EU report: Lightning Network and L2 solutions may become criminal tools, making law enforcement more difficult

The EU Innovation Center’s internal security report pointed out that Bitcoin’s Lightning Network and other L2 solutions may be abused by criminals and become a technology to “obfuscate data” while “protecting privacy”.

L2 Solution Challenges

The report, published in collaboration with Innovation Labs across EU member states, is the first ever report on encryption technology. The report points out that technologies including Mimblewimble, zero-knowledge proofs (zk proofs), cryptographic mixers, and privacy coins such as Monero and Zcash may be used to conduct illegal activities.

The report specifically states that the Lightning Network:

L2 solutions like Lightning Network can also be abused by criminals. The "two-party multi-signature payment channel" of the Lightning Network will not broadcast all transactions to the chain, only the opening and closing of the channel will be broadcast. This can cause difficulties for law enforcement in their investigations.

(Two core developers resigned, and the founder of Nostr questioned whether the Lightning Network was a fraud?)

Name Tornado Cash

The report also criticized cryptographic mixers such as Tornado Cash, as well as privacy coins and L2 solutions, for being able to hide some transaction data, making it significantly more difficult for law enforcement agencies to track the source of illegal cryptocurrencies.

The previously upgraded privacy protection protocol MimbleWimble (MWEB) also makes tracking cryptocurrency transactions more complicated (including Grin, Beam, and Litecoin).

However, the report also mentioned that transactions using Mimblewimble are uncommon.

(Litecoin privacy protocol MWEB completes upgrade, Korean exchanges issue warnings)

Regulatory pressure on privacy coins

Privacy coins have continued to come under regulatory pressure over the past few months. The EU Crypto-Asset Market Regulation (MiCA) will take effect at the end of 2024. MiCA strictly regulates the interaction between crypto-asset service providers and privacy coins. Mainstream exchanges including Binance and OKX have successively chosen to remove privacy coins.

(Binance delists privacy coins Monero (XMR), cross-chain bridge currency MULTI and other well-known currencies, the end of narratives of different eras)

This article EU report: Lightning Network and L2 solutions may become criminal tools and increase the difficulty of law enforcement first appeared on Chain News ABMedia.