coinmixing

Coin mixing, also known as cryptocurrency mixing or tumbling, is a process intended to obscure the provenance of digital funds by breaking the public link between a sender and the recipient. The goal is to increase financial privacy and make it harder to trace transactions on a blockchain.

Two broad approaches exist: centralized mixers and decentralized protocols. Centralized mixers are third party services into which users send coins and later receive equivalent amounts back, detached from their original addresses. Trust is required and there is a risk of theft, exit scams, or compliance issues. Decentralized approaches rely on protocols such as CoinJoin, which coordinates multiple users to create a single transaction that spends from several inputs to several outputs, making it difficult to determine which input corresponds to which output.

In practice, CoinJoin transactions are constructed to break the traceability of individual coins. Some implementations use additional techniques such as minimizing address reuse and balancing input-output amounts to hinder linkage. Wallets that implement automated CoinJoin aim to simplify user participation while seeking stronger privacy guarantees. However, privacy depends on participant size and careful operational practices.

Limitations and risks include the possibility that a mixer can steal funds, fail to return all coins, or be compelled by authorities. Mixed coins may still be linked by sophisticated blockchain analysis, especially if users later move them through exchanges or reuse addresses. Legal and regulatory considerations vary by jurisdiction, with some authorities treating mixers as money transmitters subject to anti money laundering rules. See also CoinJoin and privacy wallets.