What is a Cryptocurrency Mixer and How Does It Work?
With news of hackers using Tornado Cash to hide the money trail of stolen cryptocurrencies, questions were raised of what is the technology behind this application? Why was it used? In this article,. we will discuss what are cryptocurrency mixers or tumblers and how they work.
This article is not financial advice. This serves as an awareness of the existence of cryptocurrency mixers. Do due diligence in researching before investing into cryptocurrencies.
What is a Cryptocurrency Mixer?
Cryptocurrency Mixers (Tumblers) are used by crypto enthusiasts who want to make their transactions private. Most transactions made in the blockchain are recorded and can be monitored by anyone using platforms like Etherscan (for Ethereum-based transactions). Cryptocurrency mixers do not require Know Your Customer (KYC) checks therefore any users can be anonymous.
For this reason, mixers promote anonymity, which means it can possibly be used for money laundering to cover up the money trail. A research paper from Cracow University of Economics had a study that a quarter of all incoming illicit Bitcoin has been placed in mixers. 65 to 72% are laundered through exchanges and gambling.
Different Types of Cryptocurrency Mixing Services
Cryptocurrency mixing services have two types: Custodial and noncustodial.
Crypto enthusiasts have to trust the owner of custodial cryptocurrency mixers because their cryptocurrency will not be in their possession but to the service and may be stolen from them.
Noncustodial cryptocurrency mixers use publicly verifiable and transparent smart contracts to avoid any human intervention. Users can deposit their cryptocurrency into the mixer and assign a time interval to when they can withdraw it to a new crypto address. Users can confirm to the service that they deposited without exposing their transaction by using several cryptographic techniques in the withdrawal transaction.
How does a cryptocurrency mixer work?
Cryptocurrency mixers are programs that have a certain quantity of cryptocurrency in private pools before being transferred to a crypto wallet. The private pool is designed to store and “mix” different cryptocurrencies and send small amounts of the deposited crypto in an interval. Cryptocurrency mixers charge around 1% to 3% of the amount deposited for their service.
Cryptocurrency mixers can be used for individuals who want their transactions to be private. As long as the cryptocurrency mixer is recognized by the local government task force that deals with money laundering. This is to safeguard crypto enthusiasts that these services are trustworthy and also to protect their rights. Therefore, make sure to research cryptocurrency mixers before using their services.
This article is published on BitPinas: What is a Cryptocurrency Mixer and How Does It Work?
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.