJ) announced the arrest and prosecution of Roman Sterlingov, the founder of Bitcoin Fog, a centralized crypto mixer. They claimed that most of these transactions “came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft.”
Also, in February 2020, the DOJ charged Larry Harmon, the founder of Helix, for conspiracy to launder money by operating an unlicensed crypto mixing service. Larry eventually pled guilty and was released after paying a $60 million civil penalty while continually facing his charge.
Do Crypto Mixers Provide Adequate Anonymity and Privacy?
Crypto mixers are largely effective for obscuring the details of cryptocurrency transactions. However, the level of anonymity obtained from each crypto mixing service differs from another.
Some crypto transactions can easily be caught despite using a mixer, especially if the mixer has limited functions. For example,
Suppose Mr. Jack (0x…wqx) puts 1 BTC in a crypto mixer, Mr. Jones (0x…kl9) puts 3 BTC in a mixer, and Mr. Jill (0x…3ff) puts 2.5 BTC in a crypto mixer to obscure their transactions; however, at the time of the withdrawal, 0.99 BTC, 2.49 BTC, and 2.99 BTC were sent to different wallets. It wouldn’t take a genius to trail the withdrawn tokens.
Hence, to counter these loopholes, many crypto mixers develop advanced functions to further promote anonymity. Some allow delayed transactions, and some allow the withdrawal to be sent across multiple wallets.
So, in this case, Mr. Jack can receive 0.5 BTC today in one wallet, 0.3 BTC in another wallet after 24 hours, and 0.2 BTC after 36 hours. This helps to ensure that transactions remain private and anonymous.
N.B.: Ensure that you understand the terms of a crypto mixer before committing funds; also, do proper research to ensure that you are not sending your coins to a fraudulent protocol because you will never be able to retrieve them.
In Conclusion,
The choice of maintaining privacy and anonymity on the blockchain is up to you and you can utilize crypto mixers, privacy coins, or other alternatives, as you please. However, if you decide to use a cryptocurrency mixer, ensure to conduct adequate research and read the terms, to be sure that you won’t be caught up in loopholes.
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