Let's say you hand me a $100 bill, and that you have marked that bill. I then take that bill to a bank and ask for 3 $20 bills and 4 $10 bills. The bank takes that $100 and puts into the vault, and takes out the bills I asked for out of the vault. Later, someone comes in with $100 worth of bills, and asks for a $100 bill. The bank goes to the vault and gets the marked $100 and gives it to that customer.
Tracking the bill doesn't help, because as soon as it's in the bank, what happens to it (and how it's exchanged), is hidden from you. Mixers work the same way.
You're right, but the article didn't find a mixer. They found the temporary deposit addresses every exchange uses and then wrote a FUD article to drive traffic and awareness of their sketchy ICO.
2. Their address is always transferring money to accounts.
3. Sometime after you pay them, some amount, not quite the same, leaves their address to an address you control, but which has no established connection to you.
So an observer can see:
1. That you put money into the mixer.
2. The full list of addresses the mixer payed 'out' to (very long).
Which allows them to say if an address has "mixed" money but not to determine which account is connected to which person. If you're careful and you don't transfer any coins to addresses linked to your 'real world' persona, it becomes difficult to trace the account containing the 'mixed' coins to you (though trivial to identify it as coming from the mixer).
A well designed mixer would not be so easy to detect. In a perfect world, you'd have matching clients all the time, and the only contamination is the fee being siphoned off. If the fee is managed well it could be very difficult to determine coins that went or came from the mixer.
In reality, you probably need to batch a few customers together: 10 customers putting in 1 BTC, 1 customer putting in 10. But these don't need to be long-lived groups, if the mixer has the volume. So "their address" would only be the same for a few customers. An attacker would need to constantly make transactions to determine the addresses involved.
Most mixers give you completely "clean coins": That is there's no transaction chain from your inputs to your outputs. So they are probably doing some sort of system similar to what I describe.
Sort of. It seems to me though that once you've missed coins from many sources in various ways 90+ times then the coins are distributed in parts to many end recipients its then very hard to to say if some fraction of a coin came had any one source. If I were designing a way to launder cryptocoins that may or may not have a questionable source I think this is pretty much what I'd come up with.
Kinda, the problem is once you've moved through a couple wallets (many wallets, in the case of the mixing services), it becomes very hard to tell the difference between one person moving their coins around, and one person paying another person.
A --> B
A --> B --> C --> ...--> Z
Pretend you know who A is already. Who are B through X? Is the person in control of A also in control of Z? Or any of the other wallets? These are answers the blockchain doesn't give you.
Wouldn't an interested party just assume A and B are both guilty and given the current taste for asset forfeiture laws, require proof of the origination of the funds? At one point does it not become possible to "capture" people this way? 10k wallets? 100k? I may be too simple to understand the math here, but in the end you've got people with guns to deal with.
You can assume all you want, but then you can end up with thousands of tainted addresses that participated in tumbling. Good luck proving anything with that to the jury.
Tracking the bill doesn't help, because as soon as it's in the bank, what happens to it (and how it's exchanged), is hidden from you. Mixers work the same way.