CoinJoin is a strategy to improve privacy in Bitcoin transactions. It was developed by cryptographer Gregory Maxwell in 2013 and is designed to protect against blockchain analysis that could reveal the origin of funds used in a transaction. This is achieved by mixing multiple inputs into a single transaction that then sends them to their destination addresses. In this way, CoinJoin hides the relationship between sending and receiving addresses and makes it difficult to track and link them.
To execute a CoinJoin, all participants pool their unspent Bitcoin (UTXO) into a single transaction that is then mixed together to generate the final payment that will be sent to their respective recipients. The original UTXOs of the sending participants are then sent to their own addresses once the joint transaction has been completed and included in the blockchain.
Using CoinJoin requires a large number of participants in order to make the process work. If the number of participating users drops below a certain threshold, the transaction might fail to be included in the blockchain. This is due to the fact that CoinJoin relies on the use of software that could potentially have vulnerabilities or be compromised. Using open-source and auditable software, however, minimizes this risk.
A possible downside of using CoinJoin is that the resulting transaction occupies more space in the blockchain, which can lead to higher transaction fees. This can be addressed by researching advanced techniques for data compression that do not compromise security or anonymity. CoinJoin