Skip to main content

CoinJoin: Bitcoin Privacy Guide

What You'll Learn

Time: 30-45 minutes reading
Difficulty: Intermediate
Prerequisites: Understanding of private keys, transactions, why privacy matters, and ideally running your own Bitcoin node

Background Reading

If you haven't already, read Why Bitcoin Privacy Matters and Chain Analysis Explained to understand the surveillance problem CoinJoin solves.

CoinJoin is a privacy technique that breaks the link between your transaction history and your coins. After a CoinJoin, an outside observer cannot tell which coins belong to you.

This guide covers:

  • What CoinJoin is and how it works
  • The different CoinJoin implementations
  • How to use CoinJoin services
  • Best practices after mixing

What is CoinJoin?​

CoinJoin is when multiple people combine their Bitcoin transactions into a single transaction, making it impossible to determine which output belongs to which person.

A Simple Example​

Imagine you and a friend each want to send 0.1 BTC somewhere:

Without CoinJoin (two separate transactions):

Transaction 1:
  Alice: 0.15 BTC → 0.1 BTC (payment) + 0.05 BTC (change)

Transaction 2:
  Bob: 0.12 BTC → 0.1 BTC (payment) + 0.02 BTC (change)

Anyone can see Alice's payment came from Alice, and Bob's from Bob.

With CoinJoin (one combined transaction):

Combined Transaction:
  INPUTS                      OUTPUTS
  ─────────────────────────────────────────
  Alice: 0.15 BTC      →      0.1 BTC (???)
  Bob:   0.12 BTC      →      0.1 BTC (???)
                              0.05 BTC (Alice's change)
                              0.02 BTC (Bob's change)

Now there are two identical 0.1 BTC outputs. An observer cannot tell which 0.1 BTC belongs to Alice and which belongs to Bob. Each has a 50% probability of belonging to either person.

The Key Insight

The privacy comes from identical output amounts. When multiple outputs have the same value, they become indistinguishable from each other.

Why This Works​

Bitcoin transactions can have multiple inputs and outputs signed by different people. This is a built-in feature of Bitcoin, not a hack or exploit.

In a CoinJoin:

  1. Multiple participants agree on a common output amount
  2. Each person contributes inputs (their UTXOs)
  3. Each person receives outputs of the agreed amount
  4. The transaction is signed by all participants
  5. No one can tell which output belongs to which participant

Understanding UTXOs​

CoinJoin operates on UTXOs (Unspent Transaction Outputs). If you're not familiar with how UTXOs work, read UTXOs Explained first—it's essential background for understanding CoinJoin.

Quick recap for CoinJoin purposes:

  • Your wallet contains discrete "pieces" of bitcoin (UTXOs), not a liquid balance
  • When you spend, entire UTXOs are consumed and new ones created
  • Change from a transaction becomes a new UTXO
  • UTXOs are combined as inputs when you need to spend more than one contains

What CoinJoin Can (and Cannot) Do​

✅ What CoinJoin DOES​

1. Breaks the transaction trail

After mixing, the link between your past and future transactions is broken:

Before CoinJoin:
  Exchange → Address A → Address B → Address C
  (All linked to your identity)

After CoinJoin:
  Exchange → Address A → CoinJoin → ??? 
  (Trail goes cold)

2. Provides spending privacy

When you pay someone with mixed coins, they cannot see:

  • Where your coins originally came from
  • How much Bitcoin you own
  • Your transaction history

3. Improves privacy for everyone

The more people who CoinJoin, the larger the "anonymity set" becomes. Even if you don't CoinJoin, others doing so makes blockchain analysis harder overall.

❌ What CoinJoin DOES NOT Do​

1. Hide your total holdings from the government

If you bought 1 BTC on a KYC exchange, the government knows you own 1 BTC. CoinJoin hides where your coins are, not that you have them.

2. Make "boating accidents" believable

If you claim to have lost your Bitcoin, but later spend coins that can be traced back to your exchange withdrawals, your claim is exposed as false.

3. Hide the change outputs

In most CoinJoins, only the equal-value outputs are private. The change outputs can often still be linked to you.

CoinJoin Methods​

There are two main approaches to CoinJoin:

1. Automated Services​

Software that coordinates CoinJoins automatically:

ServiceTypeApproximate Cost
Wasabi WalletCentralized coordinator~0.3% + mining fees
Whirlpool (via Sparrow)Centralized coordinatorFixed fee per pool + mining fees
JoinMarketDecentralized marketVariable (can earn fees as maker)

Pros:

  • Easy to use
  • Many participants = better privacy
  • Automatic remixing

Cons:

  • Costs money
  • Must trust the coordinator somewhat
  • Your coins sit in a hot wallet during mixing

2. Manual/DIY CoinJoin​

Coordinate directly with trusted friends or contacts using wallet software like Electrum or Sparrow.

Pros:

  • No coordinator fees
  • Full control
  • Educational

Cons:

  • Need to find partners
  • More technical
  • Smaller anonymity set

Privacy Considerations​

The Anonymity Set​

The "anonymity set" is how many people your coins could belong to after mixing.

  • 2-person CoinJoin: 50% chance of being you
  • 5-person CoinJoin: 20% chance of being you
  • 100-person CoinJoin: 1% chance of being you

Larger is better. Automated services typically have larger anonymity sets than manual CoinJoins.

Multiple Rounds​

One CoinJoin provides some privacy. Multiple rounds compound the privacy:

Round 1: 1 in 5 chance (20%)
Round 2: 1 in 25 chance (4%)
Round 3: 1 in 125 chance (0.8%)

Common Mistakes That Undo Privacy​

Avoid These Errors

1. Merging mixed and unmixed coins If you combine a CoinJoined UTXO with a KYC UTXO in the same transaction, the CoinJoined coin loses its privacy.

2. Sending all outputs to the same address If multiple CoinJoin outputs end up at the same address, an observer knows they belong to the same person.

3. Using a wallet connected to someone else's node If your wallet queries a random node for your addresses, that node learns your addresses. Always use your own node. See our Bitcoin Node guide.

4. Ignoring timing analysis If you CoinJoin and immediately spend, timing can be a clue. Let mixed coins "age" before spending.

CoinJoin itself is not illegal in most jurisdictions. It's simply a method of constructing a Bitcoin transaction.

However:

  • Some exchanges may flag or refuse deposits from addresses with CoinJoin history
  • Regulatory attitudes are evolving
  • You should research your local laws

Mitigation strategies:

  • Use Lightning Network for spending (channels opened with mixed coins are not detectable)
  • Keep some unmixed coins for exchanges
  • Don't mix more than you need

Do You Need CoinJoin?​

Consider CoinJoin if:

  • ✅ You value financial privacy as a principle
  • ✅ You hold significant amounts of Bitcoin
  • ✅ You want to spend without revealing your wealth
  • ✅ You live in a jurisdiction with uncertain property rights

You may not need CoinJoin if:

  • You only make occasional, small purchases
  • You're comfortable with Lightning Network privacy
  • You don't mind merchants seeing your transaction history
Lightning as an Alternative

For everyday spending, the Lightning Network provides practical privacy without the complexity of CoinJoin. Payments are not recorded on the public blockchain.

Best Practices After CoinJoin​

Once you have mixed coins, protect your privacy:

  1. Never merge mixed coins with KYC coins Keep them in separate wallets entirely

  2. Avoid merging different mixed coins if possible Each UTXO should be spent independently

  3. Use coin control Always know exactly which UTXOs you're spending. Wallets like Sparrow and Electrum have coin control features.

  4. Label your UTXOs Mark which coins are mixed vs. unmixed

  5. Run your own node Never connect your privacy wallet to a random public node

  6. Consider using Lightning Open channels with mixed coins, then spend via Lightning

Next Steps​

Ready to enhance your Bitcoin privacy?

  1. Prerequisite: Set up your own Bitcoin Node first—this is essential for privacy
  2. Learn more: Understand transactions deeply
  3. Choose a method:
    • For ease: Use Sparrow Wallet with Whirlpool
    • For control: Learn manual CoinJoin with Electrum
    • For decentralization: Explore JoinMarket
Attribution

This guide was inspired by and adapted from Arman the Parman's CoinJoin Guide, with additional explanations and examples added for clarity.