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CoinJoin is an anonymization method for bitcoin transactions proposed by Gregory Maxwell. The following idea is behind CoinJoin: «When you want to make a payment, find someone else who also wants to make a payment and make a joint payment together». In case of such a joint payment there will be no way to relate input and outputs in one bitcoin transaction and thus the exact direction of money movement will remain unknown to the third party.
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There are several implementation of anonymous bitcoin transactions inspired by CoinJoin: SharedCoins, Dark Wallet, CoinShuffle, PrivateSend feature of Dash and JoinMarket.
CoinJoin-based mixing methods increase privacy for everybody - even those not using mixing, because it's no longer likely that all inputs to a transaction come from a single wallet, and hence you can no longer associate them to a single person.
CoinShuffle
CoinShuffle is proposed by researchers from Saarland University in 2014. It further develops CoinJoin concept and increases privacy by not requiring any trusted third-party to be involved into mixed transaction creation. In the original research paper presented at the 19th European Symposium on Research in Computer Security CoinShuffe is described as a completely decentralized coin mixing protocol «inspired by CoinJoin to ensure security against theft and by the accountable anonymous group communication protocol Dissent to ensure anonymity as well as robustness against DoS attacks».
Only proof-of-concept implementation of CoinShuffle protocol is available at the moment. It is claimed to be written purely to evaluate the feasibility and performance.
Security issues
CoinJoin requires that users negotiate transactions they wish to join. The first services to handle this (such as blockchain.info's SharedCoin) used centralized servers and required users to trust the operator of the service not to steal the bitcoin or allow others to do so. Centralized services may also compromise participants' privacy by keeping logs of the transactions they negotiate. Decentralized implementations of CoinJoin such as JoinMarket attempt to circumvent various issues related to centralization.
The level of anonymity offered by CoinJoin can also be diminished if the protocol is implemented incorrectly. One such flaw was identified in blockchain.info's SharedCoin mixing service. Security consultant Kristov Atlas, author of the book Anonymous Bitcoin, detailed the flaw in an article entitled Weak Privacy Guarantees for SharedCoin Mixing Service. Here he states "the SharedCoin service should be used only as a light protective measure for financial privacy". As part of his research the author developed a tool called 'CoinJoin Sudoku' that could identify SharedCoin transactions and detect relationships between specific payments and payees.