The European innovation hub for Internal Security reported in its first report about the complications that arose from Privacy coins and crypto mixers in the regulations.
Data encryption helps others to save individual data and provides services for collective security. However, cryptocurrency mixing protocols might struggle to gain legislative approval in Europe.
The EU Innovation Hub, a group made up of members from EU agencies and member states, has released its first report on encryption. The report highlights that cryptographic technologies can be used for both good and bad purposes.
Pros and Cons in Crypto
The report supported the use of public-private cryptography for cryptocurrency and nonfungible tokens (NFTs) in storage, mining, and transfers. However, the report mentioned that some dishonest people misuse the system to avoid law enforcement. They use protocols and privacy coins to hide their actions on the blockchain.
The EU innovation hub pointed out several cryptocurrencies like Monero, Zcash, and Grin, and some noncompliance crypto exchanges entertaining bad actors in the activity of laundering.
“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.”
Shedding Light on Hidden Trails
Crypto hackers and scammers often funnel stolen funds through services like Tornado Cash to make them harder to trace. However, law enforcement can still track these transactions.
“All of these developments can still be investigated by law enforcement authorities, when access to the private keys of the suspect are gained.”
During this year, in May the founder of mixing protocol Tornado Cash, Alexey Pertsev, was found guilty of his involvement in money laundering and raised potentially serious consequences for open-source code developers.
Even though Tornado Cash is a noncustodial crypto mixing protocol, meaning it doesn’t hold or control the funds processed through it, the sentencing still happened.
During Pertsev’s legal battle, a criminal exploited a cross-chain bridge and used Tornado Cash to steal $47.7 million.
