Contrary to popular belief, bitcoin is not anonymous at all. On the blockchain, every transaction is permanently recorded and visible on a public ledger. The truth is that anyone using a bitcoin wallet can leave a trail that can be traced to varying degrees. This means that, your payment privacy depends on how much of your personal information is linked to your bitcoin wallet.
Is Bitcoin anonymous at all?
By its nature, Bitcoin cannot be a private asset or currency. The fact is that bitcoin still struggles to provide an adequate level of anonymity, despite its advantages in terms of simplifying the transfer of value (especially in cross-border transfers and in situations where people do not have access to “traditional” means of financing). A corresponding blockchain that is transparent and open to public scrutiny underpins the entire Bitcoin network.
In many ways, bitcoin is far less anonymous than, say, cash, which can be exchanged without a record of the transaction. Do you really remember who the last owner of the notes in your wallet or the coins in your pocket was?
All your transactions and activities become deanonymized and traceable once your bitcoin address is linked to your name (either through personal transactions or by registering with an exchange and meeting its KYC requirements).
Withdrawing money from a bitcoin exchange after registering with your personal details is a clear example of this. You will always be associated with every transaction made through that account. There are also much more advanced ways of tracking transactions using blockchain analysis techniques and services.
For this reason, those who are concerned about the privacy of their Bitcoin transactions use a variety of techniques to cover their tracks.
A bitcoin mixer, also known as a bitcoin tumbler, is one such technique.
What is a Bitcoin Mixer?
Government organizations responsible for financial security have expressed concern about the rapid growth of cryptocurrencies, the development of crypto infrastructure, and vulnerabilities such as bitcoin mixers or tumblers. By mixing potentially traceable cryptocurrency funds with large amounts of other funds, many people use crypto mixers to keep their cryptocurrency transactions private. These services don’t require Know Your Customer (KYC) checks and are often used to anonymize money transfers between services.
A bitcoin mixer is a piece of software that breaks up your transactions into smaller chunks and then mixes them with other transactions and, occasionally, different cryptocurrencies before sending them to their intended recipient. This makes it very difficult for anyone interested to track your transactions and link them to your identity.
Coin-mixers work by taking your cryptocurrency, mixing it with a significant amount of another cryptocurrency, and then sending you smaller units of cryptocurrency to an address of your choice with a 1% to 4% deduction from the total amount you have deposited. Coin mixing process destroys the link between sender and receiver by weaving a web of transactions that is virtually untraceable, and that includes your transaction. The coin-mixing company typically makes a profit of 1% to 4%, which is how they make a living.
Are Bitcoin mixer services legal?
Some companies may want to prevent competitors from learning the details of their financial transactions. Also, many users want to maintain their anonymity to protect their assets from hackers and criminals. In addition, some individuals are simply idealists who feel that they should be able to conduct their business in total secrecy, away from governments and other state actors. All these cases justify the use of bitcoin mixers, but the truth is that payment privacy is a basic human right.
Therefore, depending on where you live, using coin-mixing services may or may not be against the law. For example, in the US, the Financial Crimes Enforcement Network (FinCEN) classifies bitcoin exchanges as money transmitters. As a result, they must register with FinCEN and apply for a state-by-state license to operate.
Having said that, the final decision on whether or not to use the bitcoin mixer is yours.
In conclusion, it’s imperative that you make sure you send your coins to a reliable bitcoin mixing service if you decide to use one. This can include secure servers, encrypted communication, or anonymous registration processes. A truly reliable and trustworthy bitcoin mixer will never require or log any personal details, such as name, email, or IP address. Look for a bitcoin mixer that offers speed, privacy, and low fees without requiring registration or KYC.