What comes to mind when someone says “tumbler”? A fancy Starbucks hot flask? A Keepcup? Well, cryptocurrency tumblers aren’t quite the same as your regular tumblers. Not only is cryptocurrency revolutionising the financial world, it’s also giving new meaning to some common words in our dictionary.
Cryptocurrency tumblers are relatively new and have only started a few years ago so it wouldn’t be surprising if you haven’t heard of it. Here’s a quick rundown of what tumblers are and how they function:
What do cryptocurrency tumblers do?
Sometimes called a “mixer”, a cryptocurrency tumbler is basically a service which mixes cryptocurrency funds so that transactions become almost impossible to track. Although Bitcoin provides some level of anonymity, it’s not fully anonymous. All transactions on the Bitcoin network are completely transparent which makes it traceable. Although you can’t trace the transactions to the identity of senders and recipients, addresses and amounts transacted can be seen by all in its public ledger. In order to ensure more privacy, cryptocurrency tumblers are used.
Read this to find out how Bitcoin transactions work
How do cryptocurrency tumblers work?
If it helps to think of cryptocurrency tumblers in physical terms, picture a giant blender. Whenever you make a transaction, your coins are mixed with other coins in this “giant blender”. After you turn this “blender” on, all the coins are mixed up before they are sent to various addresses. Through using a cryptocurrency tumbler, you can prevent others from knowing exactly which address you’re sending the coins to and exactly who the recipient got these coins from. When looking at the blockchain, the only information others can see are:
- You sent coins to a cryptocurrency tumbler
- A cryptocurrency tumbler sends coins to different recipients
Because of this, it gives senders and recipients more privacy and anonymity. For each of these transactions, users are also required to pay a fee of 1-3% for using the service of cryptocurrency tumblers.
Some popular tumbler services include BestMixer, PrivCoin, and BitBlender.
Illicit activities associated with tumblers
Money laundering is usually associated with cryptocurrency tumblers. Due to the anonymity and privacy it ensures, criminals use tumblers to make it difficult for investigators to follow a transactions’ path. According to a report, criminals are increasingly adopting cryptocurrency, making use of the anonymity it provides to escape from the long arm of the law.
Additionally, it’s also important to note that cryptocurrency tumblers essentially bring in a third party into transactions. If the service provider is really just a scammer, you could lose your coins in the process. Finding a trustworthy platform becomes vital. Additionally, there’s a danger that tumblers may come under the attack of hackers. When that happens, it’s unlikely that losses can be recovered.
Types of tumblers
Generally, there are two types of tumblers. Centralised models, and peer-to-peer tumblers. Peer-to-peer tumblers have surfaced as a response to the shortcomings of centralised tumblers. Users meet on a platform and arrange mixing by themselves, which cuts away the middleman and solves the problem of potential theft. Some peer-to-peer tumblers include Tumblebit, Coin Join, Shared Coin and Coin Swap.
Some coins have a built-in tumbler
Coins like Cloakcoin, Dash, PIVX and Zcoin have mixing services built into their blockchain network. This means that users of these coins won’t need to engage a mixing service to ensure privacy for their transactions. If you notice, these coins are privacy coins – coins designed to ensure users’ anonymity in transactions.
However, this doesn’t mean that all privacy coins have a built-in tumbler. Monero, for instance, uses ring signatures (a kind of cryptographic signature) to keep its blockchain untraceable and secure. Depending on the coins involved in a transaction, users may or may not need to use a tumbler to ensure anonymity.
Learn more about privacy coins here.
Tumblers and mixing services began as a way to give Bitcoin transactions an additional layer of privacy. While these services are well-meaning, they also have some disadvantages – third party fees, vulnerability to hacking and illicit activities, to name a few. Before you get onto any mixing service, it’s important to do your research well and make sure you use a credible platform.
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