What Is CoinJoin?

CoinJoin is an anonymization strategy that obscures transaction addresses and amo⛄unts. CoinJoin uses smart contracts between multiple parties to mix their coins into several different transactions.

The process is also known as coin mixing, which is increasingly drawing the attention of law enforcement in many jurisdictions for🔯 its use in illegal activities.

History of CoinJoin

Bitcoin, in its early days, had a reputation for being anonymous. Because of this reputation, it was used for transactions on darknet sites such as Silk Road. However, cryptocurrency actually provides very little privacy. Bitcoin addresses do not list users' names and addresses, but they are easily traceable, and your IP address can be associated with your Bitcoin transaction. If you move cryptocurrency to an exchange to cash it in, you instantly become identifiable.

Once one user has been identified, researchers can use common digital forensic methods to trace all the contacts in the network. This isn't a bug in the Bitcoin system; it is a feature, because Bitcoin was, in part, invented for financial transparency. It is one of the foundations of its "trustless" system: all transactions are public to prevent user fraud.

Other coins have been developed to incorporate user privacy into the code of the coin. Monero, ZCash, and Dash are prominent examples. Monero's privacy tec🗹hnology is similar to CoinJoin, in that it uses ring signatures to mix the spender's signature with other users' signatures to make tracing addresses nearly impossible.

CoinJoin was developed to introduce a layer of privacy to otherwise public cryptocurrency transactions. The phrase was coined by Bitcoin developer Gregory Maxwell in an announcement thread on the Bitcoin Forum, in which concerns over the lack of privacy using Bitcoin were voiced.

How Does CoinJoin Work?

The solution📖 to the privacy problem was to have users agree to send a set of inputs to a set of outputs and merge all the signatures. For example, consider the following transactions made at the same time: user A purchases an item from B, C purchases an item from D,♕ and E purchases an item from F.

Without CoinJoin, the public 澳洲幸运5开奖号码历史查询:blockchain ledger would record three separate transac𝐆tions for each input-output match. With CoinJoin, only one single transaction is recorded. The ledger would show that crypto was paid from A, C, and E addresses to B, D, and F, but it wouldn't show who received which transaction. By masking the deals made by all parties, an observer cannot with full certainty determine who sent crypto to whom, but all users have the correct amount credited to them.

Add a few levels of mixing and smart contracts, and traꦜnsactions become automatic and essentially untraceable.

Future of CoinJoin

Later CoinJoin efforts included Wasabi Wallet and Whirlpool from Samourai Wallet, both of which have been shut down. Samourai Wallet's creators were arrested in 2024 for money laundering. Wasabi Wallet was designed by zkSnacks, which shut down its CoinJoin services in 2024 amid the regulatory focus on privacy coins and mixing services.

It's apparent that CoinJoin and similar services are likely to be abandoned by legitimate users and developers. However, it doesn't mean other privacy-enhancing services won't emerge—if there is anything to be learned since cryptocurrency became mainstream, it is that privacy advocates will always find a way.

The Bottom Line

CoinJoin is a cryptocurrency mixing service that scrambles transactions and signatures into other transactions. It is designed to enhance user privacy, but as with all privacy-enhancing techniques, it attracts illicit activity. Mixin🌳g cryptocurrency transactions for privacy is not illegal for individuals in many jurꦺisdictions, but service providers are prohibited from allowing it in some and avoid providing it in others.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our  for more info. As of the date this article was written, the author does not own cryptocurrency.