Blockchain provides a mixing service.
How does it work?
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Their shared sending feature simply combines payments from multiple users making it very difficult to know which funding inputs (Bitcoin addresses) were used to pay which outputs (Addresses being paid).
Think of it like collecting money at the office to pay for a coffee run. Five people are buying coffee, each costing $3.
Bob puts in a $5, for a latte Alice puts in $3, for an espresso Carolyn puts in $10 for a cappucino
A driver goes to the coffee shop, the bill totals $9, so the $10 bill is handed over and given out is a cappucino, an espresso and a latte. A $1 of change is given back to the driver.
Back at the office the driver gives bob the $1 from the coffee shop plus a $1 that was received from Alice. The driver gives Caroylyn the $5 that came from Bob and two $1s that came from Alice. Each person gets their coffee.
That's actually a very weak example but it shows a real world example of how shared spending "mixes". It might look like Bob didn't buy coffee from the store, but instead it looks like he bought it from Carolyn. And it looks like Alice bought from both Bob and Carolyn. But none of that is how it actually occurred because the funds were combined prior to making the purchase.
Some of the coins mixed in are those arriving for on-time use address in which the Blockchain wallet user has clicked the "New Shared Address" option under Receive money. The amounts received will incur a fee.
Correct me if I'm wrong with this example:
Cool jock, unbeknownst to anyone, actually likes wearing glittery t-shirts with unicorns on them when nobody is around. He doesn't want anyone to know. He pays for t-shirt with bitcoins in his blockchain.info wallet.
Without using blockchain.info's Send Shared feature, someone could trace the transaction from the t-shirt store back to his wallet, embarrassing him to no end. If he uses Send Shared, though, blockchain.info will first take the payment from him and put it in a box with a bunch of other payments getting ready to go out, shake the box, and then pull out a payment to give to the t-shirt store on his behalf. Because this payment didn't originally come from Jock's wallet, it can't be traced back to him.
Question: who does it get traced back to? If I'm using blockchain.info too, and my payment to the video game store was in that box that got shaken-up, and it's the one that got pulled out and sent to the T-shirt store, can it get traced back to me?
(sorry - it's the only example that popped into my head)