What is CoinJoin?

CoinJoin is a transaction that gives privacy to senders and recipients.

Many believe that Bitcoin was created to be an anonymous form of the payment system. That, however, is not true since Bitcoin does not hide anything. On the contrary, it has a publicly available immutable ledger, which already sounds like the very opposite of being anonymous.

Thus, to help enhance privacy while using this monetary payment system, one can turn their attention to different tools and techniques that can help improve the privacy aspect of non-anonymous Bitcoin. One of these techniques is CoinJoin, also known as coin or Bitcoin mixing.

What is CoinJoin?

CoinJoin is a type of anonymous transaction, primarily used by Bitcoin mixers or wallets, that helps Bitcoin users maintain their privacy while sending Bitcoin. CoinJoin is not a single-party transaction, which means that the transaction does not go from one sender to one receiver. Instead, it is a multiparty transaction at the end of which it is unclear who owns which coin. This ambiguity is secured by matching the size of inputs or outputs. While this may seem a bit complicated, a good example can help understand this logic. 

Investopedia has done an excellent job in describing and explaining CoinJoin in this article, with the following part portraying the CoinJoin pretty simplistically:

“Consider the following transactions made at the same time: A purchases an item from B, C purchases an item from D, and E purchases an item from F. Without CoinJoin, the public blockchain ledger would record three separate transactions for each input-output match. With CoinJoin, only one single transaction is recorded. The ledger would show that bitcoins were paid from A, C, and E addresses to B, D, and F. By masking the deals made by all parties, an observer cannot with full certainty determine who sent bitcoins to whom.”

What is vital about CoinJoin is that neither the inputs nor the outputs of these multiparty transactions have to come from the same person, address, or wallet. This is to make sure that the coins are actually being mixed and that the sole owner of the input is not also the sole owner of the output.

While some believe that CoinJoin is a new technology, this is not valid. CoinJoin is simply an advancement or development on already existing technology – Bitcoin. It just provides different features or services to its users, which, in the case of CoinJoin, are improved privacy and anonymity. CoinJoin has been heavily used by bitcoin tumbling services, known as Bitcoin mixers.

Why use Bitcoin's CoinJoin mixing?

While using CoinJoin can be difficult, especially if the person does not have any technical expertise or previous skills with this practise, it can help with enhancing the privacy of the individual. As of now, most of these services are not easily manipulated and are not ready for mainstream usage. But improvement is visible even in this sector, meaning that soon enough, there might be an effortless way of CoinJoin available to anyone.

Yet, as with almost everything else related to crypto, it is entirely up to the individual to decide whether it is necessary to use these services. The primary reason is the obvious improvement of financial privacy, however, there are other reasons as to why use CoinJoin. But, before using these services, the user should do a cost-benefit analysis to see whether they can gain or lose more by going through this process.

CoinJoin is also used to make it harder for analytics surveillance companies such as Chainalysis that are tracking on-chain transactions and their history to identify the owner of the wallet, address, or bitcoins as such. Yet, coins that are identified as coins used in CoinJoin can be flagged or tainted. This means that it might be harder in the future to sell them on exchanges or via merchants.

Which Bitcoin mixing service to use?

If anyone is interested in using CoinJoin bitcoin mixing, there are already several different approaches one can take. These are also based on the level of technical expertise as well as experience with Bitcoin and its transaction processes. While this article does not go too much into depth of each service, platform, or option, it provides at least a brief list of different possibilities with helpful links to more detailed explanations or guides.

Besides our very own Bitcoin CoinJoin mixing service - Whir, the easiest and simplest CoinJoin mixers are automated services by Samourai Wallet and their Whirpool, Wasabi wallet with its different coin mixing features or JoinMarket. A helpful youtube tutorial for Whirpool CoinJoin in Samourai wallet can be found in the video below.

It also explains a logic of “toxic change,” which is a leftover of coins or satoshis that was not mixed during the CoinJoin and can actually damage the privacy of the mixed coins as well as the address or wallet as such. While Samourai and Wasabi wallets do offer these services with small fees, JoinMarket works differently, and its fees mainly depend on your time preferences for the CoinJoin. 

A more enhanced and difficult option for mixing coins is through DIY CoinJoin. These are usually created and programmed by experienced engineers, who need to go through a series of different processes to create their own CoinJoin. They, for instance, should run their own node, create an anonymous bitcoin wallet, decide who would enter the mixing with them, and do several other steps. This type of CoinJoin is not recommended for inexperienced users.

Conclusion

Describing CoinJoin, its usage, features, or services can go much more in-depth. However, that was not the point of this article. The main point was to introduce CoinJoin and the reason why to use it to anyone who is interested in enhancing Bitcoin privacy.

Disclaimer: This article does not serve as a piece of financial advice or encouragement and inducement for the usage of Bitcoin and other cryptocurrencies. Its primary role is informative, explanatory, and educational. The readers have to decide themselves whether to use or not to use these types of services.