Bitcoin’s privacy tool, CoinJoin, obfuscates over $6m in a single transfer

Bitcoin is pseudonymous, which means that the identity of the sender and receiver can be decrypted. Since all transactions can be traced on the chain, mapping is easier, and hacking the identities of transactors via dedicated proxies such as Chainalysis is possible.

To protect the privacy of Bitcoin users, CoinJoin is a technology that ensures that transactions cannot be traced back. The solution was first proposed by Greg Maxwell in 2013 but was developed by, among others, the creators of the Wasabi wallet. It shuffles different bitcoin transactions as inputs and confirms them on the chain as a single CoinJoin. Then, the individual transaction is distributed to the recipients.

In this design, it becomes difficult for agents monitoring transactions to distinguish between them, and to protect users’ identities. However, CoinJoin’s effectiveness depends on the number of inputs; The higher the number, the more private transactions.

Limitations and accreditation

This technique was replicated with the recent CoinJoin on April 20th, and is one of many that have been implemented over time.

While there can be internal limitations to the Bitcoin network that can limit CoinJoin’s size, such as block size and the format of the number of people to send transactions in one block at a time, this technique is popular with users.

However, CoinJoin, unlike Tornado Cash, a popular crypto-mixer with ERC-20 tokens, blocks bitcoin transactions that are flagged, ensuring that the tool is not used by hackers wanting to launder stolen assets.