Bitcoin Q&A: Mixing services


“How do mixing services work?” “Do they put dozens of inputs and outputs
into each transaction in order to [mix] the funds, while incurring minimal transaction fees?” Yes. What you are describing there is called a CoinJoin,
which was invented most prominently by Greg Maxwell. [He] is one of the Bitcoin Core developers, [and
the concept was first discussed] back in 2013. A CoinJoin [is a method where] several participants
shuffle inputs and outputs over several rounds. Each participant partially signs their input and output
in such a way that the transactions can proceed… and they don’t have to trust the other participants. By mixing inputs and outputs across several rounds,
perhaps in four to ten transactions, these CoinJoin… services reduce the [surveillance capabilities] of
analytics companies and other privacy [violators]. But they are not foolproof. Pablo also asks, “Are there any mixing services
that can really make funds anonymous, given the growth of analytical tools?” The answer [at this point] is, no. While these services
can obfuscate transactions for relative privacy, given sufficient analysis [they are not strong enough]. These analytical companies have access to information
from exchanges that associates addresses with people. The combination of having a broad picture from multiple
exchanges and merchant services feeding them data, and the ability to do statistical analysis, means
most of that anonymity [could] be stripped away. While addresses can be made stealthily
and the identity links made weak, the one thing you can’t hide in a
CoinJoin transaction is the value. [Someone] can do statistical correlation on inputs
and outputs to associate values as they go through. The values are shown clearly within a transaction.
The solution [to that issue] also comes from Maxwell. He has proposed and implemented a prototype of
the [scheme] called Confidential Transactions (CTs), which encrypts the amount in a transaction and
still allows everyone to verify without know them. Confidential transactions has been part of the Elements
project at Blockstream and has developed quite a bit. As part of the Confidential Transactions [research],
Greg Maxwell invented some new cryptography, including range proofs, which [made CTs] more efficient. The latest version of range proofs is called
“Bulletproofs,” a very efficient mechanism… for proving that the [input and output] values [are equal],
even though they are encrypted within a CT. CTs encrypt the value. They [wouldn’t be] used on their
own, but in conjunction with something like a CoinJoin, to mix up the addresses. If you have both address anonymisation and encryption
of the amounts, analytical tools will have a difficult time. Final question, in the same theme: “Is it cheaper and more effective to anonymize funds
by exchanging them into Monero and back?” Possibly. There [could be] some significant risks
doing that, in terms of privacy and anonymity. One of them is, most of the time, exchanging funds
through a third-party exchange such as ShapeShift… will produce a trail because those companies [must]
collect some information, for different reasons. That information [or metadata] may be
captured and used by various parties. The possibility of doing atomic swaps
between blockchains [is interesting]. [Switching between] different cryptocurrencies
[may be] a means of increasing anonymity and privacy, including atomic cross-chain swaps through
payment channels on the Lightning Network. That may have a significant impact on
privacy and anonymity in the near future, but these are still the early days
when it comes to privacy. As I have said [before], I think [privacy] is one of
the weaknesses in almost all cryptocurrencies. “Can CoinJoin and Tor be used [together] to offer
a [better] level of privacy on the Bitcoin network?” “Which wallet currently offers these services?
Does CoinJoin require you to trust a third party?” Yes, CoinJoin and Tor are tools that are often
used to increase privacy on the Bitcoin network. One wallet [is working on] both; they call it ‘Whirlpool.’
It is the same type of coin mixing and re-direction. That is Samourai Wallet. I believe you can configure
other wallets, like Mycelium and [maybe] BreadWallet, to use a Tor [proxy feature]. Finally, for your last question, “Does CoinJoin
require you to trust a third party for the transaction?” No, it doesn’t. It is a trustless,
multi-party signature protocol.

16 thoughts on “Bitcoin Q&A: Mixing services”

  1. Could batch send, with multiple transactions pointing to many public keys owned by the same entity with randomized value, be an other way to mess up blockchain analysis ?

  2. Did I miss it, or was there as usual a lot of talk about pie in the sky Bitcoin privacy future for non-nerds, and no mention of what #bisq is doing for financial privacy today?

    That's the most private exchange/mixer besides FtF fiat trade, and the closest to being decentralised too.
    https://bisq.network/

  3. Hi Andreas, this is my first ever post. I have a question: 1. Will spending BTC on Amazon really divulge our i.p. addresses and personal information for market data, as per the new patent granted Amazon this week for a procedure to do this for blockchain, and 2. Is there, in fact, Any way to use BTC without divulging this or even more data of a personal nature. Thanks

  4. Hi guys. Sometimes when I have conversations about blockchain/crypto, I struggle explaining people why they should give it a chance and invest. Could you please let me know: (1) Is there a really good YouTube video convincing why blockchain technology will revolutionize the world? It has to be simple, clear, and short. (2) Why advancement of blockchain technology necessarily means increase of value for cryptocurrencies? Many thanks! ☺️

  5. Hey Andreas. You are in desperate need of A) A more directional microphone and/or B) A little room treatment to keep reflections down. These videos are amazing, but sounding a little rough.

  6. What are the good things and bad things that can happen to bitcoin once all 21 million bitcoin are mined? When do you think this will happen? What happens to miners and their motivation to work hard after 21 million bitcoin are already mined? If miners quit working, how does bitcoin continue to work? Thanks for all your help.

  7. Ricochet doesn't mix your coins, it just adds extra hops to your transaction. You're thinking of Whirlpool which is still being tested.

Leave a Reply

Your email address will not be published. Required fields are marked *