The EU Innovation Hub identified privacy coins, along with layer 2 initiatives, zero-knowledge proofs, crypto mixing services, and non-compliant crypto exchanges as tools that facilitate the laundering of funds by bad actors.
The EU Innovation Hub for Internal Security recently published its first report on encryption explaining how privacy coins and crypto mixers have been complicating matters of regulatory development.
Data encryption has proved to be essential in maintaining a balance between individual privacy and security. However, the way these crypto-mixing protocols function, they can face strong resistance to legislative acceptance in the EU.
The recent report by the EU Innovation Hub stresses the “dual-use” nature of cryptographic technologies. The report highlighted that the inherent reliance of cryptocurrencies and nonfungible tokens (NFTs) on public-private cryptography for storage, mining, and transfers can be exploited by bad actors to evade law enforcement. Specifically, it pointed out that certain protocols and privacy coins can “obscure” blockchain visibility.
The EU Innovation Hub identified cryptocurrencies such as Monero (XMR), Zcash (ZEC), Grin (GRIN), and Dash (DASH), along with layer 2 initiatives, zero-knowledge proofs, crypto mixing services, and non-compliant crypto exchanges as tools that facilitate the laundering of funds by bad actors.
“Mixers and privacy coins have been complicating tracing for years, but Mimblewimble and zero-knowledge proofs are relatively new developments that can also obscure the visibility of cryptocurrency addresses, balances and transactions,” the report noted.
Unlocking Hidden Trails
In order to deter traceability, crypto hackers and scammers have been siphoning off stolen funds using services like Tornado Cash. Despite this, the law enforcement agencies can track such transactions.
“All of these developments can still be investigated by law enforcement authorities, when access to the private keys of the suspect are gained,” reported the EU Innovation Hub. The Hub has created the report with other members of the Internal Security members including Eurojust, Europol, the European Commission’s Directorate-General for Migration and Home Affairs, the European Council’s Counter-Terrorism Coordinator, the European Commission’s Joint Research Center, etc.
Earlier this year in May, Alexey Pertsev, the founder of the popular cryptocurrency mixing protocol Tornado Cash, was found guilty of charges of money laundering. The sentencing took place even though Tornado Cash is a noncustodial crypto mixing protocol, meaning it never holds or controls the funds processed through it.
Amid Pertsev’s legal battle with law enforcement, a cross-chain bridge exploiter recently used Tornado Cash to funnel $47.7 million in stolen funds.
next