Encryption technology plays a crucial role in striking a balance between individual privacy and collective security. However, the adoption of cryptocurrency mixing protocols may encounter challenges when seeking approval from European legislators.
The EU Innovation Hub, a collaborative effort involving various European Union agencies and member states, has released its inaugural report on encryption, highlighting the versatile nature of cryptographic technologies.
The report underscores the essential role of public-private cryptography in the functioning of cryptocurrencies and nonfungible tokens (NFTs) for tasks such as storage, mining, and transfers. Despite this, there are concerns regarding the misuse of these technologies by malicious actors to circumvent law enforcement, particularly through the use of protocols and privacy coins that can obscure transactions on the blockchain.
In particular, the EU Innovation Hub has identified 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, as enabling bad actors to launder illicit funds more easily.
While services like Tornado Cash are utilized by cybercriminals to obfuscate the origin of stolen funds, law enforcement agencies have demonstrated the ability to trace such transactions. Despite being a noncustodial crypto mixing protocol, Tornado Cash has come under scrutiny, with its developer, Alexey Pertsev, being convicted of money laundering, raising concerns for other open-source code developers.
In a recent incident, an exploiter used Tornado Cash to siphon $47.7 million of stolen funds through a cross-chain bridge, highlighting the ongoing challenges faced by authorities in combating financial crimes in the digital realm.
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