The Bitcoin blockchain is known for its transparency, but this openness comes at the cost of privacy. Every transaction is recorded on a public ledger, making it possible for anyone with enough resources to trace the flow of funds. To address this blockchain weakness, the CoinJoin protocol was developed as a way to enhance privacy by mixing transactions. However, recent regulatory pressure, particularly from the U.S. government, has caused several privacy-focused services to disable their CoinJoin feature.
Bitcoin mixing and the CoinJoin
Bitcoin mixing, specifically through the CoinJoin protocol, is a method that allows users to obfuscate the origin and destination of their transactions. CoinJoin has been the primary privacy enhancement used by some Bitcoin wallets and is currently being used by some renewed Bitcoin mixers. It works by combining multiple transactions from different users into a single, larger transaction. CoinJoin is particularly effective because it does not require trust in a central entity.
However, the use of CoinJoin is not without controversy. While it is a legitimate tool for enhancing privacy, it has also attracted the attention of regulators, particularly in the United States. The U.S. government has expressed concern that CoinJoin and other Bitcoin mixing tools could be used to facilitate money laundering and other illicit activities. In response to these concerns, renewed privacy-focused crypto wallets disabled CoinJoin, marking a significant shift in the Bitcoin privacy landscape.
Wasabi Wallet has disabled CoinJoin
One of the most prominent wallets to recently abandon CoinJoin is Wasabi Wallet. Developed by zkSNACKs, Wasabi Wallet was a pioneer in integrating CoinJoin as a standard feature, offering users an easy way to enhance their privacy. However, as of June 1, 2024, zkSNACKs has discontinued its CoinJoin service. This decision was a difficult one, in light of the increasing regulatory pressure and complex legal landscape surrounding Bitcoin privacy.
Despite the discontinuation of CoinJoin, Wasabi Wallet continues to function as a regular Bitcoin wallet. Users can still generate private keys, send, and receive Bitcoin. The wallet retains its client-side filtering architecture, which ensures that only relevant blockchain data is downloaded, further protecting user privacy. Additionally, Wasabi integrates Tor, a privacy-focused network that anonymizes internet traffic, and offers custom coin selection, allowing users to control which coins are used in transactions.
However, the removal of CoinJoin from Wasabi Wallet highlights a broader issue: the inherent limitations of the Bitcoin blockchain in achieving complete privacy. Without CoinJoin, users are exposed to the transparency of the blockchain, making it easy for third parties to trace their transactions. While Wasabi Wallet remains one of the most private light wallets available, the absence of CoinJoin leaves users with fewer tools to protect their privacy.
Trezor has removed CoinJoin
Trezor, the company behind the original Bitcoin hardware wallet, has also recently removed the CoinJoin feature from its devices. This feature was particularly appealing to privacy-conscious users who wanted to combine the security of a hardware wallet with the privacy benefits of CoinJoin.
However, following Wasabi Wallet's decision to discontinue CoinJoin, Trezor has also removed the feature from its devices as of June 1, 2024. While new Bitcoin mixing will no longer be possible, existing CoinJoin accounts will retain their privacy features.
The removal of CoinJoin from Trezor wallet underscores the challenges privacy-focused services face in the current regulatory environment. While hardware wallets like Trezor offer robust security, the loss of CoinJoin limits the privacy options available to users. As a result, privacy-conscious users must now seek alternative solutions, which may include using standalone Bitcoin mixers or exploring other anonymous cryptocurrencies.
The Shutdown of Samourai Wallet
Samourai Wallet, another privacy-focused Bitcoin wallet, has also been affected by recent regulatory actions. On April 24, 2024, Samourai Wallet founders were arrested and charged with money laundering and operating an unlicensed money transmitter. This accusation was a significant blow to the privacy-focused Bitcoin community, as Samourai Wallet was one of the most prominent advocates of Bitcoin privacy.
Following the indictment, the FBI issued a warning to Americans, advising them not to use cryptocurrency money transfer services that are not registered as money service businesses. This announcement sent shockwaves through the Bitcoin community and raised concerns about the future of privacy-focused services. The Samourai Wallet shutdown is a stark reminder of the challenges that privacy-focused Bitcoin services face in a regulatory environment that is increasingly hostile to anonymity.
CoinJoin in Bitcoin mixers
One of the most prominent Bitcoin mixers using CoinJoin is Whir. Whir has gained a reputation for its reliability and effectiveness in enhancing privacy through mixing. However, due to the recent seizure of the Samourai wallet and the abandonment of CoinJoin by other wallets, Whir has implemented additional measures to protect its service from abuse.
Whir has sent a strong message to US and EU users, requiring all users to verify that they are not from the United States or European Union before using the Bitcoin Mixer. This is a significant change that reflects growing regulatory pressure and the need for privacy-focused services to operate within the bounds of the law. In addition, Whir has capped the one Bitcoin mixing limit, further reducing the risk of its service being exploited for illicit activities.
Despite the regulatory pressure and the disconnection of CoinJoin from several prominent wallets, there are still many legit Bitcoin mixers out there. These cryptocurrency mixers, which can be found on both the clearnet and the darknet, continue to offer crypto mixing services to users who prioritize privacy.
Conclusion
The recent disconnection of CoinJoin features from privacy-focused wallets like Wasabi Wallet, Trezor, and Samourai Wallet marks a significant shift in the landscape of Bitcoin privacy. These decisions, driven by regulatory pressures and legal challenges, have left users with fewer options for enhancing their privacy on the Bitcoin blockchain. However, CoinJoin remains in use through Bitcoin mixers like Whir, which continue to provide a valuable service to users who prioritize privacy.
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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.
