Privacy and anonymity are key components of the crypto space, where users seek to keep their funds off prying eyes found all over the internet. But Bitcoin among other cryptocurrencies offers only pseudonymous anonymity as the blockchain is transparent. Thus transactions can be traceable by people with the knowledge and tools to perform blockchain analytics. Read the article on how to exchange crypto anonymously here.
What do crypto users go for as an answer to this? Cryptocurrency mixers. Let's look at what mixers are, and then elaborate on a new form of crypto attack called "dusting".
A crypto mixer is a blockchain-based platform that blends different transactions (read coins) by mixing them and altering their codes to make the investors anonymous as well as their transaction untraceable. Once mixed, the coins cannot be easily traced back to the source address making it more secure. An investor can choose to transfer small chunks of bitcoins spread over many transactions for improved security.
An investor sends their bitcoin to a trustworthy bitcoin mixer. The mixer blends it with other cryptocurrencies and transfers it to the new address generated. This new address is not linked to the first address used when sending the bitcoins meaning it's hard to link the new address to the owner of the bitcoin. Crypto mixers charge a small fee for the service, usually, around 0.25%-3% of the total deposits.
The centralized mixing services are privately owned and managed. Different users who are anonymous to each
transfer their coins to different addresses. The program then mixes the coins and sends them back to the
participants as different coins through a specified address.
The mixing protocol will mix the coins from different addresses, reshuffling them before sending "new" coins in bits until the whole amount is returned to the stated individual addresses.
An outstanding feature about centralized Coin Mixers is that with many users a variety of coins are deposited hence more coins are used for the blending process. This makes it harder for anyone to track the source of crypto coins.
By the fact that it is controlled by a third party makes it less secure and breaching privacy is easy. It is very easy to lose your cryptos if they land in untrustworthy coin mixers. Moreover, the operators get to know your IP address thus can easily track the origin of each bitcoin. It would also be risky if they shared this information with scammers.
Decentralized mixers meet the gaps centralized mixers leave which include privacy, anonymity, and security.
Operating as peer-to-peer blending services, the individual users come together, put their crypto coins in
one pool and mix them. After the cryptocurrencies are mixed, they are randomly sent back to every pool member.
This means that none of the pool members can trace the source or destination of the bitcoins.
More members in the pool translate to more coins for mixing hence more random redistribution. Notably, in a decentralized mixer, there is no trace of individual addresses thus not even the coin mixer can track the flow of the crypto assets.
In decentralized mixers, a crypto loss is unimaginable since members only sign a transaction they have verified they would get an equal amount back after the blending.
Despite the enhanced privacy, there have to be enough users to pool their coins together for the transaction to go through successfully.
Scammers have continually developed new ways to target cryptocurrency wallets.
They developed an attack dubbed A dusting attack where they aim at breaking the privacy and anonymity in the crypto network. They do so by sending small amounts of cryptocurrencies known as dust to individual crypto wallets.
The attack simply deanonymizes the different addresses after analyzing their wallet's transactions.
Dust refers to the smallest unit of a cryptocurrency, an equivalent of 0.00000001 BTC or simply 1 Satoshi
(sats). Satoshi is the smallest traceable unit of bitcoin. Due to their insignificant nature, wallet owners
may not detect the change in wallet balance.
Dust also refers to the untradeable remaining balance in the cryptocurrency exchange platform.
Mixers can give you the anonymity and privacy to transact with cryptocurrency when using cryptocurrencies
whose blockchain networks offer easy traceability.
This is why more companies and individuals are opting for coin mixing for anonymity and privacy purposes. Most of them would want to keep their bitcoin transaction data off the public domain for security purposes. Keeping your transaction addresses anonymous means no one can trace back any of your dealings.
For companies, safe competition is in concealing your cryptocurrency net worth as revealing it could attract scammers and other competitors could use dusting to bring your company down.
Therein lies the good. However, privacy and anonymity also mean you don't want the public knowing it's you who has been attacked. In this case, such events as ransomware attacks have recently been highly favored with privacy coins like Monero.
Anonymous cryptocurrency mixing is thus attractive to criminals, with innocent users also likely to attract regulatory sanctions when they end up with "dirty coins" from a mixer.
Cryptocurrency trading should not expose you or your personal details to unscrupulous scammers. Be aware of dusting when doing crypto transactions. Here is what to do for further protection against dusting.
Security threats are increasing every day. Those in the crypto space are to worry more. To better protect your cryptocurrency investment, begin by finding out how you can lose them. The knowledge you have of attacks such as dusting could be the difference between safety and loss. Remember that thieves still use old tricks such as phishing, cryptojacking, and ransomware.