What is CoinJoin Technology in Bitcoin Mixing?

Anonymity is said to be one of the many benefits of owning and trading in digital assets. However, the technology is not perfectly reliable when it comes to security.

What makes cryptocurrency unique is the decentralised nature of transactions done within the crypto ecosystem, but the trade-off is that the transaction records can be accessed directly through a public ledger.

This level of transparency, in turn, defeats the purpose of being anonymous when trading assets in the digital space. People with enough technical knowledge and motivation can analyse the information in the public ledger and determine the users of a particular cryptocurrency.

This is where CoinJoin enters the picture. It is technology that responds to the need for complete, assured anonymity within the decentralised crypto space.

Before we dive deeper into the mechanics of CoinJoin and how it helps you hide your identity online, we first have to understand how transactions in cryptocurrency work.

Why Cryptocurrency Is Not Exactly Private

There are thousands of cryptocurrencies currently in existence, but obviously the most popular one is Bitcoin.

Back when it was first launched, Bitcoin was deemed to be so secure and anonymous that some people, confident they couldn’t be traced, misused it to the point of starting black markets like Silk Road to conduct illicit activities. However, the authorities eventually found a way to research and analyse the blockchain, and use the data to trace and arrest the criminals.

One of the simplest ways that others can identify a user is by tracking their transactions on the blockchain and associating their IP address to the wallet they use.

This is one of the reasons why Bitcoin’s original white paper states that it’s advisable to create a new wallet address for each transaction – the strategy makes it hard for others to track how much of your digital assets are being moved on the platform.

That being said, the only privacy you can actually get from cryptocurrencies is the pseudonymous nature of transactions. There’s no need for the user to reveal any real-life information about themselves, like address and name, because the wallet address that is in the form of a series of letters and numbers is guaranteed to be real.

Right now, there are millions of people already using Bitcoin. As a result of its popularity, Bitcoin has become the most researched and analysed cryptocurrency, a development that has further undermined its users’ capacity to maintain the privacy of their transactions.

Staying anonymous with technology like CoinJoin has therefore become an absolute necessity.

History of CoinJoin

The development of CoinJoin was motivated by the fragility of Bitcoin’s pseudonym system for hiding user identity. It remains possible for a user’s transactions to be tracked on the Bitcoin blockchain, and since transactions are destined to end up in wallets, there are still risks that a third party might access the real-life information of the user at the receiving end of the transaction.

This is because wallets are services provided by exchange platforms, and exchange platforms always require personal information from a user so they can continue to use the service.

CoinJoin was created specifically to combine the full privacy you can expect from a traditional bank, and the decentralised nature of blockchain technology.

How CoinJoin Works

In theory, CoinJoin is easy to understand, but it is hard for the less tech savvy to operate around the computer and execute a CoinJoin process themselves. They would have to access a Tor network and have advanced knowledge of coding to do it.

Fortunately, developers have found a way to automate the process so that people who are looking to use CoinJoin to protect their privacy can easily do so.

Essentially, CoinJoin is the process of anonymizing Bitcoin transactions by having multiple parties input their Bitcoins in a single transaction where these are mixed and then sent to their designated destinations. The transactions are no longer traceable because the Bitcoins’ origins have been effectively masked by the mixing process.

For example, User A wants to buy a good or service that costs a certain amount in Bitcoin. User A wants to make sure that the payment is secured and untraceable, in case a third party tries to access their information. What User A first has to do is find a platform with other people (Users B, C, D) who also want to make a purchase in Bitcoin.

Users A, B, C, D agree to join their Bitcoins together in one big transaction on that platform. The unique signatures of the Bitcoins they input are merged in this transaction. The Bitcoins are randomised by being broken down into smaller amounts then given new signatures and redistributed to Users A, B, C, D, who then use their renewed coins for their transactions.

Users A, B, C, D get the same value of Bitcoin that they had inputted but the mixing technology has already made it impossible for any third party to trace the coins back to them.

The users also need not worry about the validity of the entire mixing process, because miners in the Bitcoin system validate all transactions and make sure that the signatures of all the coins are correct, verifiable, and spendable.

Since blockchain is decentralised, it makes sense to find a way to hide your transactions.

A process like CoinJoin minimises the risk of being tracked or losing your money since there is no single server that performs all the processes during a CoinJoin transaction. It’s always multiple servers at once with all participants in the CoinJoin transaction in effect hiding each other’s Bitcoins through a decentralised anonymity network like Tor or I2P.

DoS attacks are also less prevalent when doing a CoinJoin transaction, since the user can simply cancel and leave the CoinJoin party to try again and find another party to pool their digital assets in. The only real problem here is if there are multiple persistent DoS attackers.

Benefits of Using CoinJoin

With assured anonymity being CoinJoin’s most useful feature, we can speculate that its most significant possible use cases would be the following:

Protection from Being Targeted

Suppose you have gained a sizable profit from your investment in Bitcoin over the past few years because of its rapid increase in value. It would be a good idea to keep your profits private, since you might come under some hackers’ or scammers’ radar.

When analysing blockchain, unscrupulous third parties may find their way to your wallet address and steal information so they can take your money for themselves. This is, of course, the worst-case scenario.

But if you want to secure your assets, it should be paramount to you to make sure you don’t stand out among millions of transactions every day on a public ledger.

Transacting on a platform like Unijoin, where CoinJoin technology assures you of complete anonymity, will help you keep your assets safe. Unijoin does not keep logs of your transactions, so potential hackers have nothing to track.

Protection of Data

It’s not just individuals that a user must pay attention to when doing transactions over the internet.

Some companies use algorithms to get as much data as they can about their users so they can tailor ads to individual users’ preferences. You may suddenly find yourself bombarded with product ads that are weirdly extremely relevant to whatever goods or services you have bought using your digital assets.

Information leak in the internet is also concerning, although not many people know how to avoid it. Someone could assume your identity and make purchases online that will be charged to your account. Hence the need to keep all your data secure.

Unijoin’s service breaks the link between your digital wallet and your actual identity, making it much harder for anyone to track and find you, and steal your data.

Protection of Transactions from Government Surveillance

It’s been proven that some governments try to oversee everything about money movement in their respective countries because anonymous transaction methods have been used to fund illicit activities and scams. However, digital assets can be considered private property, and people have all the right to privacy. Governments breaking their own privacy laws will end up violating their citizens’ basic rights.

Seeing how the digital space is increasingly becoming a major part of people’s lives, the concept of CoinJoin won’t be going away soon, and authorities will have to find a way to guard against illicit financial activities on the internet while respecting individuals’ right to keep legitimate financial transactions private.

Conclusion

CoinJoin is the first-generation solution to cryptocurrencies’ lack of complete anonymity. It’s an important process that guarantees your safety when performing transactions with your digital assets.

Bitcoin is not at all anonymous, and the design of blockchain technology is not without its drawbacks. Fortunately, such drawbacks have only fueled innovation over the years, leading to the emergence of crypto mixing platforms like Unijoin, which uses CoinJoin technology to optimise coin mixing while maintaining users’ absolute anonymity.

Other use cases of CoinJoin technology might also join the world of digital currency soon. It would be interesting to see what other directions the technology will take as the digital currency space itself evolves.