For instance, let's say that A wants to send bitcoins stolen from G to X and B wants to send other bitcoins to Z. G simply approaches F and says "You stole my bitcoins. As punishment, I'm going to chain you to a mattress in a 6x6 cell until you confess." That leaves F two choices. F can stand for his principles, keep quiet, and serve as an object lesson to all other potential anonymizers.
However, if F doesn't want to slowly go mad from a lack of mental stimulation, then F would probably keep detailed accounting records of each transaction and pass them on to G. G might feel gracious and upgrade F to a 10x10 cell with a window.
Granted, most of these options are available with cash, but you don't have the transaction record which shows you who F is. In this way, bitcoin is easier to trace than cash.
Nawww, that is unrealistic, even for FBI.
You can't possibly track something like that. Most wallets don't have any names attached to them.
And even in this simple example you don't know who F, X and Z are and how to find them. They are just wallet numbers.
Which no one will, on such a short notice. Thus you end up owning both A and B, in which case the mixing is useless.
Imagine wallets A,B,F,X,Z.
A contains your money.
B contains somebody else's money.
Move the money as follows, 1BTC in each transaction:
Now you have 1BTC in X and in Z, but there's absolutely no way of telling where they came from. All you can say is they came from F. From now on X and Z are anonymous.And then, you can simply sell bitcoins for cash on localbitcoins. It's pretty untraceable.