Bitcoin Tumbler (Crypto Mixer) 101: Here’s Everything You Need to Know
While Bitcoin and other cryptocurrencies are often described as anonymous, this is not the case; they are pseudo-anonymous. Considering all crypto transactions are recorded in a public ledger, it’s possible to trace transactions and wallet addressees to their specific owners. Besides, the increased regulatory pressure and law enforcement in the crypto space means that privacy and full anonymity is still a challenge.
Bitcoin tumblers, also referred to as cryptocurrency tumblers or cryptocurrency mixers, come in handy to enhance the privacy of cryptocurrencies. Bitcoin tumblers have made the crypto space pretty safe by enabling users to maintain privacy and anonymity when transacting. Here’s a beginner’s guide on Bitcoin tumblers.
What are Bitcoin Tumblers or Cryptocurrency Mixers?
Bitcoin tumblers are essentially cryptographic software that obscures the trail of Bitcoin transactions by mixing possibly identifiable or traceable cryptos with others. Crypto tumblers link all transactions to the same public address and send them together to appear like the coins were sent from different addresses instead of a single one.
Tumblers break down a single transaction into smaller sections and mix them up with other transaction parts before sending them to the specified addresses. After the coins are tumbled, i.e., mixed, users get a different set of coins but with the same value as before. This makes it extremely difficult to trace transactions to their origin or exact receivers.
How Do Bitcoin Tumblers Work?
Bitcoin tumblers function by breaking the connection between the senders’ and receivers’ addresses. Crypto owners first transfer coins they’re looking to transact to their preferred cryptocurrency tumbler. The tumbler then sends transactions via a complex, semi-random series of dummy transactions, making it difficult to link a particular transaction to a specific address.
In simple terms, a tumbler blends a single transaction with other users’ transactions so that it becomes imprecise to whom the cryptocurrencies were coming from or being transferred to. Once the coins are sent to a crypto tumbler, they are put in a pool of coins and other coins from different depositors. A blending system then mixes or tumbles the coins along with others in the same pool.
Once the mixing is complete, the tumbler transfers the mixed coins to the desired address, meaning no link between the original transaction and the selected address. Tumbling enhances crypto-privacy and anonymity by creating a web of transactions that breaks the link between the recipient and the original sender, making the transaction difficult to trace.
Cryptocurrency tumbling platforms often charge a particular percentage of the tumbled amount. The service charge varies according to platforms but usually ranges between 1-3%.
Types of Bitcoin Tumblers
Technically speaking, blockchain tumblers are broadly categorized into two main categories: centralized & decentralized tumblers.
Centralized Bitcoin Tumblers
As the name implies, centralized bitcoin tumblers are operated by a private company/individual that owns it in a centralized manner. In simple terms, you’ll be leveraging the services of a third party to tumble your coins and keep you anonymous. Centralized tumblers often charge a service charge ranging from 1-3%.
The major undoing of centralized crypto tumblers is that they are third-party controlled, and you may easily send money to untrustworthy parties. These crypto mixing platforms may easily disappear with your coins without a trace. Besides, the chances that centralized cryptocurrency mixers keep logs are pretty high.
Centralized blockchain tumblers may keep logs for despicable reasons apart from debugging purposes. Users’ mixing logs are precious for governments and blockchain forensic experts to investigate financial crimes. Centralized mixers could be selling users’ mixing history to such institutions exposing users.
Decentralized Bitcoin Tumblers
Unlike centralized tumblers, decentralized crypto tumblers are not operated by third parties. Instead, they are based on a blockchain such as the Ethereum Network and operated by smart contracts. As such, decentralized crypto tumblers “guarantee” the privacy of users without keeping users’ logs. However, they are technically difficult to use thus not ideal for beginners in the crypto space. Besides, it needs to be used regularly or have enough users to make it efficient.
Features of a Good Bitcoin Tumbler
With plenty of cryptocurrency tumblers lining up the crypto space, choosing an ideal tumbler can be pretty daunting. Nonetheless, a good crypto tumbler should the features below:
- Full anonymity
- Fair fees
- No maintenance of logs or user records
- Availability of multiple addresses
- Speedy transactions
Benefits of Blockchain Mixers
When you think about it, blockchain tumblers seem unnecessary in the first place, considering that cryptocurrency’s main selling point is anonymity. However, since blockchain is a public ledger, all transaction logs can be accessed by the public. This means that the public can access transactions and wallet addresses.
Bitcoin tumblers have been associated with hackers, drug traffickers, and online criminals to “clean” cryptos obtained through illegal activities, making them legitimate & genuine. While this may be true, any avid investor in the crypto space should use tumblers to maintain anonymity and privacy.
There are plenty of benefits in keeping transactions private, especially when transacting huge amounts of crypto. Even in traditional finance, privacy is a vital requirement. No one displays their bank records to the public.
In essence, irrespective of your motives, it’s crucial to use a cryptocurrency tumbler and maintain total anonymity and privacy when transacting in the crypto space. Some benefits of using a blockchain mixer include:
- Wipeout any trace of your transactions on the blockchain and remain fully anonymous.
- Prevent hacking attacks by mixing up your addresses in such a way that hackers won’t know your identity
- Remain private when transacting on the blockchain
- Deter criminals and avoid being a potential target.
- Avoid hefty governments’ regulations concerning cryptocurrencies.
Concerns with Bitcoin Tumblers
Cryptocurrency tumblers have widely been used to clean illegally obtained cryptocurrencies. Tumblers make crypto proceeds from hacking, drug trafficking, Ransomware attacks, etc., seem to be genuine & legitimate after the tumbling process. As such, they are a nightmare to blockchain forensic analysts and law enforcement agencies.
Because of this, crypto tumblers have been outlawed in several countries. Mixing large amounts of coins is considered a violation of anti-structuring laws. In April 2021, U.S federal authorities arrested Roman Sterlingov-the founder of a Bitcoin Fog-a crypto tumbler. Roman was charged with money laundering and unlicensed money transmitting operations.
In summary, while cryptocurrency mixers ensure anonymity and privacy, they can be easily abused in illegal activities. Tumblers make law enforcement in the cryptocurrency and blockchain ecosystem hard and conducting anonymous dirty coin transactions easier.
Cryptocurrencies are not entirely anonymous since transactions are recorded on a public ledger, i.e., a blockchain. Blockchain mixers ensure users achieve total anonymity and privacy when transacting cryptocurrencies. This makes it harder for hackers or regulatory bodies to trace crypto owners or receivers, presenting plenty of benefits. While they are susceptible to abuse by masking illegal activities, bitcoin tumblers offer crypto users plenty of benefits. They should be used by any forward-thinking crypto investor, especially when transacting large amounts of cryptos.