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How Do Bitcoin Mixers Work?

4 years ago in Dark Web by Antonio Brown

You may have heard that bitcoin transactions are anonymous, but that is absolutely not the case.

In this article, we take a look at how Bitcoin mixers can be used to increase transactional privacy for Bitcoin payments.

What is a Bitcoin Mixer?

A Bitcoin mixer, also known as a tumbler or mixing service, enables Bitcoin users to mix their coins with other users to preserve transactional privacy.

Conventional Bitcoin transactions are not anonymous. Even Bitcoin Ordinal inscriptions can be viewed on the public blockchain. Why? Because Bitcoin transactions are pseudonymous. They do not disclose your real-world identity, but your addresses can be linked to your identity.

Most exchanges require you to provide your identification papers. What this means is that cryptocurrency sent to or from your account can then be linked to you. For example, if you use an exchange to buy bitcoin in Austria, you will have to provide personal information to the exchange that can then be linked to your Bitcoin transactions.

Also, blockchain analysis companies can tell how much bitcoin you own and who you transact with by tracing your linked accounts using a range of deanonymization methods.

The translucent nature of Bitcoin transactions makes it a problem to protect your privacy and information about your personal finance. Fortunately, you can avoid tracking your Bitcoin transactions and maintain absolute privacy using Bitcoin mixers.

What Do Bitcoin Mixers Do To Your Coins?

Cryptocurrency transactions start from the sender’s wallet and end in the receiver’s wallet. This direct route can be traced easily using the blockchain.

However, transactions made using Bitcoin mixers break the link.

When you send your bitcoin to a Bitcoin mixer, the service then combines your coins with that of others and takes them through several internal transactions that generate a long trail of addresses.

At the end of the process, when coins are finally sent to your destination of choice, the recipient will receive the coins from an address that cannot be traced to yours.

Factors that determine the level of anonymity you receive from bitcoin tumbler:

Firstly, the longer a mixing platform takes to scrumble coins, the harder it is to trace transactions.
Secondly, the number of separate wallets and addresses used in the mixing process makes transactions more opaque. Some platforms even split your funds during mixing to make it harder to track.

The amount of coins you can mix depends on the platform you select. Most bitcoin mixers do not accept huge sums of bitcoin, though.

Why Do People Use Mixers?

There are several reasons why people use Bitcoin mixers, but at the heart of all the bases is privacy and security.

Bitcoiners use mixers to prevent the exposure of their personal financial decisions. Every time you perform a transaction with a party, they gain information about your bitcoin holdings. They can check your Bitcoin address on the blockchain and see how much you own, past transactions, and who you transacted with.

In extreme cases, people can monitor all inputs and outputs from your wallet to find other addresses you own. Bitcoin mixers make it effectively impossible for other parties to track you after transacting with them.

In a world where censorship is not reserved for any particular group and could happen to anyone, having protection over your bitcoin is very important, as highlighted in a recent episode of the Proof of Words podcast.

Money has become a political tool used to fund campaigns and operations. In authoritarian regimes where all transactions, even those on the blockchain, are under the microscope, bitcoin mixers serve a vital utility.

Political groups attain full privacy of their funds by using Bitcoin mixers for transactions. People who fund these groups also protect themselves through Bitcoin mixers. This prevents a situation where governments can target people who fund or run these groups by tracing their wallets.

Finally, blockchain analysis companies spring up more often these days. What that means is that there are more eyes watching transactions on the blockchain. These eyes are always linking accounts and transactions to real identities.

Users concerned about their privacy use Bitcoin mixers to detach their operations on the blockchain from their identities.

What You Need To Know About Reporting Crypto Taxes

4 years ago in Guides by Editorial Staff

In its official guidelines, the Internal Revenue Service (IRS) has specifically confirmed that all kinds of cryptocurrencies are not to be regarded as virtual currencies but as property for taxation purposes instead. This refers to all cryptocurrencies, including XRP, Bitcoin, Ethereum, Ripple, Litecoin, etc. Such crypto-coins would be regulated in the same way as other types of property such as real estate, securities, gold, etc.

If you happen to be a crypto-trader who has intentionally failed to disclose your crypto-taxes, it would be considered a criminal act and a serious offense. Note, however, that not all activities surrounding cryptocurrencies are taxable.

More About Taxable And Non-Taxable Events

Recall that a taxable event is an occurrence that creates a tax reporting obligation, i.e., whenever a taxable event happens, a capital gain or capital loss will have to be registered on the tax returns. A taxable case is when any of the following crypto-activities occur, as per the IRS guidelines.

It is considered a taxable event when you exchange cryptocurrency for fiat money (Bitcoin to USD).
When exchanging for other cryptocurrencies (Bitcoin to Litecoin) cryptocurrency; At the time of exchange, Cryptocurrency traders would need to measure the Fair Market Value (FMV) at USD.
If cryptocurrency is obtained as an income source (by mining or other means of income).
If buying products or services with cryptocurrency (Fair Market Value measurement in USD at the time of the exchange).

Traders must remember what constitutes a non-taxable activity as they go through how to report crypto taxes. It happens when the crypto-activities occur, as mentioned below.

Whenever a crypto trader transfers cryptocurrency among crypto exchanges or Ordinals inscriptions through a Bitcoin Ordinals wallet without causing a capital gain or loss.
It is not taxable when cryptocurrency is obtained as a present/gift.
Buying and owning cryptocurrency is not a taxable activity because there will be no capital gains or losses until you transfer or sell your cryptocurrency.

Accurate Tax Reports

If it comes to how to report crypto taxes in the correct way, you can find that perhaps the data given by your crypto exchange is inconsistent. If you’re a crypto trader who moved crypto in and out of exchanges, your initial cost basis becomes unknown. It is due to the crypto exchange not understanding how, when, where, and at what cost the cryptocurrency was initially purchased for.

Only depending on what shows in your account will your exchange provide you with the details. When the asset is passed to another exchange, there is a lack of the opportunity to provide precise information on fair market value and cost base. All of these components are needed to calculate your crypto taxes by using a crypto tax calculator.

Using a crypto tax program is advisable when you start the process of how to report crypto taxes. These tools can import all your crypto data from multiple platforms and can measure your cost structure and FMV accurately. It will reduce the risk of error and fasten the calculation process for your crypto taxes.

Regardless of whether you invest in crypto via a Bitcoin ETP, use bitcoin for remittance purposes, or save in the digital currency using a Bitcoin savings plan, if a taxable event occurs, you need to track it.

Winning money in a Bitcoin casino, however, is typically not a taxable event. Although, it’s best to check what the law says in your local jurisdiction.

Best Crypto Tax Software

BearTax

Using tax tools like BearTax will significantly simplify your crypto-complication when you go through how to report crypto taxes. BearTax was launched in 2018 and has benefited a great deal from cryptocurrency small-scale businesses. It supports more than 40 significant crypto exchanges, with few of its key features being the following.

Direct importing of CSV files
Cryptocurrency traders are given High-Frequency Trading (HFC) bots
Known for supporting limitless transactions
It has been integrated with various cryptocurrency exchanges

CryptoTrader.Tax

When you’re a crypto trader and going on about how to report crypto taxes, CryptoTrader.Tax is both a crypto tax app for beginners and experienced traders alike. Several of its main features are outlined below.

IRS Form 8949 compliant
Report on capital gains
Reports on cryptocurrency revenue
ability to directly import with TurboTax
Ability to generate audit reports

ZenLedger

ZenLedger began in 2017 and rapidly grew to be one of the market’s strongest crypto-tax software. ZenLedger supports over 18 major crypto exchanges, which are favored by many crypto traders for its simple user interface and exemplary capabilities. Any of their main characteristics are as follows.

Can generate audit reports
Generate tax-loss harvesting reports
Traders have the option of choosing their preferred method of accounting
Financial Crimes Enforcement Network alerts.
Ability to calculate the cryptocurrency obtained via mining

Bitcoin.Tax

Bitcoin.Tax was introduced back in 2014, the IRS issued the first guidelines on cryptocurrencies that same year. Several crypto traders have confirmed that when it comes to “how to report crypto taxes?”, this is one of the strongest crypto tax software. Currently, it supports more than 20 big crypto exchanges. Listed below are some of the unique features of Bitcoin.Tax

Crypto mining information can also be imported directly.
Calculation and reports of Fair Market Value data, cost base, and capital gains.
Can generate the report for IRS Form 8949
CSV files can be imported from crypto exchanges
LIFO and FIFO accounting method options

Bitcoin.Tax has no free version of the crypto-tax app. The price begins for the basic tier at $29.95 annually and rises to $399.95 for its highest version, which comes packaged with several added features.