With the online climate right now where people are starting to realize how much of their data is being collected by apps, softwares, websites, and other third parties like business and the government, the demand for more privacy and data security has never been stronger. The demand is even heightened for service that deals with the financial data of consumers. This is the reason why more and more people have started using Bitcoin and cryptocurrency as an alternative means of making online transaction rather than traditional credit cards and money transfers.
Using Bitcoin in transactions has one very important caveat, however. Contrary to popular belief, Bitcoin is not perfectly anonymous as most people previously thought. Instead, it is pseudonymous and replaces your identity with a unique code called the Bitcoin address. The address is what you use as a reference everytime you make a transaction in the Blockchain network. Since, your identity is pseudonymized when using Bitcoins and the blockchain is open to everyone, there is still a huge chance that someone may be able to link your identity to the transactions you made.
What is Bitcoin Mixing and how does it work?
However, there is one service that people are using nowadays to make sure that no one can trace their identity in the Blockchain. It’s called “Bitcoin mixing” or sometimes called Bitcoin Tumbling/Laundering. It is the process of mixing coins from different users into one big pool and replacing them with clean and untraceable new coins randomly. This process effectively severs the continuity of the transactions linked to a specific coin by losing it in the pool of all the coins deposited by many users.
Most Bitcoin mixers work similarly. Commonly, users deposit their unclean coins to a third party mixer, then the mixer will add the deposited coin to their own pool. From the same pool, with the exception of the coins a user deposited, the mixer will then send new and previously mixed coins back to user for a specific price. This way, the trail of transaction associated with a user’s old coins will be broken and other people will no longer be able to trace it back to a specific Bitcoin address. Depending on the platform, users may also choose to receive the mixed coins in different addresses or to receive them gradually in smaller values to add more layers of anonymity.
Of course, there is no perfect system. No matter how good a process is, there will always be advantages and disadvantages. In this post, we will explore the different pros and cons of using Bitcoin Mixers to help you decide whether it is for you or not.
Pros of using Bitcoin mixers
Bitcoin Mixers make your transactions anonymous
The most obvious pros of using Bitcoin Mixers is its basic purpose – to make your transactions anonymous. As explained earlier, Bitcoin mixers severs the ties that connect your identity to the transactions you make in the Blockchain network, thus providing you with more privacy and anonymity while using Bitcoin in sending and receiving money online.
Avoid exorbitant taxes imposed by government on cryptocurrencies
In most countries, Bitcoin and other cryptocurrencies behave like stocks in the stock market. Because of this, governments impose exorbitant capital taxes for every transaction that involves them as it is tantamount to selling or buying stocks. By using a Bitcoin mixer, you will be able to dissociate yourself from the coins you own, thus, avoiding the taxes imposed on them. As of now, there is no existing law on any country that prohibits the use of Bitcoin mixers to avoid paying taxes, but once this is discovered, governments might find a way to ban this practice.
Disguise yourself in the Blockchain network
The blockchain network is an open source online ledger where everyone that has access to it can see all the information relating to a transaction. The data that can be viewed by analyzing the blockchain includes the amount of transaction, date and time, the wallet addresses of both the sender and the receiver, as well as the amount of funds. If you are someone who holds a huge amount of coins or is making huge transactions, ill intent parties like hackers and criminals will be interested in you and could target you with attacks ranging from looting to actual physical harm. Using Bitcoin Mixers disguises your identity from the transactions you make and therefore, making it hard for criminals to track you down and attack you for your money.
Cons of using Bitcoin Mixers
There are a lot of fake sites
As many more people are using Bitcoin Mixers for different reasons, cybercriminals have found an opportunity to scam people out of their hard-earned Bitcoin money. These sites have an entire glossary of techniques to fool beginners from using similar domain names of popular sites to outright copying their website design. If you want to know more about scamming sites and how to spot them, read our blog post about it for a more detailed guide on how to avoid being scammed when using Bitcoin Mixers here.
You lose a certain percentage of your coins as a service fee
All services cost money. So while using Bitcoin Mixers will ensure that you remain anonymous while you use Bitcoin in making transactions, most platform charge service fee that will be deducted from your mixed coins. The service fee can range from 0.4% to 5% of your total deposit and some of them charge extra for every output address you use to withdraw the funds. Nonetheless, everything has a price and if you want to protect your privacy, the money you will lose is definitely worth it!
We all know how dangerous it is right now as many interested and Ill-intent parties are lurking in every corners of the internet ready to victimize those who are not ready to protect themselves. Bitcoin Mixers is one tool that can help you avoid these people as it makes it possible for you to make transactions in the Blockchain without the fear of being exposed. However, there may have been some disadvantages when using Bitcoin tumblers, but all of the listed caveats are minimal as compared to the advantages you gain from using the service.