The central payment register known as a chain of blocks is the basis of the functioning of the Bitcoin network. The register contains information on all ever executed operations and is used for checking the legitimacy of transactions. To confuse the transition of money from the buyer to the seller is very easy. It is possible to carry it out employing so-called blenders/mixers (“Tumbler”) for a certain commission.
The centralized mixing services
Bitcoin mixers, belonging to the first generation, worked as centralized services for mixing. It was possible to send bitcoins there, pay the commission for this service, and receive the sum of absolutely other bitcoins. These were the earliest and most primitive services of bitcoin-mixing.
The success of anonymization of currency employing such provided services depends on the number of the user and bitcoins. Because of it, such specialized services are not so popular. For similar purposes, the bitcoin exchange and other trade platforms are more often used. If the mixer were rather big (like Mt. Gox), the deposited funds at a conclusion would turn into absolutely other bitcoins, and it is even not obligatory to sell them and to buy. Thus, without the commission, bitcoins effectively mix up.
It is necessary to trust such a service; it should not steal our bitcoins, and the currency must be protected by technical service from thefts and breakings. Besides, we have to trust that service does not save reports of the passed mixing operations and will sell or give nobody such records. It is very problematic to verify the listed above even if the service assures the return.
To optimize the first generation of mixing services, the following was based on “peer-to-peer groups” of bitcoin users interested in mixing currency, gathering in a certain time. Such mixers (instead of transferring and getting currency) operate as the meeting place of users who will organize mixing independently on a certain platform.
There is no agent holder in such a model; that’s why there is no danger of losing coins. Therefore, the theft problem is solved. The CoinSwap, CoinJoin, and SharedCoin protocols allow users to gather and create a general bitcoin transaction in some stages. Being created, bitcoins go to the destination of one transaction. Until the transaction is created completely, there is no chance of loss of currency.
Nobody, except the mixing server, knows links between senders and recipients (initial and final addresses) of coins. To complicate the chain analysis through blockchain, this operation can be performed in some circles even more.
Also, according to the researcher, Christoph Atlas, peer-to-peer mixing can solve the record-keeping problem by mixing-service, as: “addition to peer-to-peer mixers of such cryptographic primitives as cryptographic blinding (crypto-blinding), zero-knowledge proofs (ZKP) and Succinct Non- interactive Arguments of Knowledge (SNARK) can improve anonymity to the level when neither participants of the process nor the service organizing mixing knows what address what coins went in the upshot.”
Mr. Atlas calls this advanced option of the peer-to-peer mixers “blind mixing.”
Due to the developed currencies, it becomes possible to complicate transactions even more.
Christoph Atlas considers that exchangers of cryptocurrencies with the participation of various Altcoins (so-called alternative to Bitcoin, created based on Bitcoin code) can be included in BlockChain-technologies for receiving a completely peer-to-peer exchange mechanism. As soon as new anonymous exchangers are completely developed, we will see how the exit will be done from bitcoins to anonymous Altcoins and the entrance to them in essence. Such exchangers will act as reliable mixers.
Use of “laundries” in criminal intents
Criminals use “laundries” (a set of services that can generate many wallets and send currency between them in a casual order) to make their criminal actions more complicated and harder to trace. Signs of use of virtual “laundries” are very similar to that are used in real “laundries.”