Despite what you may have heard, Bitcoin is not anonymous. Every transaction is permanently recorded on the blockchain and is viewable on a publicly available ledger.
This means that anyone who uses a Bitcoin wallet potentially leaves a trail that can be followed to varying degrees depending on how much of their personal information is associated with the address they use.
An obvious example of this is withdrawing money from a Bitcoin exchange where you’ve had to register with your personal details. Any transaction made through that account will always be linked to you.
And there are far more sophisticated methods of tracing transactions involving blockchain analysis techniques as well.
In many ways Bitcoin is far less anonymous than, say, cash, which can be exchanged without leaving any trace. After all, do you know who was the last person to own the notes in your wallet or the coins in your pocket?
That’s why people who are concerned about the privacy of their Bitcoin transactions use a variety of measures to cover their tracks.
One of these is methods is what’s known as a Bitcoin mixer, or cryptocurrency tumbler.
How does a Bitcoin mixer work?
A Bitcoin mixer is a piece of software that breaks down your transactions into smaller chunks then mixes them up with other transactions and sometimes different cryptocurrencies before sending them on to their destination.
This makes it extremely difficult for interested parties to trace your transactions and link them with your identity.
You, the Bitcoin owner, first transfer the sum of cryptocurrency you wish to send to the mixing services. It is jumbled together with transactions from other users before being sent to the destination wallet.
This process breaks the connection with the original sender and the recipient by creating a virtually untraceable web of transactions with yours hidden within it.
The mixing service charges a percentage of the amount being mixed. This varies from service to service but can range from 1-3%.
Are Bitcoin mixers just for criminals?
The short answer to this is no. Obviously criminals do use them because they of course want to keep details of their activities and ill-gotten gains hidden.
However, there are many legitimate uses for these services as well.
Companies may wish to keep details of the business transactions hidden from competitors. High net worth individuals may wish to keep their wealth anonymous to avoid being targeted by criminals or hackers.
Additionally, some people are simply idealists and believe they should be allowed to transact in complete anonymity away from the prying eyes of Governments and state actors.
So, Bitcoin mixing naturally fits with their philosophy and the underlying concept of privacy and freedom, something that’s central to the principle of Bitcoin and cryptocurrency.
Beware of scams, and the law
If you decide to use a mixing service it’s crucial that you ensure you send your coins to a reputable mixing service. There are countless scams operating where people are duped into sending coins only for them to be stolen.
Also, the legality of coin mixing varies from country to country so make sure you check your local laws before using one.
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).