A cryptocurrency mixer is a service offered to mix potentially identifiable or ‘tainted’ cryptocurrency funds with others so as to obscure the trail back to the fund’s original source.
The mixing is usually done by pooling together source funds from multiple inputs for a large and random period of time, and then spitting them back out to destination addresses. Since all the funds are lumped together and then distributed at random times, it is very difficult to trace exact coins.
Also, the transaction amounts can be chosen at random so that the transaction is made up of many small partial payments spread over a longer period of time. The mixing service usually charges a fee of between 0.25 – 3% of the amount to be mixed.
There are several types of mixers:
Centralized mixers receive bitcoin and send back different BTC for a fee, also referred to as tumblers
Decentralized mixers employ protocols which allow a big group of users to pool an amount of BTC and then redistribute it such that everyone receives one bitcoin
Obfuscation-based mixers, often called decoy-based mixers, employ ways to conceal a user’s transaction graph
Zero-knowledge-based mixers rely heavily on advanced cryptographic techniques like zero-knowledge proofs to fully erase the transaction graph
While there are no specific laws or regulations that prohibit the use of coin mixers in many jurisdictions, the nature of their operations in terms of bringing more anonymity to cryptocurrencies makes their practises highly suspicious among authorities. As a result mixers are often linked to money laundering.
Cons of Mixers
Mixers rely on patterns to mix their coins. If that pattern is discovered, its operation can be analyzed and the transactions involved can be deciphered
They have been used by criminals to hide cryptocurrencies that come from illegal acts, for example, by making money laundering easier for them. As a result, mixers can link you to a criminal activity if its revealed how a certain mixer works
An effective mixing service makes it difficult for competent authorities to link and catch cyber criminals
If you are not sure of the reputation of the coin mixer to be used, you can also be a victim of scams and thefts. By depositing your assets in the central account of the service, your money may not be returned
If a centralized coin mixer is used, the service owners will know which users made the deposits and which coins were delivered to them. If the service is forced to deliver the data of its users for any reason, the users of the service will lose their privacy
Pros of Mixers
Coin mixers services maximize privacy levels, so companies or owners of large amounts of cryptocurrency considerably reduce the risk of being extorted or hacked, and robbed of their assets
Mixers prevent organizations and governments from tracking your funds and know what and how much you own or how you use it