The rapid expansion of cryptocurrencies and the development of crypto infrastructure and vulnerabilities such as crypto mixers or tumblers are of concern to government agencies responsible for financial security.
Many people use crypto mixers to keep their cryptocurrency transactions private by mixing potentially identifiable cryptocurrency funds with vast sums of other funds. These services are commonly used to anonymize money transfers between services and do not require Know Your Customer (KYC) checks.
As a result, the risk of using crypto mixers to launder money or hide revenue is quite high. Mixers and online gambling sites have the most serious money laundering problems as they handle the vast majority of dirty currencies. Blenders, for example, have consistently processed about a quarter of all incoming illegal bitcoin (Bitcoin) per year, while the proportion laundered through stock exchanges and gambling has remained relatively constant (66-72%).
There are two types of bitcoin mixers: namely centralized and decentralized mixers. Companies that receive Bitcoin and send back different BTC for a fee are called centralized mixers and offer a simple solution to Bitcoin tumbling.
Decentralized mixers use protocols like CoinJoin to obfuscate transactions using either a fully coordinated or peer-to-peer (P2P) approach. Essentially, the protocol allows a large group of users to pool a bunch of BTC and then redistribute them so that everyone gets one bitcoin. Nevertheless, no one can know who received what or where it came from.
Other types of coin shufflers include obfuscation-based and zero-knowledge-based shufflers. Obfuscation-based mixers, often referred to as decoy-based mixers, use ways to hide a user’s transaction graph. On the other hand, an attacker with sufficient resources can recreate the transaction graph in a number of ways.
On the contrary, zero-knowledge based mixers rely heavily on advanced cryptographic techniques such as Zero-knowledge proofs to completely clear the transaction graph. The most significant disadvantage of this strategy is that it requires heavy cryptography, which can limit scalability.
https://cointelegraph.com/explained/what-is-a-cryptocurrency-mixer-and-how-does-it-work What is a cryptocurrency mixer and how does it work?