Bitcoin Forum

Bitcoin transactions are easy to trace, except when the sender uses a mixer to muddle the link between their crypto address and real-life identity.

One of the original allures of cryptocurrency is the narrative that using them provides the sender or recipient anonymously, but this is a common misconception within the sector.

In reality, Bitcoin (BTC) and many other cryptocurrencies are easily traceable.

Proof of this came earlier this week when on April 27, U.S. authorities arrested the mastermind of Bitcoin Fog, a darknet-based BTC mixing service. Authorities were able to capture the operator after analyzing ten years of blockchain data.

One doesn't need to be a forensic analyst to know that every single transaction is tied up to addresses on the blockchain and that they will stay there forever. While government agencies cannot determine the IP address or personal data from the address, these coins usually end up being used for products or service payments. This is the trail that leads back to the sender and recipient.

In the case of Bitcoin Fog, law enforcement was able to identify server hosting expenses paid using digital currency. Bitcoin mixing services such as Bitcoin Fog allow users to mix their coins with other users, making it almost impossible to detect the destination addresses. This obfuscates the ties between the inputs and output addresses, providing a better level of privacy.

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Mixing services are offered in a wide range of methods, including fully centralized solutions where trust is required, to Coinjoin mixers, which depend on a large group of users to self cooperate and act simultaneously. There's even the possibility of trading on decentralized exchanges (DEX) to virtually eliminate any possible tracing.

Mixers do present a few risks
Centralized mixers offer the obvious single point of failure problem. Even if one trusts that the entity is using multisig addresses, if the service is willing to share its data or has been breached, their users will lose their privacy.

CoinJoin solved this problem by combining the inputs of multiple users into a single transaction. The service will then take those coins, craft them into a transaction, and have each participant sign before broadcasting it to the network. These transactions are then merged into one, and each user gets the original quantity in return. However, no one can see the origin of those coins, not even the entity that merges the transaction.

Even though CoinJoin isn't exactly untraceable, it provides plausible deniability, as no one can point out which entity owns each output. The larger the number of participants, the higher the degree of deniability.

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Some cryptocurrency users also require anonymity for sending tokens to their wallets, and Wasabi Wallet has long been used for its embedded CoinJoin functionalities.

While its infrastructure is technically centralized, its design assures that the operators cannot deanonymize users or steal any funds. At the moment, the Wasabi wallet is only available for desktop solutions, so as is the case with anything in cryptocurrency, beware of clones!

A similar service is provided by Samourai wallet, which also offers a Chaumian CoinJoin mixing service, called Whirlpool. To achieve a full-privacy solution, users have to connect the Samourai wallet to their own full Bitcoin node. However, it does offer desktop and mobile versions.

Even though these mixing services aren't illegal in most jurisdictions, some exchanges and services might refuse users linked to addresses associated with coin mixing activities.

As more people realize the importance of achieving a certain degree of privacy for self-protection, the fewer incentives companies will have to deny their clients to use mixers.

source: cointelegraph.com/news/what-are-bitcoin-mixers-and-why-do-exchanges-ban-them

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Interesting, and I'm surprised this thread has no replies so far.

It is not clear to me whether the pressure of the people will make the exchanges and other entities end up allowing deposits coming from mixers or the government authorities will push more on the opposite side.

I'm also unclear to what extent bitcoins from that source are banned: if I try to deposit Bitcoin on Coinbase that comes from a mixer they won't let me. But if after mixing it, I make 2 , 3 or 4 more transactions, before depositing it, they will let me? Otherwise someone could be unfairly prevented from depositing because years ago and x transactions ago, part of his Bitcoins went through a mixer. 

Exchanges or gambling sites have sort of strict rules for Coin Join transactions or deposits from mixing/tumbling process.

They have reasons behind as they don't want to put their platforms under risks from governments and money laundering accusations. It is obviously that not all transactions are done with Coin Join or mixer/ tumbler services are from bad resources. Everyone can use such transactions or services but service operators need to have a preventive barrier to detect and protect their services.

Some exchanges don't mind if you used some mixers when you sent it to their exchange or it was just a coincidence because I only try to link an exchange address from mixers once and It didn't say anything to me. I wonder what would they do if they found out that you were getting your funds from mixers, I mean you make the mixers the middle man before sending it to their exchange. what if they found that out, what will they do with your funds?

Exchanges are a centralized target for governments, so they have to adhere to the strict KYC regulations. The Mixer services will destroy any traces of coins that were required through criminal actions, so it is just natural that Exchanges will flag those transactions and ban accounts when it is discovered that coins were send through mixers, before it was send to an Exchange.

The problem is, some people use Mixers to legally hide their financial wealth to protect them from criminals and they are also banned as a result of these Exchange blanket bans.  >:(

You need to read the terms and conditions of the particular exchange you are dealing with. If they do not allow the deposits from the bitcoin mixers then you should avoid sending them the bitcoin through mixers. They may not notice them but it they found out later, they may ban your account and hold your funds.

What do you mean by exchange ban them? Does the exchange site be able to detect if the Bitcoin came from mixers? I think it depends on the exchange whether they have on their terms and condition whether they ban those coins or not.

I remember once Binance froze users BTC because he used Wasabi coinjoin. Later Binance returned his money. But the user had to give promise not to use Wasabi again.

Source:
1. https://cointelegraph.com/news/binance-returns-frozen-btc-after-user-promises-not-to-use-coinjoin

Any exchange that asks KYC is regulated and have aml and kyc compliance on the country they are residing in. 

The primary use of mixers is to hide your privacy and the coins sources. If the deposited fund is detected that it came from a mixer, then it will be flagged for anti money laundering, so either the exchange account will be suspended, asked kyc or some docs, or refund your money and banned on the platform for good.

I guess many users think that this post will soon be deleted because OP just simply copied the content from the article to here and included the images which look like spam. Though there is a link to the source it is more interesting to interact with the topic if OP summarizes the content.

The right answer is here, everything that has KYC/AML implementation will strictly be prohibited to use mixer service. Just read their TOS first before making such decision and there is some exchange are not quite putting too restriction regarding this matter.

I am not from any exchanges but I think Exchanges analyze transactions. Here is an transaction (https://blockstream.info/tx/e4a789d16a24a6643dfee06e018ad27648b896daae6a3577ae0f4eddcc4d9174), which probably joined a coinjoin. So, explorer is analyzing the transaction and marking it as coinjoin transaction. So, it's not difficult for exchanges to identify.

So, after reading some articles, I read CZ's explanation. He said exchange doesn't freeze users fund for using coinjoin/mixer. They have to abide by the local authority. Here you can read full article and explanation from CZ.
1. https://blocks99.com/binance-issues-coinjoin-warning/
2.  https://www.binance.com/en/blog/414733786553217024/CZ-on-Regulations-Exchanges--Privacy

Some mixers or services exhibits certain identifiable behavior and it would be fairly easy to flag them as a suspicious transaction, CoinJoin namely would have many inputs and outputs with some of the outputs having consistent value. It is not difficult for them to identify it but tracing it would be a problem.

Transferring the coins a few times after mixing could probably solve the issue. This way, there is an argument to be made that you're not the one using a mixer and instead the person who sent you the coins did. It's not a guaranteed success but it would be better than sending the CoinJoin to them directly. Keep in mind if that if an exchange doesn't want you to use CoinJoin or any mixers, then your privacy is under threat anyways. I consider them complicit with helping the government to track their customers.

OP has given an wonderful explanation so nothing more to add.


Let's understand what is money laundering. Money laundering is a technique to hide the trail of the money. It involves multiple translations in different denominations to different beneficiaries so that actual trail of the money is lost.

Bitcoin mixers are exactly helpful in doing this in a seamless way through a global community which helps in effectively hide the trail of the source. Since most exchanges are legal businesses, they will obviously want to stand at the right side of the law. When coin mixers are involved, there is a high possibility that the bitcoin may be involved in illegal transactions in the past which may have been recorded in blockchain. That's why exchanges want to avoid any risk.

I have to add something to this statement. Most DEXs still hold a quite traceable record of how money moves. Komodo, Waves DEX (and perhaps any other Ethereum DEX if I'm not wrong) - they seem to be completely private as you move from one chain to another, yet that is pretty false. In fact, it might be easier to trace a "DEX" transaction than it is to trace one that comes off centralized exchanges.

I don't think the exchanges are able to identify that your coins are from a mixer.Mixers are anonymous and they should have strict rules that make them difficult to trace transactions.I base such opinion on the fact that a lot of people have gonne away after getting funds like for example when those guys who ran cloud mining and moved away with the funds,I still don't know anyone who is caught.

Good discussion in regards to mixers.

However, I disagree with the part that exchanges ban them.

Apart from some draconian exceptions, exchanges simply couldn't care less whether or not you're depositing using mixed coins. It is incredibly expensive and difficult for them to say for sure that your deposits are mixed, and it's simply not worth their time if you think about it. There is also nothing inherently wrong with mixing coins, and any privacy-centric person should do it.

CJ transactions can be traced if the inputs/output values are not standardized. If in/output values are standardized, it is possible to trace transactions, but with lesser success and lesser certainty. Blockchain analysis companies keep track of addresses associated with mixers using a variety of techniques, and by using the services.
This is more complex than you describe, especially if you are making several deposits over time that originate from a mixer, or the same mixer. To be plausible, each transaction would need to have a change address, and what happens to the outputs sent to the change addresses would be watched by blockchain analysis companies. If change addresses can repeatedly be linked together, the claim that you received a payment from a 3rd party after the bitcoin left the mixer might have reduced credibility.