How Bitcoin Mixers work
How effective are Bitcoin mixers at maintaining anonymity?
Image source: Inside Bitcoins
How Bitcoin is not anonymous
Most people are led to believe that Bitcoin is the epitome of online anonymity. After all, even Bitcoin’s Whitepaper sets anonymity as one of the invention’s greatest priorities. However, as we have already mentioned, Bitcoin mixers in one of our previous Steemit articles. Now, we are going to elaborate on what exactly they are and how effective they can be.
Let’s say John holds wallet A where he stores some coins. No one knows that John is associated with this wallet. Now, John wants to transfer Bitcoins to his wallet B, which is generated for him by an exchange. Due to this, he will not even hold the private keys from that wallet. Now, he wants to replenish his exchange account in order to sell his Bitcoins for fiat, either directly on the exchange which has a fiat-crypto exchange service. In case, he does it directly on the exchange, he relinquishes his card or phone number to the exchange, sometimes, even a selfie with the passport. The transfer of Bitcoins from an anonymous wallet to an exchange wallet is public information that is easily trackable in blockchain explorers.
What a mixer does
John can transfer his Bitcoins to a mixer account first. The mixer “memorizes” how much it owes John, subtracting the mixer’s fee. Then, the Mixer divides John’s Bitcoins into a lot of tiny pieces and distributes them across other mixer’s users. Then, the mixer transfers Bitcoin to John’s wallet B from a wallet where it accumulated coins from other users. The resulting path on blockchain explorer looks like following: coins from wallet A went to dozens of different wallets, while the wallet B received the coins from a mixer’s proprietary wallet. Thus, there can be found no direct link between wallet A and wallet B.
Image source: Facebook
Clusterisation method against mixers
With the rapid development of the tech industry and amassing of large amounts of statistical data, the Big Data industry has emerged as one of the top categories of the IT world – the services that offer goal-oriented processing of big data methods. One of those processes is the clusterisation method. Its gist lies in statistically probable clustering of all input data into determined sub-clusters based on the sought criteria.
Simply put, one can gather all the data from the blockchain and this might be enough to find the link between the two wallets, even with a mixer in-between them. The main criteria here are: when the transfer was executed and what the transaction amount was. For instance, a mixer received 0.235 BTC from wallet A, while it sent 0.230 BTC to wallet B. After analyzing the blockchain, the program will mark those two wallets as related with one another with the probability nearing 100%.
According to some estimates, up to 90% of all transactions that go through mixers are successfully deciphered with the help of clusterisation.
Are there any countermeasures?
One of the methods that makes it difficult for big data analytics to track the transaction is to spread the withdrawal of Bitcoins onto wallet B, across a timespan of a couple of weeks, while also using different amounts of coins. Some mixers allow for this practice, but it only suits users who are comfortable with the delay in time frame.
Of course, this is not a rock-solid way to do stay anonymous but a little more effective. The blockchain data analytics are the true behemoths of the industry, such as Chainalysis and Bitfury. They always cooperate with the government intelligence forces in order to capture of the DarkNet businesses by using analytics.
Being a licensed cryptocurrency exchange, VHCEx takes precautionary measures such as know your customer (KYC) to ensure funds on the platform are from a safe source and reliable. We also prioritize the user’s satisfaction and we will continue listening to your comments, thank you for the feedback and continuous support.