Today a fan's coin was stolen, and when tracing it, it was found that the coin entered the mixing pool. Professional companies are needed to help track it, and he couldn't understand it, so I spent half a day explaining what a mixing pool is. Let's write an article to popularize this topic!

Mixing Pool, also known as Cryptocurrency Mixer or CoinJoin (a specific technique), is a service or protocol in the cryptocurrency field designed to enhance transaction privacy and anonymity.

Blockchain (especially public chains like Bitcoin and Ethereum) uses addresses instead of real names, but its transactions are public, transparent, and traceable. Through complex on-chain analysis, the source and destination of funds can be traced, thereby removing the anonymity of addresses.

The core function of the mixing pool is to disrupt the on-chain correlation, thereby cutting off the tracking chain of funds.

Operational principle of the mixing pool

The principle of the mixing pool typically involves two steps: aggregation and dispersion.

1. Aggregation

  • Multiple users (Alice, Bob, Carol...) send the same amount of cryptocurrency they wish to obfuscate (e.g., 1 ETH) to a central pool or a smart contract.

  • This central pool or smart contract now holds a large sum of mixed funds (e.g., 100 ETH).

2. Dispersion and Output

  • After a period of delay, the mixing service will send new, unassociated cryptocurrency back to each user from this pool.

  • Key mechanism:

    • New address: Users will receive funds at the new address they provided.

    • Randomization: Ensures that what Alice receives is the coins previously deposited by Bob, or at least coins deposited by other users in the pool, rather than the coins she initially deposited.

    • Time delay: Introduces random delays between deposit and withdrawal, making it more difficult for on-chain analysis to correlate transactions through timestamps.

Result: Cutting off correlations

For external observers, they can see:

  1. Funds flow from Alice's old address to the mixing pool.

  2. Funds flow from the mixing pool to Alice's new address.

However, analysts cannot determine whether the funds Alice receives from the pool are from her own deposits or from deposits made by other users in the pool, effectively obscuring the source of the funds.

Risks and controversies of the mixing pool

Mixing pools are one of the most controversial technologies in the cryptocurrency world.

1. Privacy protection (positive)

  • Protecting benign users: For ordinary users, journalists, or political dissenters who wish to protect personal financial privacy, mixing pools are an important tool. For example, users may not want their donation records or large purchase transactions tracked by the public or government.

2. Regulatory and security risks (negative)

  • Money laundering and illegal activities: Mixing pools are widely used by criminals for money laundering, to clean stolen funds or proceeds from illegal transactions. This has led many countries (such as the United States) to impose severe sanctions on some large mixing services (like Tornado Cash).

  • Custody risk: If using centralized mixing services, users need to trust that the service provider will not abscond with the funds (Exit Scam) or record and leak transaction information.

  • Smart contract risk: If using decentralized mixing services based on smart contracts, funds may be stolen by hackers if there are vulnerabilities in the contract.

Mainstream technology types

CoinJoin

A decentralized mixing technology where multiple users collaborate to create a joint transaction. All inputs and outputs of the transaction are mixed together and indistinguishable. Commonly used in the Bitcoin ecosystem.

Smart contract-based mixer

Users deposit funds into a DeFi smart contract and later withdraw from the contract. The larger and more active the contract, the stronger the anonymity. Commonly used in the Ethereum ecosystem, such as the former Tornado Cash.

Due to regulatory intervention and technological development, many exchanges and wallets are now beginning to integrate MEV protection or privacy transaction channels, which provide a certain degree of transaction anonymity, but they differ mechanistically from traditional mixing pools.