Crypto News – EU Innovation Hub Highlights Risks of Privacy Coins and Crypto Mixers
Crypto News- Data encryption plays a crucial role in balancing individual privacy and collective security, but cryptocurrency mixing protocols may struggle to gain legislative approval in Europe.
The EU Innovation Hub, a collaborative effort involving various European Union agencies and member states, has released its inaugural report on encryption. This report highlights the “dual-use” nature of cryptographic technologies, which can serve both beneficial and malicious purposes.
The Good and Bad in Crypto
The report acknowledges that cryptocurrencies and nonfungible tokens (NFTs) fundamentally rely on public-private cryptography for storage, mining, and transfers. However, it also points out that some bad actors exploit these systems to evade law enforcement. Specifically, it mentions protocols and privacy coins that can obscure visibility on the blockchain.
Cryptocurrencies like Monero (XMR), Zcash (ZEC), Grin (GRIN), and Dash (DASH), along with layer-2 initiatives, zero-knowledge proofs, crypto mixing services, and noncompliant crypto exchanges, were highlighted for their potential to facilitate money laundering. The report states:
“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.”
Decrypting Hidden Trails
Crypto hackers and scammers often use services like Tornado Cash to obscure the traceability of stolen funds. Nevertheless, the report emphasizes that law enforcement can still track these transactions when they gain access to the suspect’s private keys.
The report was compiled by six members of the EU Innovation Hub for Internal Security: Europol, Eurojust, the European Commission’s Directorate-General for Migration and Home Affairs, the European Commission’s Joint Research Center, the European Council’s Counter-Terrorism Coordinator, and the European Union Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security, and Justice.
The Case of Alexey Pertsev
Alexey Pertsev, the developer of the cryptocurrency mixing protocol Tornado Cash, was found guilty of money laundering in May. This case has significant implications for open-source code developers. Despite Tornado Cash being a noncustodial protocol, meaning it does not hold or control the funds processed through it, Pertsev was convicted. His sentencing has sparked a debate about the responsibilities and liabilities of developers.
Meanwhile, amid Pertsev’s legal battles, a cross-chain bridge exploiter recently used Tornado Cash to launder $47.7 million of stolen funds. This incident underscores the ongoing challenges law enforcement faces in tracing and combating illicit activities facilitated by advanced cryptographic technologies.
FAQ
What is the EU Innovation Hub for Internal Security’s stance on encryption?
The EU Innovation Hub recognizes the crucial role of data encryption in maintaining a balance between individual privacy and collective security. However, it also acknowledges the challenges posed by cryptocurrency mixing protocols in gaining legislative approval in Europe.
Which cryptographic technologies did the EU Innovation Hub highlight in its report?
In its inaugural report, the EU Innovation Hub emphasized the “dual-use” nature of cryptographic technologies. It discussed how cryptocurrencies and nonfungible tokens (NFTs) rely on public-private cryptography for various operations such as storage, mining, and transfers. Additionally, the report pointed out the potential misuse of protocols and privacy coins that can obscure visibility on the blockchain.
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