Blockchain risk analysis and metrics provider, Scorechain, conducted a study revealing that users are beginning to use the services of cryptocurrency mixers again to enjoy a higher level of privacy in their transactions.
Scorechain is a company European organization that provides analysis and research services to understand data and metrics around technology blockchain and cryptocurrencies, . Thus, in a recent study, this company shows that users of these technologies are choosing again to use the services of coin mixers to guarantee the privacy of its operations.
Blockchain technology, which makes the operation of Bitcoin, Ethereum and other cryptocurrencies, has exceptional characteristics that allow the enjoyment of a new financial model: decentralized, transparent and reliable finances. Although, as the report reflects, this technology is not anonymous by design, so once again users are choosing to use coin mixer services that provide privacy and anonymity.
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Scorechain report on the use of coin mixers
Scorechain reveals that coin mixer services gained great popularity and boom during their launch, but that in 2018, the trend and need to use this type of service decreased considerably. Now, according to Scorechain, since mid-2019 coin mixers have once again been in high demand by users.
The analysis firm points out that this new boom is due to the fact that current users demand a higher level of privacy for their operations, something that may be due to the policies, regulations that exist and are proposed by various governments regarding the use of cryptocurrencies. .
Likewise, Scorechain points out that the need for privacy in user transactions is not necessarily due to them having something to hide in their operations, or because they are committing illegal acts. But it is good to remember that financial privacy is a right of all human beings that the traditional financial system completely stole from us.
Research data
Source: Scorechain
The graph above shows that during the first months of 2016, coin mixer services were in high demand, reaching a maximum of 200.000 BTC in transaction volume made by users through these services. Then, the need to use the services of coin mixers gradually decreased between 2017 and 2018, where it hit its lowest point with only 10.000 BTC in transaction volume.
Now, the data reveals that since the end of 2018 and the beginning of 2019, users are once again opting to use these mixing services for cryptocurrencies, reaching 100.000 BTC in transaction volume in June 2019. But, Why are these services necessary? What motivates users to use coin mixers to carry out their operations? Let's see.
Why do users use coin mixers?
For Bitcoin to work the way we know it today, its creator Satoshi Nakamoto, devised an underlying technology that would allow it to keep a single, exact and immutable record of all transactions carried out with Bitcoin. This technology is what we know as blockchain.
Blockchain is transparent, which means that any person, entity or organization can access it and verify the data and information recorded there; so at the same time, it is a technology that does not offer anonymity.
Perhaps, at some point, we have heard about Bitcoin or blockchain as highly private systems, since users do not need to register their personal data, phone numbers or addresses to use them, and this is completely true. Within the Bitcoin blockchain, for example, there is no personal data or record of any user; On the contrary, what we find within it is a detailed record of addresses, numbers hash, and many other things, that perhaps at first glance may not make sense. But despite all this, the technology is not completely anonymous.
This is because each of these addresses belong to a particular user, and although just by looking at the blockchain we do not know who the owner is, it is possible to relate and discover the identity of the people. How is it possible? Well, it can be done using lateral means that allow us to identify spaces or information where that user has revealed to be the owner of that specific address. That way it's easy to relate an identity to an address, and advances like Big Data and Artificial Intelligence have accelerated this type of analysis.
Then, analysis companies or organizations, and even an experienced user, can find the identity of that person and even discover all the operations they have carried out within the blockchain. That is why Bitcoin is not an anonymous system, but rather a system that offers a high level of privacy and pseudo-anonymity to users, but never a complete level of anonymity.
Now, what is a coin mixer?
Coin mixers are online services that allow us to mix our coins with those of other users to obfuscate or hide their origin, so that they cannot be related to us. The function of these mixing services is to allow users of non-anonymity-focused cryptocurrencies such as Bitcoin or Ethereum to enjoy a much higher level of privacy and anonymity.
This is achieved by mixing several times a certain amount of coins that come from different users, and generating a transaction with properties that make it impossible to track or mark said coins by authorities and blockchain analysis entities. For this service, coin mixer services charge only a small percentage, so users practically receive the same amount of coins.
Currently, among the most popular coin mixer services is the coinjo, a privacy and anonymity protocol that works to carry out transactions together with other cryptocurrency users. Scorechain notes that CoinJoin is about:
“When you want to make a payment, find other people who also want to make a payment and make a payment together.”
Likewise, the report goes on to say that:
“In case of such joint payment, inputs and outputs are mixed in one transaction, making it impossible to detect the exact direction of money movement.”
Therefore, CoinJoin works as a viable alternative solution to the privacy problems that Bitcoin presents. When using this service, it will not be possible to see where the coins received come from, preventing transactions carried out on the network from being tracked by third parties or linked to certain activities.
Scorechain can determine whether users use these services
Continuing with the report, the analysis firm states that it is able to detect users who use this type of services to hide the origin or destination of their cryptocurrencies. In the words of Scorechain:
“In Scorechain we can identify the mix of any technique that is used. For an online platform, we can detect some cluster addresses and identify the service.”
Likewise, the firm points out that CoinJoin transactions can also be detected through its services using the software. Scorechain Risk AML, which gives the firm the potential to identify patterns and behaviors in mixed transactions.
Lastly, Scorechain points out that although mixed funds are still mixed, they have the ability to determine when a user uses this type of platform. Everything seems to point to the bad reputation that coin mixers have as mixing sites, which most believe are used to hide illegal activities such as money laundering. Although a report de Chainalysis, a renowned crypto intelligence firm, reveals that there is no evidence to show that Bitcoin is widely used in illicit activities, and that the US dollar continues to be preferred by criminals to finance these types of activities.
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