• The “dual-use” aspect of cryptographic technologies is highlighted in the report.

  • Six members of the European Union’s Innovation Hub for Internal Security collaborated.

Cryptocurrency mixing protocols and privacy coins are encountering resistance from European lawmakers. Members of the European Union Innovation Hub—an initiative that brings together representatives from EU agencies and member states—have released their first report on encryption. The “dual-use” aspect of cryptographic technologies is highlighted in the report.

The report backed the use of public-private cryptography for cryptocurrency and NFT storage, mining, and transactions. But there are criminals that use the system—more especially privacy coins and protocols—to “obscure” their identities on the blockchain and elude authorities.

Complicating Tracing

Moreover, for their role in facilitating money laundering, the EU Innovation Hub singled out many digital assets, including Monero, Zcash, Grin, and Dash; layer-2 projects; zero-knowledge proofs; crypto mixing services; and non-compliant crypto exchanges.

The report stated:

“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.”

In order to prevent their funds from being traced, crypto hackers and fraudsters sometimes use services like Tornado Cash to siphon off stolen monies. Six members of the European Union’s Innovation Hub for Internal Security collaborated to write the report.

Furthermore, the May conviction of cryptocurrency mixing protocol Tornado Cash creator Alexey Pertsev on charges of money laundering has serious ramifications for anyone who works on open-source software.

Despite Tornado Cash not being a custodial crypto mixing protocol—meaning it never holds or controls the monies transmitted via it—the punishment nevertheless went through. Similarly, authorities worldwide have banned several privacy coins and protocols in order to curb money laundering and frauds.

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