Well, my proposal wasn't to mix 2 transactions, but maybe 10, or even 50. And then once you add the change addresses (at least 1 per wallet), it is no longer so easy to figure out what was used for what, and what belongs to what.
Couldn't you say the same thing about this mixing? It could be expanded pretty easily to have Alice's mix offer be "Hey, I'm running a 5 BTC mixing party. Let's get everyone in on this same transaction." If a lot of people are throwing in their 2's and 3's, it'll get difficult to find the original pairs.
Not really, because once I do my 100btc transaction, I have to combine all those in my own wallet. So mine are again identifiable as mine. The "bad" operation is to actual combine. So my idea was, make the combine operation more anonymously.
Okay, I get your point now. I guess the way this mixing would solve that issue is to make it meaningless to know that addresses are related. Sure, you can see that four 25 BTC outputs have come together to pay 100 total BTC, but since mixing occurs between each transaction, you can't trace them any further back. You can't tell who owns them or what those coins have done in the past, and if the mixing has been done properly (like in Casascius' last post), there won't be any cases of "Oh, I see from tx1 that someone owns addresses A,B,C and I see from tx2 that someone owns C,D,E. Therefore, the same person owns all 5 addresses."
Whoo, you guys type fast. 3 more replies since I started writing this up.
One more point, while casascius method would extremely bloat the block chain, mine could actually reduce the size.
In the original post, it was mentioned that in the future, most people will be storing only the unspent transactions, not the entire history of everything. Many of the blockchain pruning ideas implement something similar, and I think it's pretty likely that the solution that finally gets implemented will only store unspent transactions. While casascius' method would bloat the blockchain with transactions, it would dramatically reduce the side-chain that only stores unspent transactions.