How Do Cryptocurrency Mixers Work?

Crypto mixers are Web3 services that blend crypto transactions to obscure the connection between specific digital assets and their owners. This mixing process involves pooling assets of several users and then distributing portions of them. As a result, original and final addresses become difficult to link.

The main reason users choose crypto mixers is to achieve the highest possible level of privacy. Despite the common belief that cryptocurrencies are anonymous, transactions with most of them are recorded on public blockchain networks, making them fully traceable. In this scenario, mixers help users conceal the connection between the sender and the recipient of funds. 

Basic Principles of Crypto Mixers

The principles oа any cryptocurrency mixer consist of the following steps:

1. Sending coins to the mixer. The user sends assets to a crypto address belonging to the mixer. This can be done in various ways, such as via a web interface or software provided by the service. To achieve complete privacy, users often use VPNs or secure browsers like Tor.
2. Pooling with other users’ assets. The mixer collects coins from different users by combining them into one large pool. The purpose is to prevent matching specific coins to their owners. The mixer can hold transactions for a random amount of time before starting the mixing process.
3. Dividing and mixing assets. Inside the mixer, assets are divided into smaller portions and mixed using different encryption algorithms. This process makes internal transactions untraceable to third-party analysts and on-chain services. 
4. Creating new transactions. After mixing, the mixer distributes the mixed assets to addresses specified by users. The initial amount can be split into several smaller parts at the sender’s discretion and can be credited to multiple addresses, further making transactions less traceable.

Some mixers provide additional features such as time delays or the option to set individual transaction parameters to enhance privacy. 

Legal and Ethical Aspects of Using Crypto Mixers

The legal status of cryptocurrency mixers differs from jurisdiction to jurisdiction. Some countries tolerate their use, while others completely ban or strictly regulate them due to their potential use for illegal activities. Many countries are starting to introduce legal regulations to ensure that crypto mixers comply with counter-terrorist financing (CFT) and anti-money laundering (AML) rules.

For example, the U.S. government considers cryptocurrency mixers to be tools for laundering proceeds from cybercrime. The U.S. Treasury Department has banned Americans from using the Tornado Cash mixer and blocked Samourai Wallet. In addition, the U.S. Department of Homeland Security has shut down ChipMixer.

Operators and developers of crypto mixers are actively being held accountable through legal proceedings:

• Roman Sterlingov, Founder of Bitcoin Fog, was found guilty by a U.S. jury of laundering $400 million;
• Larry Harmon, CEO of Bitcoin mixer Helix, was charged by the U.S. Department of Justice for failing to pay a $60 million fine;
• Alexey Pertsev, Developer of Tornado Cash, was found guilty by a Dutch court of laundering $1.2 billion.

As for the ethical aspects of using cryptocurrency mixers and privacy-enhanced cryptocurrencies, proponents argue that such services respect human rights to anonymity and call for personal information protection. However, the anonymity of financial transactions has always drawn the attention of regulators and law enforcement agencies, as it’s often associated with illegal activities. In this context, reports about hackers transferring stolen funds to crypto mixers undermine the arguments of those supporting crypto mixing services. Finding a compromise on this issue is quite challenging, because the right to financial privacy should be protected, but in practice, crypto mixers are often used precisely for criminal purposes.

How to Choose Crypto Mixer

Among the key criteria for choosing a crypto mixer are the level of privacy, the service fee, transaction delay times, and the service’s reputation. To select a crypto mixer, it’s necessary to evaluate several crucial parameters, including:

• Service reputation. User reviews and ratings on various social media platforms and forums can help assess this. It’s important to ensure that the mixer has been in the market long enough and has no history of hacks or scams. Support from well-known devs and positive expert reviews are additional advantages.
• Security level. Ensure the service doesn’t keep transaction logs or store user data. Some decentralized mixers provide access to their source code and documentation, allowing independent experts and organizations to audit the service’s security.
• Commission fees. This parameter can be assessed by comparing several different mixers. Typically, fees range from 1% to 3% of the transaction amount. It’s important to ensure that the usage terms are clearly described and that the service doesn’t have hidden fees or extra charges.
• Usability. The convenience of the service interface can only be evaluated empirically. A detailed user guide and technical support are significant advantages. It’s also crucial to check whether the mixer supports the cryptocurrency you intend to mix and meets the required minimum and maximum transaction amounts.

Types of Crypto Mixers

Crypto mixers can be divided into centralized and decentralized mixers. 

Centralized services work as intermediaries. Users send their coins to the mixer, which then blends them with the coins of other users. The main drawback of these is the need to trust the service operator, who could be a scammer or share data with law enforcement agencies.

Decentralized or peer-to-peer mixers operate without any operator involvement, using smart contracts to automatically mix transactions. Such mixers offer greater privacy by eliminating the risk of operator fraud, but they can be more complex to use and may have technical limitations. They’re also more susceptible to risks associated with hacking attacks. 

In conclusion, crypto mixers play a crucial role in ensuring the privacy of digital asset users. However, their use comes with certain risks and ethical concerns, and the future of these services largely depends on legal regulations.