Coin Mixers: How Do They Work and Should You Use Them?
Coin mixers are a service used by cryptocurrency owners in order to enhance the privacy and anonymity of the digital currency transactions. This is a service that is offered by third parties and is also referred to as coin tumbling.
The practice of using Coin mixers became prevalent as people sought to increase their anonymity, especially in regards to bitcoin. Bitcoin holders sought a way to remove the possibility of the uncovering of their identities, which has become possible “thanks” to blockchain analysis, linking IP addresses to bitcoin wallets and wallet address clustering.
How Do Coin Mixers Work?
Cryptocurrency tumblers function through the use of an algorithm that allows the service to obscure the history of the tokens they receive. Once the mixer receives the coins, it sends them to a large number of addresses in small amounts. It is this process that gives the services their name as they are ‘mixing’ the coins with many other different transactions.
Following this action, it is near impossible to determine the true history of a coin. The addresses that are used in the process are usually owned by the tumbler itself. In order to further obscure the history of the coin, the mixer may repeat the process a number of times. Furthermore, some mixers will also include a delay in transactions in order to further serve the process.
Once the process is completed, the tumbling service will send the ‘clean’ coins to a predetermined address. This may be the one originally used by the sender or another one specified by the customer. These services generally charge a fee that ranges between one to three percent of the total amount of currency that needs to be mixed.
Examples of these services include Coinmixer.se, Helix, and Bitcoin Blender. Some of these services are on the dark web and are accessible only through the Tor browser, such as Helix. Moreover, it is possible to set the length of the delay one would require. However, it is important to note that only two of these service providers provide letters of guarantee for users who use the service and even then, you are sending your coins to a centralised service, which adds a level of risk to your transaction.
The Pros and Cons of Coin Mixing
Coin mixers are popular with those who hold a significant amount of cryptocurrency. This is because they are likely looking for a way to prevent their large holding from becoming public knowledge. Of course, through the blockchain, it is possible to infer the contents of an address if it keeps transacting large amounts. This is a security risk as hackers may use this information to target the owner of the address in an effort to steal the coins. Using coin mixers helps users to avoid this situation.
Moreover, for people who would like to stay true to the spirit of privacy that cryptocurrencies were created to preserve, coin mixers are very popular.
The biggest issue with regard to mixers is the risk of theft. In order to access the service, a user must send their digital currency to the service provider. This is a risky position to be in as there is no recourse if the provider does not return the cleaned coins as expected. This is a prevailing concern for those who use these services.
Lastly, the fees charged by the services are a concern. That is because they are charged on a percentage basis, which can add up for larger transactions.
Therefore, if you intend to use coin mixers, you need to weigh the cons of potential theft and high fees against the benefit of increased financial privacy.