Bitcoin Mixers: Centralized Vs. Decentralized Mixers
Bitcoin Mixers: Centralized Vs. Decentralized Mixers
Bitcoin

Bitcoin Mixers: Centralized Vs. Decentralized Mixers

By Giorgi Mikhelidze - 15 Aug 2020

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This article will look into types of Bitcoin mixers and what the market offers to their users, as tools for anonymizing transactions.

The “paradox” of Bitcoin blockchain transactions is that transactional created data can still link to real-world identities. While bitcoin addresses are pseudonymous, a person’s entire financial history is meticulously recorded on the blockchain. The trails created are public and traceable, which counteracts the promise of privacy.

Despite public opinion, the need for privacy or anonymity doesn’t always equate to dealing in illegal activities. There are several other very legal reasons why people would want to keep their financial activity private. That is why we have bitcoin mixing services emerging and aiding in anonymizing crypto transactions.

What Are Bitcoin Mixers?

Bitcoin mixers or tumblers are software or services that mix your coins with other users’ coins to secure your privacy.

These solutions obfuscate entirely any ties between your bitcoin address and your real-life identity when they mingle the coins. Once you submit your currency to these mixers, they come back with no association with the original input addresses. They protect their users from blockchain analysis and transaction history tracking.

There are two major categories of mixers;

  • centralized solutions;
  • decentralized solutions.

Centralized Mixers

Centralized mixers are privately owned services that accept your coin and send back different coins for a fee. To initiate a transaction, you enter your address in a form available on the mixing service platform. Then you send your cryptocurrency to an address specified by the service.

Usually, this deposit is where the service takes its 1-3% fee. The service mixes different amounts of coins from separate addresses and sends back a random amount of bitcoin to each address. This random mixing and matching go on until they return the total amount you requested to your wallet.

The more people using a service, the harder it gets to track or tie any of the coins to a particular user.

However, the security and privacy offered by these third party services are questionable. As a user, you need to trust your funds with the mixer. There is no guarantee that these mixers will return your funds.

In terms of privacy, centralized mixers have access to your Bitcoin and IP addresses. They ultimately know which address sent and received which coins and are probably keeping a log. They may decide to sell this information, or are compelled by the law to share the data, compromising your privacy. In an ideal centralized mixer, all this information regarding the user is deleted.

Bitcoin Mixer

Fortunately for all bitcoin users in need of advanced privacy, platforms like BitcoinMix.org exist. This bitcoin blender is one of the few diverse mixers that support Bitcoin, Litecoin, and Ethereum. It provides mixing solutions to different blockchains for users all over the world. Furthermore, it secures user funds by providing a letter of guarantee to every user to prove its services legitimacy. 

The letter of guarantee acts as proof should there be a failure in returning funds after mixing. Moreover, Bitcoin Mixer does not store logs or collect personal data about the user and is completely automated.

Decentralized Mixers

Decentralized mixers are peer to peer mixing services available on more advanced blockchain platforms. These mixers attempt to fix the shortcomings of centralized mixing. Individuals band together and pool their coins to make one significant transaction, and the coins get randomly returned to the pool members. The higher the number of users in the pool, the higher the randomization. The most popular non-custodial mixers include Wasabi Wallet and Samourai Whirlpool.

The protocol most common in this decentralized mix is known as CoinJoin. CoinJoin aims to improve privacy by coordinating inputs of multiple users into a single transaction. The transaction gets multiple outputs that obscure the origins of the bitcoins. Some mixers design the CoinJoin that prevents anyone, even themselves, from figuring out what went where in the transaction.

However, these CoinJoin come with their own set of challenges. Unfortunately, some CoinJoins have easily recognizable patterns on the blockchain. These transactions tend to get flagged and halted without reason by CEXes (centralized exchanges) and other services. Furthermore, Blockchain analysis services can deanonymize a sender who used CoinJoin, undoing their effort to gain privacy. A transaction also needs enough users to make it viable; otherwise, the coins can be traced back through a process of elimination.

Conclusion

Transaction anonymity is getting harder to achieve, especially on a technology designed to keep meticulous records. Bitcoin mixers give people a chance to take control of their privacy and keep their transactional history anonymous. There are many risks associated with mixers, especially when it comes to giving over control of your funds. However, the industry has a lot of reliable and trustworthy blenders that deliver what they promise. Whether centralized or decentralized, the choice is ultimately yours. 

Bitcoin Mixer, Wasabi Wallet, and Samourai Whirlpool are the platforms that have the best user reviews. Keep your assets safe by mixing with a reliable blender.

Giorgi Mikhelidze
Giorgi Mikhelidze

Giorgi is a Georgia software developer with two years of experience trading on the financial markets. He is now working to spread the knowledge about the Blockchain in his country and share all of his findings and research to as many crypto enthusiasts as possible.

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