Mixing service breaks the link between your old address and the new one, sending funds from you to other people, and their funds to you. Therefore, transaction amounts become random, and this increases time delays due to this lack of communication between the original and destination addresses of the transactions. This process protects Your information and prevents others to track Your online payments.Bitcoin transactions are combined with a permanent public record. By blockchain, you can track transactions from one address to another.
Using bitcoins is an excellent way to stay anonymous while making your purchases, donations, and p2p payments, without losing money through inflated transaction fees. But Bitcoin transactions are never truly anonymous. Bitcoin activities are recorded and available publicly via the blockchain — a comprehensive database which keeps a record of bitcoin transactions. And when you finally use Bitcoin to pay for goods and services, you will of course need to provide your name and address to the seller for delivery purposes. It means that a third party can trace your transactions and find ID information. To avoid this, such mixing service provide the ability to exchange your bitcoins for different ones which cannot be associated with the original owner.
Prior to the advent of trustless alternatives, mixing services (also called tumblers) were used to mix one's funds with other people's money, intending to confuse the trail back to the funds' original source. In traditional financial systems, the equivalent would be moving funds through banks located in countries with strict bank-secrecy laws, such as the Cayman Islands, the Bahamas and Panama.
When mixing bitcoins, you send your money to an anonymous service and, if they are well-intentioned, they will send you someone else's tainted coins. So, now, whatever those coins were used for may now be traceable back to you. Additionally, mixing large amounts of money may be illegal, being in violation of anti-structuring laws.
Mixing helps protect privacy, but can also be used for money laundering - mixing illegally obtained funds. After laundering, the funds appear legitimate. Mixing large amounts of money may be illegal, being in violation of anti-structuring laws.
There has been at least one incident where a Bitcoin exchange has blacklisted "tainted" deposits descending from stolen bitcoins. Manual or lightly automated mixing methods can make detection of taint more difficult unless the exchange follows the trail, but this approach does protect privacy like a true Mixing services would.
To mix your coins using this method, you will need:
- Bitcoins, or the ability to buy them.
- The Tor Browser
- The ability to create new Bitcoin wallets, both via Tor and on the clear net. We recommended using Electrum, but any client that functions over Tor will work. Alternately, you could use Blockchain.info and their Tor hidden service to create all or some of your wallets.
- RFC: Bitcoin Mixnet
- A Simple Guide To Effectively And Safely Mixing Bitcoins
- One of the Largest Bitcoin Mixing Services Closes its Doors
-  — Bitcoin Mixing Info Portal
-  — Bitblender
-  — Another Bitcoin Mixing Service