Blog Community Fungibility: Bitcoin Mixers Favorite Term That No One Understands

Fungibility: Bitcoin Mixers Favorite Term That No One Understands

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Fungibility, perhaps the most important concept when dealing with a decentralized and anonymous currency, but does bitcoin have it?

Similar to its anonymity problem– bitcoin is also starting to show that it has a fungibility problem. Which can create a number of issues for users. Fungibility is essentially the ability of something to be traded like for like, as opposed to like for similar. So, if I were to loan you a dollar, then you were to pay me back with another dollar, it wouldn’t be a problem that the original dollar I lent you isn’t the one I’m getting back. 

Whereas if I loaned you an apple, and you paid me back with a different apple, the size, quality of fruit, or variety is not ever going to be the exact same as the original apple. Therefore- apples aren’t fungible, but fiat currencies are. In an apple to fiat scenario- bitcoin is an orange. 

Why Fungibility is Important in Bitcoin 

While bitcoin does have fungibility of value- as in one bitcoin is worth the same as any other bitcoin at the given market price, what they lack is the fungibility of usefulness.

What we mean by this is had any given bitcoin you own, purchase, or traded be flagged as a hacked coin, or is traceable to nefarious actions it may have been used for in the past – you and your account are now linked to that particular bitcoin’s past. This means that not all bitcoins are created equal, and unless you’re using a bitcoin mixer (for tips on this, check out all information about it on Best Bitcoin Tumbler) – your bitcoins are not fungible. 

Perhaps the most basic way that bitcoin could solidify fungibility would be to make a protocol change – making it so bitcoins that were used in illegal activity wouldn’t themselves be labeled as illegal. However, that protocol change would be almost impossible to enforce, while at the same time protecting crypto security. So the next best thing is bitcoin mixing to ensure both fungibility and anonymity. 

Can Fungibility Be Obtained? 

Fungibility plays an important role in the pseudo-anonymity of bitcoin. Because bitcoin is neither inherently anonymous or fungible- users need to find a way to make it so. The reason that both fungibility and anonymity are important to most bitcoin users rarely has anything to do with nefarious activities, but instead becomes a question of safety and asset security. 

RELATED: Is it possible to de-anonymize Bitcoin and Trace Transactions?

For any number of reasons, blockchain analyst companies are putting a lot of work, and even more money, towards being able to track the habits and identities of bitcoin users. Bitcoin users are susceptible to big data hacks, scams, and personal violations when anonymity and fungibility are lost. The reality of the world we live in is that big data is a very lucrative asset. 

For many users, bitcoin is a go-to asset because it was built to be anonymous, decentralized, and private. Meaning that anyone could invest without that investment becoming public knowledge. Without the use of bitcoin mixers, certain bitcoin users’ identities have been exposed and some of these users were exploited, scammed, and hacked out of their investments. Others have unwittingly bought or traded for illegal coins, which left those users vulnerable to analytics, or the coins were seized and never returned.

The only way to ensure that your investment is not only fungible but also anonymous is to use a bitcoin mixer. Effectively breaking any ties your coins may have to yourself, or to anyone else. 

How to Use a Bitcoin Mixer

Bitcoin mixers work by severing the cookie crumb trail of ownership that is available on the blockchain. The way the blockchain works, anytime a transaction with bitcoin is made, the wallet ID is placed into the public ledger along with the ID associated with any coins that were transacted. Using analytics, it’s fairly straightforward to track recurring wallet addresses in conjunction with coins. 

When you put coins into a bitcoin mixer, they are then pooled with hundreds of other bitcoins. These coins are then all mixed up – on a fractional level- and distributed back to the original depositors. What this means is that a tiny bit of each coin is taken and mixed about, so there are millions of possible combinations that can be achieved. Obfuscating the origin of each coin. 

Anyone using a bitcoin mixer understands that for them to optimally work, they must create a new “clean” wallet for the coins to be deposited into. Once the coins have been redistributed and placed into a clean wallet, it becomes much more difficult for any analytics program to be able to trace those coins back to the user, or who they may have belonged to in the past.

Image by Gordon Johnson from Pixabay

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