Bitcoin transactions can be traced. The blockchain provides us with a record of the source and destination addresses for every transaction. This record has been used by law enforcement to trace and identify criminals, and by cryptocurrency exchanges to screen clients’ funds for links to crime.

Mixers (or “bitcoin tumblers”) are used to try to prevent such tracing, by making it difficult or impossible to identify the source of a transaction.

Mixers can be implemented in a number of ways, but the basic principle involves a number of people coming together and pooling their bitcoins. They then take back bitcoins of the same value. These bitcoins are likely to have originated from a different source (or sources) than the ones they brought to the mixer.

Bitcoin Mixers and the Quest to Achieve Anonymity on the Blockchain

Mixers can be thought of as the cryptocurrency equivalent of using bank accounts in certain offshore jurisdictions to launder “dirty” money. The launderers are relying on bank secrecy laws in those countries to ensure that the source of funds cannot be determined. In the same way, bitcoin mixer users are relying on those services not to disclose the source of each bitcoin payment passing out of the mixer, or any information about its users.