Bitcoin mixers when you buy Bitcoin
Bitcoin’s blockchain is public, and the fact that all information on the network is recorded and accessible to others is viewed as a privacy risk by individuals who want transaction anonymity. Hence, the need for a Bitcoin mixer. The Bitcoin mixer is created to solve the privacy problems users complain of when they buy Bitcoin.
While Bitcoin addresses are “pseudonymous,” meaning they do not reveal their owner’s identity in and of themselves, when they buy Bitcoin, they may frequently be connected to real-world identities. Even more sophisticated approaches, such as blockchain analysis, may be used to link Bitcoin addresses to real-world identities.
Most Bitcoin users risk disclosing sensitive personal information the next time coins are sent from these addresses. Depending on how they spend the coins, they may expose how many coins they hold (even on different addresses), what they spend their money on, and other personal information that should not be out there.
Bitcoin mixers are private third-party solutions that allow users to remain anonymous when trading with Bitcoin. Users can conceal the links between their Bitcoin addresses and their real-world identities by mixing their currencies using a Bitcoin mixer, also called a tumbler. This enables people to buy Bitcoin more secretly.
Types of Bitcoin mixers
Over the years, various mixing procedures have been suggested and established. These range from completely centralized systems in which all users trust a mixer to solutions in which users don’t need to trust anybody and solutions that employ privacy currencies as a middleman in the mixing process.
Centralized mixers are services that take Bitcoin payments and provide various currencies in return for a specific charge. While they provide a simple solution for tumbling Bitcoin, they also pose a privacy risk because while the ties between “incoming” and “outgoing” Bitcoin will not be visible, the mixer will keep a record of the transactions. It becomes progressively difficult for an outsider to link any “incoming” coins to any of the “outgoing” coins when many users utilize a specific mixing service. This removes the transaction trail and gives the user privacy.
This type of mixer provides a solution to the privacy risk of centralized mixers. Decentralized mixers use protocols like CoinJoin to obfuscate transactions using a completely coordinated or peer-to-peer approach. Essentially, the protocol allows many users to pool an amount of Bitcoin (for example, 200 individuals wish to pool 1 Bitcoin apiece) and then redistribute it such that everyone receives 1 Bitcoin, but no one can know who received it what or where it originated from. Even the entity that “merges” the transaction cannot determine which coins went where.
How do Bitcoin mixers work when you buy Bitcoin?
A typical example of how any of these Bitcoin mixers work when you buy Bitcoin is described in the illustration below:
When Person’ B’ buys Bitcoin from Person’ A’ and Person ‘A” sends it to Person’ B,’ the transaction is recorded on the blockchain. But when a Bitcoin mixer is used, it collects Bitcoins from Person ‘A’ in a private pool and then jumbles them up with Bitcoins from other users before sending them to Person’ B.’
This affects the traceability of this transaction. As a result, inspectors will observe that Person ‘A’ paid Bitcoins to a mixer when examining the transaction. They’ll also see that Person’ B’ was given Bitcoins via a mixer. However, they will not discover any direct transaction between Person ‘A’ and Person’ B.’
Are Bitcoin mixers legal?
Because these Bitcoin mixers provide anonymity, it is also being used for fraudulent acts like money laundering, theft, and other illicit activities. Hence, the reason it is termed illegal in some states or countries.
However, they aren’t solely used by criminals. According to Chainalysis, a blockchain analytics firm, mixers are largely employed by normal Bitcoin users seeking anonymity. However, the legality of mixers will be determined by the user’s location and the regulations there.
When you buy Bitcoin, you should only use Bitcoin mixers to preserve your anonymity; although there are numerous reasons to do so, they are all tied to wanting to maintain privacy. The whole essence is to prevent the public from knowing where you spend your money, how much you make, or how much Bitcoin you possess.