Data encryption plays a crucial role in maintaining a balance between individual privacy and collective security. However, cryptocurrency mixing protocols are facing challenges when it comes to gaining acceptance from European legislators.
The EU Innovation Hub, a collaborative effort involving members from various European Union agencies and member states, has released its inaugural report on encryption. The report highlights the versatile nature of cryptographic technologies.
The report acknowledges the importance of public-private cryptography in the realm of cryptocurrencies and nonfungible tokens (NFTs) for tasks such as storage, mining, and transfers. Nevertheless, there are concerns regarding the misuse of these technologies by malicious actors to evade law enforcement, especially through protocols and privacy coins that can obscure transactions on the blockchain.
Specifically, the EU Innovation Hub has singled out cryptocurrencies like Monero (XMR), Zcash (ZEC), Grin (GRIN), and Dash (DASH), as well as layer-2 initiatives, zero-knowledge proofs, crypto mixing services, and noncompliant crypto exchanges for facilitating money laundering activities by bad actors.
Despite efforts by crypto hackers and scammers to launder stolen funds using services like Tornado Cash to avoid detection, law enforcement agencies have been able to track such transactions.
The report was developed by six members of the EU Innovation Hub for Internal Security, including 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.
In a related incident, North Korea was found to have used Tornado Cash to funnel $147.5 million in stolen funds, leading to the arrest of Alexey Pertsev, the developer behind the cryptocurrency mixing protocol. Despite Tornado Cash being a noncustodial platform, Pertsev’s legal troubles have raised concerns for open-source code developers.
In a separate incident, an exploiter of a cross-chain bridge recently utilized Tornado Cash to transfer $47.7 million in stolen funds, further highlighting the challenges faced by law enforcement in combating illicit activities in the cryptocurrency space.
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