Are Bitcoin Mixers Going Quiet?
Law enforcement is shaking things up.
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Coin mixers were once a popular solution to Bitcoin’s imperfect privacy features. Bitcoin uses pseudonymous addresses, which reveal key data such as transaction amounts and destinations. That doesn’t reveal user information, but analysts can piece together who owns each address by looking at how Bitcoin has changed hands.
That’s where coin mixers (or tumblers) come in. For a fee, coin mixing services will allow you to deposit Bitcoin that has been “tainted” by past activity. Once you make a deposit, you’ll receive “clean” Bitcoin in return. They may sound legally risky, but they’re also widely-used services that operate in plain sight.
Mixers accept Bitcoin from various users, circulate it according to an algorithm, then return Bitcoin to the original holders. This process doesn’t hide transaction data – everything can still be seen on a block explorer – but it does make it harder to piece that data together.
Do Coin Mixers Really Prevent Bitcoin Tracking?
To some extent, coin mixers do accomplish what they set out to do, as crypto analytics firm Chainalysis has admitted. Last year, Chainalysis’ CEO stated that coin mixers make it very hard for the company to track criminals: “It definitely makes it difficult for us…[but] nothing’s ever impossible,” he told the Unchained podcast last year.
But it’s still possible to trace bitcoin, even after it has been run through a coin mixer. In 2017, Felix Maduakor illustrated several ways to attack or analyze coin mixers. Bitcoin Wiki also identifies a few other approaches. For example, it’s possible to trace Bitcoin activity by observing correlations between transaction amounts.
There’s one other way mixers can cover their tracks. Some coin mixers have engaged in dusting, in which they distribute small amounts of tainted bitcoins to thousands of addresses. The idea is to “foil blockchain analytics tools” and make it impossible to distinguish the users of mixing services from other hodlers. However, it’s not clear if this strategy has succeeded or not.
The Problem With Centralization
There’s another problem: coin mixers are usually custodial services. That means that when you deposit cryptocurrency to a mixer, the owner of the mixer takes control of your funds. Since many mixers are short-lived and keep a low profile, it’s fairly easy to steal your bitcoin. It can be quite difficult to decide which coin mixers to trust.
On top of that, centralized mixers don’t just hold your coins: they hold your personal data, too. Often, mixers will keep a log of user activity, IP addresses and blockchain addresses.
It’s not hard to find mixers that periodically delete their logs, but you’ll still need to trust that the service will follow through and erase that data. You can also use the Tor browser for extra privacy.
They also make an easy target for law enforcement. Just like any other online service, authorities can locate and shut down a centralized coin mixer. BestMixer, for example, was recently shut down by Dutch authorities. The police also collected user data in the year leading up to the closure.
The Rise of Alternatives
If you’re dead set on using Bitcoin for anonymous transactions, there are a few decentralized mixing techniques that might help. These methods include CoinJoin, TumbleBit, and a few others. These techniques won’t hold your funds or log your data, and they can’t be shut down. All you need is a special Bitcoin wallet like Wasabi or Samourai.
There are also a few privacy features that don’t involve coin mixing. For example, Bitcoin is planning to add Schnorr signatures (Bitcoin Cash already has them) and Taproot, which will make smart contract transactions indistinguishable from regular transactions. It’s not a substitute for mixing, but it will make it more difficult to track transactions on the whole.
Privacy coins are another alternative. Monero, for example, offers confidential transactions: only senders and recipients can view transaction data. Zcash and Dash offer optional privacy as well, and Litecoin is planning to do the same. Grin and Beam, based on Mimblewimble, take this idea in a slightly different direction.
Bitcoin itself doesn’t offer private transactions, but some off-chain protocols do provide this feature. Blockstream’s Liquid Network is a sidechain that uses a Bitcoin-pegged token (L-BTC) and offers confidential transactions. However, the Liquid Network is not targeted at general users, so the privacy coins listed above are usually much better options.
The Verdict on Centralized Mixing
Centralized coin mixers are still alive, but they’re not exactly thriving. Existing mixers are not particularly innovative, and there are countless other privacy efforts that are underway. These efforts seem to be attracting the vast majority of research and development – not to mention the number of useful privacy options are readily available.
Over the next few years, centralized mixers could begin to shut down due to stricter law enforcement. Even if these services stay in operation, their owners will need to weigh profits against legal risks. This year’s crackdown on BestMixer had a chilling effect on at least one competitor, and the trend could easily continue.
At the same time, Bitcoin is incredibly popular, and old habits die hard – so centralized mixers may not lose their foothold. Analysis services and regulators have not rendered coin mixers totally useless, despite the potential for de-anonymization attacks and other sorts of transaction analysis. In that sense, at least, centralized coin mixers are here to stay.