In this post, we’ll talk about bitcoin mixers, a blockchain solution that has been hijacked for money laundering.

We’ll look at the following:

1. What Are Bitcoin Mixers?
2. How Do Bitcoin Mixers Work?
3. List of Bitcoin Mixers
4. What Is the Problem with Bitcoin Mixers?
5. FAQs
6. Conclusion

Click on any item above to read its details immediately.

Let’s roll…

1. What Are Bitcoin Mixers?

Bitcoin mixers are tools that shuffle an amount of bitcoin in private pools before spewing them out to their respective recipients.

They help to keep bitcoin transactions entirely private so that no one can trace who sends what to whom. A bitcoin mixer is also known as a tumbler.

Although bitcoin transactions are anonymous they are not completely private because they are recorded on a public ledger.

So, interested individuals can trace transactions among wallets. And where any of the wallets belong to a centralized exchange, the owner of the wallet can be found out because he must have completed KYC.

This reduces the decentralized feature of the bitcoin blockchain hence the need for bitcoin mixers.

But how do they work? Find out in the next section.

2. How Do Bitcoin Mixers Work?

They use smart contracts to accept token deposits from one address and enable their withdrawal from a different address.

Also, the smart contracts work as a pool where all the deposited tokens are mixed together. Thus breaking the on-chain link between the source and the destination when funds are withdrawn from those pools.

Additionally, they use scaling solutions like zk-EVMs to verify and allow transactions.

Using bitcoin mixers involves the following steps:

a. Connect a wallet to the platform

b. Select a network and choose to deposit or withdraw.

c. After selecting a deposit, a private note is generated that will be required to withdraw the funds.

d. Once you confirm that you’ve backed up the note, you can continue to send the deposit to the pool.

e. And when you’re ready to withdraw from the pool, you’ll provide an address and the private note generated earlier.

f. Finally, you select withdraw, a proof is generated, and then you can confirm the withdrawal.

Got it? Good!

Let’s continue!

3. List of Bitcoin Mixers

There are two main types of bitcoin mixers.

a. Centralized mixers 

This type of bitcoin mixer accepts your bitcoin and sends back different bitcoins for a fee. 

Centralized mixers offer an easy solution for tumbling bitcoin, but they still present a privacy challenge.

While the links between “incoming” and “outgoing” bitcoin will not be public, the mixer itself will still have a record that connects the transactions. 

Such that when the need arises in the future, the company could give up those records and reveal users’ connection to the coins.

Examples of centralized mixers are Blender.io and Cryptomixer.io.

b. Decentralized mixers 

The second type of bitcoin mixer is decentralized mixers.

They employ smart contract protocols to fully obscure transactions just like we saw in section 2. 

Here the protocol allows a large group of users to join together an amount of bitcoin (say 100 people to mix 1 bitcoin each) and then redistribute it so everyone gets 1 bitcoin back, but no one knows who got what or where it came from. Interesting!

Because there is no third-party control of wallets, these mixers are more reliable than their centralized counterparts.

Examples of decentralized mixers are Wasabi and JoinMarket.

Others are:

Moving on, let’s see the controversy around bitcoin mixers.

Tag along!

4. What Is the Problem with Bitcoin Mixers?

Bitcoin mixers were created with a good intention – to achieve privacy. But as it is with most crypto products, they have become another way out for fraudsters.

These mixers are an obvious hotbed for money laundering, attracting the likes of tax dodgers and criminals interested in hiding the proceeds of illegal activity.

In April 2021, U.S. authorities arrested Roman Sterlingov, founder of bitcoin tumbling service “Bitcoin Fog,” for helping people launder $335 million. 

Later in August 2021, Larry Harmon, the owner of a bitcoin mixer called Helix, pleaded guilty to helping darknet market criminals launder around $300 million.

Little wonder financial regulators are hot on the trail of bitcoin mixers and many of them like Tornado Cash have closed.

Last August, the U.S. Treasury Department sanctioned Tornado Cash, an Ethereum coin mixing tool, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019.

Also, it was mentioned that Lazarus Group, a North Korean state-sponsored hacking group, used Tornado Cash to launder over $96 million after it hacked Harmony Bridge in June 2022. Read the full story here.

More recently, a hacker who moved $196 million from lending protocol Euler Finance returned $1.65 million worth of ETH Smart Staking (NETH) through Tornado Cash. (Full story)

Additionally, some crypto exchanges are wary of processing transactions linked with bitcoin mixers. For example, Binance has blocked withdrawals to Wasabi.

Nevertheless, Bitcoin mixers have been used in the right way like anonymous donations for a good cause.

For example, Vitalik Buterin tweeted that he used Tornado Cash to make donations to @Ukraine_DAO.

Well, I suggest you only use a bitcoin mixer if you have a need to. Besides, not all bitcoin mixers are legit so do your research before using a mixer.

Also, you may want to check the FAQs for alternatives to bitcoin mixers.

5. FAQs

6. Conclusion

Bitcoin mixers and other coin mixers have “mixed” billions of dollars in cryptocurrency—much of it for legitimate uses, but some to hide funds stolen by hackers.

It is advisable to do due diligence before using a mixer. I hope this post was with your time. Please drop any questions or thoughts you may have in the comments section below.

Also, share this post with your friends. Thank you!