Did you know that back in 2013, The Bitcoin Foundation (yeah, the one that spectacularly imploded) had a proposal to set up a gigantic mixer service to mint anonymous bitcoins for the public? They never made one, because they didn’t want governments to accuse them of money laundering. A full quote from a now-deleted post should show the full situation:
“[…] At one point Gavin suggested someone submit a grant for a trust-free mixer service to help people make the coins in their wallet more anonymous by mixing them with a large pool of other users. I asked Gavin about that later, and he said the foundation lawyers nixed the idea because efforts to make Bitcoin users more anonymous could be seen to be aiding money laundering, especially if the foundation itself was paying for development and to run the servers.
From Bitcointalk Forum
We can work with regulators to make sure Bitcoin is acceptable to them. For instance we can ensure that it remains possible to track the flow of money through Bitcoin. We can also ensure that there are options if certain funds need to be frozen and blacklisted, due to fraud, theft, or because they encode illegal data.”
Implications
It goes on to show that even back in 2013, there was already a debate of bitcoin mixers being used for privacy versus money laundering. Although I must say, the degree of regulation they wanted back then was pretty extreme, even for today’s standards. For instance, the Bitcoin SV blockchain has a feature similar to this that seizes coins when shown a warrant. The Bitcoin community views this kind of thing as a heretical practice, as well as address blacklisting.
Ransomware And How it Relates to Bitcoin Mixers
A related topic to seizing people’s bitcoins is ransom. In 2013, someone predicted the apocalyptic future where kidnappers would force their victims to pay ransom in Bitcoin. Unsurprisingly (and tragically), this is now a stark reality in the cryptocurrency world.
While this kind of ransom is of the physical kind, virtual heists are just as common. One of the first instances of hackers laundering their illegal profits was the CryptoLocker malware. No doubt that they used some bitcoin mixer list on Bitcointalk to find one. The hackers largely evaded blacklisting mechanisms by using a bitcoin mixer. Authorities have actually cracked down on this practice hard, as I will explain later.
Proposals To Make Mixers Obsolete
There were also many proposals that were brought up by community members to add a mixing feature directly inside the Bitcoin Core reference client. One of them, by the legendary Casascius, describes a simple relay where wallet-enabled Bitcoin nodes ask peers to send their list of transaction outputs. This is so they can make a CoinJoin transaction that both parties sign and broadcast.
If Bitcoin developers had implemented this idea, nobody would need to use bitcoin mixers because all of the mixing could be done directly on the bitcoin network. This never gained steam though, despite the many people bringing up the topic several times over the years. Now that we have SPV wallets, hardware wallets, and custodial exchanges, this might never come into fruition. Although, that is not really a bad thing, because some altcoins jumped at the chance to integrate it.
The Rise Of Monero As A Bitcoin Mixer Alternative
Monero was launched on April 18, 2014, and among its other features such as its CPU-friendly mining algorithm, it has built-in support for ring signatures. You can find details of it in the CryptoNote whitepaper, authored by Nicolas van Saberhagen, who like Satoshi Nakamoto is anonymous. A ring signature is when a group of people sign something, but it is impossible for someone on the outside to know who in particular signed it. In addition to ring signatures, Van Saberhagen introduced a number of other cryptographic schemes in his whitepaper for CryptoNote.
Ring signatures provide far more anonymity than any bitcoin mixer could provide. In fact, although the IRS awarded a $625,000 contract to blockchain analysis companies to break Monero, but they failed at breaking it. In fact, these properties lave lead to Monero becoming the underground currency of the darknet. So next time someone tells you that “Bitcoin is only for criminals”, take them to this section.
It is worth noting that there have been several high-profile unmaskings of bitcoin darknet users, and I’m sure many of them thought that mixers would make them safe. That is not the case if you do not secure your digital life, whether you use Bitcoin or Monero or another cryptocurrency.
JoinMarket and Practical CoinJoin Software
JoinMarket was announced on January 2015 as a wallet software with client and server parts. It uses a bitcoin network software called libbitcoin to connect to a Bitcoin Core node, while the JoinMarket server waits for wallets to connect so that coinjoins can be performed. There is a command-line and graphical user interface and is one of the most practical ways to use CoinJoin today. It is open-source and can also do a PayJoin which is basically a special case of a CoinJoin with two inputs and two outputs. In other words, two people paying each other.
The JoinMarket client looks like any other wallet except that it automatically CoinJoins your funds with the other users connected to this server. It is actively-developed open-source software and is very popular with the community because it preserves bitcoin’s fungability. This is important, because fungability would soon become a talking point during the bitcoin mixer regulations. So if you can, contribute to it. It represents the future of mainstream bitcoin privacy.
