Bitcoin Mixers as an Anonymity Tool

There are several reasons why many people are still confident in the anonymity of Bitcoin.

For example, a lot of noise was caused by a quote from Barack Obama in 2016, when he said that Bitcoin is like a Swiss account in your own pocket. This is true in some respects, but it gives the impression of privacy that Bitcoin transactions do not have. According to Coinmarketrate.com, blockchain is a complete set of data that can be analyzed at any time. Therefore, in principle, to analyze transactions, you can go back many years in the past.

But not every Bitcoin user wants to put themselves at such risk. Therefore, over time, various methods have been developed to mask transactions, and thereby preserve confidentiality. Next, we want to tell you what Bitcoin mixers really are, what advantages they have, and what risks may arise when using them.

What are Bitcoin Mixers and Bitcoin Tumblers?

Bitcoin Mixer is a third-party service that mixes various Bitcoin transactions together to create a Bitcoin pool. Then, from this pool, the corresponding coins are sent to the actual recipients. This breaks the connection that would otherwise exist between the sender and the recipient of the transaction. In connection with these services, the term “Bitcoin tumblers” is also often found. Both terms are synonymous.

The supplier usually charges a fee for the service. This fee is charged in addition to the transaction fees of the Bitcoin network. It ranges from 0.1 to 5 percent, but can be individualized if necessary and thus be higher or lower. Although this model offers many advantages in terms of confidentiality and secrecy of transactions, it has a number of significant disadvantages, which are primarily related to user errors. 

The Practice of Using Bitcoin Faucets

In order to use the mixer correctly, it is necessary to observe some important points. Otherwise, despite the mixing of transactions, users still leave enough hints about the sender and recipient.

They forget about a few things, and create a lot of additional problems for themselves:

• A person’s own IP address becomes known to the provider when visiting his website. It is recommended to mask your own traffic through Tor. Many providers can also be contacted directly through their own TOR address.
• The amount should be divided. Assuming that you want to send 1 BTC, and after 20 minutes a transaction appears from the provider’s pool that exactly corresponds to 1 BTC, it is easy to draw conclusions. Many providers offer the opportunity to divide the amount into several recipient addresses. They can also be assigned to the same recipient if he specifies multiple recipient addresses.
• The terms of the transaction are very similar. If we assume that the user sends 1 BTC at 13:00, and the recipient receives the transaction at 13:20, then the connection is obvious. Many providers offer the possibility of using a fixed time delay, or even random. This delays the transaction, but weakens the connection between the deposit and withdrawal.
• If it is necessary to contact the provider, then encrypted communication is always recommended, for example, PGP. You also cannot use email accounts that can be attributed to a user.

Common Risks of Bitcoin Mixers

In addition to the possibility of minimizing risks, there are also those that cannot be reduced. The mixer is by definition a third-party provider and thus becomes a “single point of failure”. It is always necessary to take into account the following disadvantages:

• In principle, the provider has a complete picture of all transactions. He can expose them. As the case of Bestmixer shows, the authorities can access these materials if they get access to the servers.
• There is also a possibility that the provider is an attacker. That is, he wants to collect data about his users and acts as a “honey pot”. Then he can secretly transfer the information to third parties or sell it.
• The provider receives the transferred Bitcoins. Therefore, they are in his possession. He can either cheat and take the coins for himself, or lose them due to a technical error.
• In fact, providers work as anonymously as possible. If problems arise, there is little chance of getting clarification if the customer support service does not meet them halfway.
• Exchanges or other services may be able to determine that this is a transaction out of the mix using appropriate analytical software. Then they don’t know who sent what to whom, but this may be accompanied, for example, by account blocking.

Are Bitcoin Mixers Illegal?

This question cannot be answered unequivocally, and all information on it is provided without a guarantee. Actually mixing your own transactions with Bitcoin is not a crime in Russia and many countries of the world. However, if own BTC are funds that are directly related to criminal offenses, then mixing may (depending on the initial situation) constitute a new criminal offense or, possibly, aggravate an already existing criminal offense.

However, whether this is the case depends on the country in which the person is located and on how a particular case is specifically presented. If we assume that a person is just particularly serious about protecting his own data, and that his transactions are not related to criminal offenses, then in many countries the use of a blender for individuals is harmless.

However, the case with Dropbit suggests that the US authorities may consider the operation of the Bitcoin mixer illegal if there is no license and the service’s customers remain anonymous. As a result, many services exclude customers from the United States using geo-blocking due to legal difficulties associated with doing business with American consumers.

In this context, it is also worth mentioning the new money laundering directives that have been put into effect by EU member states since January 2020. Following this ruling, blender operators are likely to violate the new laws. After all, if the promises of their products are honest, they do not collect the necessary data about their users and their transactions.

In addition to these basic considerations, most providers enter into a custom contract with customers. This includes a promise that the user will not engage in any illegal activity in connection with the use of the mixer. How valid such an agreement is remains to be seen. But the fact is that most of the services, at least according to their statement and conditions, do not promote or support illegal activities.

Tornado Cash and Blender.io cases

Both cases are closely related and illustrate the conditions under which bitcoin mixers can be considered illegal. In 2022, the US Treasury Department took action against Blender.io , and then against Tornado Cash.

Tornado Cash allows you to mix transactions on Ethereum based on a smart contract. Therefore, the functioning of Ethereum Tumblr is somewhat different from the work of the Bitcoin mixer, but follows a similar principle of ensuring the privacy of its users. In 2021 and 2022, a series of hacks and exploits occurred on Ethereum and against various DeFi applications, respectively. As a result, more than $1.3 billion in damage was caused. These attacks are attributed to the so-called “Lazarus Group”, which, according to the US authorities, works for North Korea. In addition, the investigative authorities suggest that North Korea finances its weapons programs with the funds received from these hacks.

It is believed that Lazarus Group mainly used Tornado Cash to launder its earnings in Ethereum. It is said that the site was also used in this context Blender.io . To put an end to this, OFAC added the corresponding Tornado Cash Ethereum addresses to the sanctions list, after Bitcoin addresses were added to such a list a few months earlier Blender.io . Sanctions make interaction with these addresses potentially punishable, and US citizens and companies must comply with the sanctions first of all.

While Blender.io relatively quickly disappeared from the market, Tornado Cash is still available on Ethereum. Since the smart contract continues to work, only a small part of the remaining infrastructure had to be adapted, for example, RPC nodes.

The case of a Russian developer who worked on Tornado Cash shows how seriously sanctions should be taken. He was arrested in Amsterdam in the summer of 2022.

Why is the Bitcoin mixer used?

It is not difficult to notice that many users of mixers actually participate in operations that are either socially or legally prohibited. But this does not mean that these services or their users should be criminalized everywhere. Their use is often due to the following reasons:

1. Interested parties just want to protect their privacy. Without ulterior motives, just because it’s their right.
2. The recipients or senders are political dissidents, and therefore are persecuted in one or more countries.
3. These are journalists who have to rely on confidential transactions. For example, in this case, payments to informants for conducting journalistic investigations are possible.
4. The parties involved belong to the family, and are located in different countries. This may be complicated by a lack of access to banking services or an embargo.
5. The transaction is used to pay for erotic images or videos, since this sexual orientation is criminalized. There are many countries where representatives of the LGBT community are persecuted by law.
6. It is simply about the illegal circulation of goods in the darknet or beyond. Therefore, the parties want to leave no traces. A 2018 study shows that only about 16 percent of all Bitcoin mixer transactions are related to this.

These examples show that not all users have illegal intentions. On the contrary, most of them are not going to commit crimes. But even where people do this, it is necessary to remember the natural discrepancy between law and morality.

Should I not support my parents because their home country is under embargo? Doesn’t society benefit from those who expose the unacceptable behavior of companies and governments?

Bitcoin is a breakthrough because it challenges exactly these cases, and removes control from government agencies. Thus, Bitcoin mixers are another phenomenon that still poses a serious challenge to society, since it reformulates the question of self-determination of the individual.