Crypto mixers: how they work, what types exist, and whether they are safe to use

Cryptocurrencies enable transparent transactions without intermediaries. All cryptocurrency transfers, such as Bitcoin (BTC) and Ethereum (ETH), are publicly available — anyone can view this information using block explorers.

However, transparency also means weak confidentiality. As the number of cryptocurrency users, which has already exceeded 600 million, continues to grow, so does the need to enhance transaction privacy amid regulators' strict financial monitoring.

Although there are specialized privacy-focused cryptocurrencies like Zcash (ZEC) and Monero (XMR), they do not match the popularity of BTC, ETH, XRP, and other significant digital assets. One solution to transaction privacy issues has been the use of tools known as crypto mixers.

What are crypto mixers and how do they work?

A crypto mixer is software designed to increase transaction privacy by combining transfers from different users. Crypto mixers are also called tumblers.

Crypto mixers accept transfers from various users, combine them into a shared pool, and then distribute the funds to specified addresses. As a result, the cryptocurrency is first sent to the crypto mixer's address rather than directly to the recipient's wallet. This breaks the direct link between the sender and the recipient, making it significantly harder to trace the source of funds and reconstruct the history of a specific transaction.

To further enhance privacy, some crypto mixers allow the transaction amount to be split into several smaller parts and sent to different addresses.

With this approach, crypto mixers obscure the transaction trail, making subsequent tracking more difficult — thereby increasing the confidentiality of cryptocurrency transfers.

Types of crypto mixers

Crypto mixers come in two types: centralized and decentralized.

Centralized crypto mixers, also known as custodial mixers, are operated by private companies and may rely on third-party services. Such crypto mixers are less vulnerable to hacker attacks, but they may collect users' personal data and even require identity verification, which creates additional counterparty risks. At the same time, sending funds through such mixers can take several hours or even days, and the operating company can track all transactions.

Decentralized or non-custodial crypto mixers are fully automated services. These crypto mixers operate without a central operator and use automated smart contracts based on open-source protocols. When using decentralized crypto mixers, none of the participants know where, to whom, or how many coins were sent. Moreover, the more people use a decentralized crypto mixer, the more effective its operation becomes.

Advantages and disadvantages of using crypto mixers

Ensuring privacy is the main advantage and primary purpose of crypto mixers. Using crypto mixers allows users to "break" the link between sender and recipient addresses, making it extremely difficult to establish. Additional confidentiality can be achieved by using specialized services and internet protocols, as well as privacy-focused browsers such as Tor or Brave.

Although crypto mixers increase transaction privacy, their use is associated with certain risks, including legal ones. The main risk is that crypto mixers are often used for illegal transactions, particularly money laundering.

This exposes all crypto mixer users to risks, even if they are not involved in illegal activities. As a result, a user may face increased scrutiny from exchanges, financial monitoring systems, and regulators, as well as temporary or permanent freezing of funds when attempting to withdraw or exchange them.

However, in practice, the volume of criminal transactions involving crypto mixers is relatively small. According to Chainalysis, 90% of people use crypto mixers legally — solely to enhance transaction privacy.

Nevertheless, even legal use of crypto mixers does not always guarantee the absence of consequences, since transaction risk assessments are often automated and fail to consider the user's actual intentions.

Another significant drawback of crypto mixers is the possibility of transaction and even account blocking when depositing funds to an exchange. Although AML (anti-money laundering) regulations do not prohibit crypto mixers, exchanges may block "tainted" coins sent through crypto mixers simply as a precaution. Some exchanges may even permanently block a user's account.

In such cases, a user may lose access to their funds for a long time or permanently, and the unblocking process often requires passing enhanced identity verification, providing proof of the source of funds, and corresponding with customer support. In addition, there may be restrictions on further use of the platform, denial-of-service attacks, and the transfer of transaction information to regulatory authorities, which create additional financial and reputational risks for the user.

Moreover, even if a user has not used crypto mixers, there is still a chance that "tainted" cryptocurrency may end up in their wallet, especially when interacting with other users. A wallet can be checked for "tainted" coins using an AML check available through the BestChange service. AML checks help protect users from potential blocks in the future.

It is worth noting that regulators are not aiming to ban crypto mixers themselves, but rather to bring their operations into the legal framework. For example, the U.S. Financial Crimes Enforcement Network (FinCEN) requires crypto mixers to register under the law.

Another disadvantage of crypto mixers is fees. Depending on the service, fees can range from 0% to 5% of the amount sent. Therefore, when sending large sums, the cost of increased privacy can be substantial. In addition, some crypto mixers set minimum transfer amounts. For example, the minimum transaction amount for Bitcoin may range from 0.002 to 0.01 BTC.

There is also a risk of fraud, especially when using centralized crypto mixers. Therefore, before using any service, it is necessary to ensure its reliability and carefully study information about it.