Bitcoin is a peer-to-peer decentralized form of electronic assets which do not require any central authority for confirmation or record keeping.
There are two concepts to note here that are critical to the new kind of digital assets that are collectively referred to as cryptocurrencies.
The first being the token which is the medium of exchange between two parties.
The second is the protocol upon which the token is being exchanged. The bitcoin protocol, in particular, uses a public ledger system where all transactions can be seen on the blockchain.
Bitcoin transactions use cryptographic calculations to complete blocks of transactions. These transactions are generated using specialized equipment called miners which try to solve the transaction blocks from difficult cryptographic equations. The miners get a fee for confirming these blocks.
Bitcoin addresses are the point from which funds can be either sent to or received from each user within the blockchain.
Transactions are sent from one bitcoin address to another which appear on each block and cryptographic calculations are made when the miners process each calculation for the transactions made while they are added to the public ledger.
Transactions can be tracked using the transaction hashes which exist on each block on the blockchain (hashes are the cryptographic calculations which are used to complete a calculation used to complete that block).
It is these cryptographic calculations that make the bitcoin blockchain to be referred to as pseudo-anonymous (meaning that no one really knows who is transacting, how and where).
It is due to the pseudo-anonymous nature of bitcoin transactions that “mixers” were invented by some very smart people.
Pseudo-anonymity can be referred to a state of having a false identity. For the purposes of this discussion (pseudo-anonymous nature of bitcoins), it is the fact that a person’s personal information isn’t tied to a particular bitcoin address that makes them become pseudo-anonymous.
This, of course, has been hailed as one of the advantages of Bitcoin (the token); it is private to a degree.
The exchange of tokens across the bitcoin blockchain cannot really be tied to a single individual, but using other possible data-sets, it is possible to identify possible owners of specific bitcoin addresses. E-mail addresses, internet protocol addresses, usernames and passwords which may exist on certain server logs serve as examples of such data-sets which can easily tie individuals to specific bitcoin addresses.
While bitcoin addresses use a cryptographic key to access the blockchain and also to send and receive funds, it is still possible to track transactions from one address to the other since all transactions are recorded in the public ledger which is part of the blockchain.
Hence, if a particular address is tied to someone’s personal information, it is then possible to track transactions coming either into or from that specific bitcoin address.
It is also possible for attackers to connect the multiple nodes within the blockchain and discover the source of a specific transaction.
So, yes! It is possible for Bitcoin transactions to be tracked!
The Danish Police have been able to track criminals using this method.
Bitcoin Mixers or Tumblers or Shufflers are services which permit bitcoin users to conceal the origin of their transactions.
Such services are used to allow the users to have some privacy and some further anonymity since all bitcoin transactions can be traced in the public ledger of the bitcoin blockchain.
Such services essentially obfuscate the process of bitcoin transactions by having them mix with monies coming from other bitcoin addresses.
For example, if Mr. A sends X number of bitcoins to Mr. B but wants to hide the fact that he is the one sending it, he uses a tumbler which sends seemingly random amounts to different addresses which now start to reach Mr. B in those different amounts.
The number of bitcoins reaching Mr. B, therefore, will be in discrete amounts and will arrive at Mr. B’s wallet address at different times.
Since Bitcoin transactions don’t have real anonymity, all those transactions can be viewed within the blockchain’s public ledger.
The link between Mr. A and Mr. B may never be fully established if no one really knows what transactions went on between Mr. A and Mr. B.
There are two models of bitcoin mixing.
In this model, all the user has to do is to enter his address on the form of a mixing website and the transaction then begins after he or she presses enter.
All the transactions are handled within the database of the mixing website and what the mixer does, in this case, is to match different wallet addresses and different amounts and send random amounts of bitcoins to each address until the total amount requested by the sender arrives at the designated address.
The advantage of this approach to bitcoin mixing is that users of the service don’t really need to worry about complicated transactions.
All the user has to do is simply enter his or her bitcoin address, make the transfer and then press enter.
While this may look like the easy way out, it poses the greatest risk to both the mixer and the user as since everything is handled centrally.
Examples of centralized mixing services include MixerTumbler, BestMixer.io, Blender.io, BitcoinFog, GramShelix, etc.
Centralized mixing also has its disadvantages.
This kind of mixing process is contrary to the purpose for which bitcoin was invented by Satoshi Nakamoto in 2009. Centralization of assets subjects such as assets to control.
As such, the centralized method of mixing bitcoins has proven to be very risky.
The hack of the mixing service Bitblender is a case in point.
Also, the server and transaction logs which are centrally located pose a risk factor. All though that risk itself can be minimized.
The use of more than one mixer combined with the use of peer-to-peer networking services in order to hide one’s identity can create some form of pseudo-anonymity. More on that shall be discussed later.
In this kind of mixing transaction, different users form an exchange and use protocols to be able to mix their bitcoins effectively.
Once this kind of exchange has been formed, the process of mixing the bitcoins without the need of a middleman starts.
The advantage of this model is that since there is no middle man, the transaction will indeed become pseudo-anonymous. There are no central authorities who monitor such transactions.
The disadvantage of this model is that sometimes it may be difficult to find anyone who is willing to form an exchange so that the transaction will go through.
Examples of decentralized bitcoin mixers include CoinJoin, SharedCoin and CoinSwap.
It is important to note that these are protocols rather than services. (9)
No one really knows for sure when bitcoin mixers were developed as a service.
However, one of the largest bitcoin mixers ever, Bitmixer, was founded in 2011.
After six years of operation and subsequent investigations, the founders of the services decided to shut down after law enforcement authorities had traced several transactions related to illegal activities from the darknet were traced to their service.
Criminals using bitcoin mixers to launder funds isn’t a new phenomenon.
However, law enforcement officials have been able to identify ways, means and methods to be able to track such transactions and other transactions using big data analysis systems and artificial intelligence platforms such as Googles’ Tensor Flow which uses deep learning to point similarities in events within a specific timeline.
In response to this, other forms of cryptocurrencies which use tumblers as one form of tumbling or the other in their blockchains have emerged.
Zcash is a prime example of one of such services.
But the ever-elusive Monero is actually the king of the hill right now when it comes to anonymization as per cryptocurrency transactions.
The only problem these cryptocurrencies have is that they still must be exchanged at one point or the other for either bitcoin or fiat currencies.
In essence, it is usually better to just mix bitcoins effectively!
When it comes to security, Bitcoin mixers are as secure as the protocols used to access them. Most mixers that are accessible using ordinary internet protocols (also referred to as clear web) pose the most risks as opposed to deep web only bitcoin mixers.
This is because centralized database systems’ server logs can easily be accessed by anyone (hackers and other malicious individuals or groups, law enforcement e.t.c).
Even though bitcoin mixers often claim not to store transaction details for more than 24 hours, this still poses an unknown risk of being found out.
Clear web websites are always susceptible to access intrusions via various means and methods such as injection attacks, cross-site scripting, remote access attacks using brute force methods, social engineering and so on and so forth.
Deep web mixers which is only accessible through deep web clients such as tor are more difficult to access, track and trace due to the peer-to-peer nature of the node connections which these deep web clients use for access.
In essence, adding deep web access and using the deep web only mixers are the highest form of security which anyone can ever wish to gain when mixing bitcoins!
Most bitcoin mixers usually charge between 1%-3% of the total amount to be mixed or tumbled. However, the larger the number of bitcoins to be mixed, the lower the transaction fees.
This is because larger transaction volumes produce larger profits for the mixing services.
There are many arguments which are basically for and against the use of mixing services.
In arguments for the use of mixers, the main discussion presented by the proponents of such is that the mixers help protect users’ privacy within the bitcoin blockchain.
While this may be true, it is also a known fact that the privacy of transactions also aids crimes and help to hide the proceeds of criminal activity.
Financial crimes become easier to hide and more difficult to trace, making it hard for law enforcement officials to investigate crimes and to track proceeds of crimes.
Looking at it from both perspectives, while it is beneficial to have privacy when it comes to transactions, it is also disadvantageous to have obscure origins of money showing up within economies.
So, while the days of Ultra-Private Swiss banks may have come and gone, the ultra-private bitcoin wallet does indeed exist, added to it bitcoin mixing services which are used to obscure transaction sources!
If one really wants to have a totally pseudo-anonymous experience when it comes to bitcoin transactions then layering is key.
Without a doubt, accessing your bitcoin wallet (if it is online probably) without connecting to services such as TOR already exposes you.
Always make sure that you access your online wallet with a peer-to-peer protocol.
After this then you can use two mixers to obfuscate your transaction.
Once the bitcoins which you want to launder are in your wallet, use the first one which will land in an intermediate wallet before using the second one which will land in the destination wallet.
That way, your tracks, even though they may not be covered, will be without a doubt hard to decipher!
Always remember to change the nodes, especially if you’re on TOR as anyone checking the exit nodes may not be able to see your either your transaction or your location, but will be able to see sites which you have visited.
Bitcoin mixers, whether we like them or not, help us with our privacy protections and also assist in keeping our bitcoin transactions away from prying eyes.
In the not-to-distant future, a single search for hashes within the bitcoin blockchain will be able to reveal transactions which have been mixed or tumbled.
Layering provides extra anonymity as this allows for a total disconnect from the source wallet to the destination wallet.
As always, be careful of the mixers you use.
Originally published at https://qoinbook.com.