What is bitcoin mixing? And why do people do it?

Despite the perception of bitcoin as being highly anonymous, every transaction that takes place is visible to anyone who bothers to download the full ledger. This means that if someone knows your address they are able to see every transaction that you have made and the amounts. Although they will only be able to see the long string of characters representing the people who you are sending and receiving money from, this is a lot of information to possess. Further, as they determine the individuals behind the addresses that you deal with, they are able to piece together your full whole transaction history.

This is where bitcoin mixing comes into play. A bitcoin user who wants to increase the anonymity of their transactions by obscuring the connection between sender and receiver would use a bitcoin mixer. Bitcoin mixing is where a third party takes a fee and, in return, combines and mixes your transaction with other transactions. This means that your particular coins go to fulfill another person’s transaction and their coins go to fulfill yours. In essence, the coins that are traceable to you are now held by someone with little link to you and the person you were sending money to holds coins that are not as traceable back to you. This process can be done with many transactions in the same mix furthering the effectiveness of the mixing. However, the reality persists that if someone had access to the internal workings of the mixing service, they could match together the true sender and receiver addresses.

In addition, mixing still leaves forensic traces and has some shortcomings. The most difficult shortcoming to money launderers is that it is very difficult to move large quantities of bitcoins through mixing services. Movements of high volumes are quite noticeable and require time and patience to minimize the traces.

Last year bitmixer.io, the largest mixing service available, decided to shut down operations citing the desire to help make the “Bitcoin ecosystem more clean and transparent.”

More information on bitcoin mixing.