A new report prepared by the EU warns about the Bitcoin Lightning Network and some altcoins. The report characterizes Bitcoin and other layer 2 solutions as “data hiding” technologies. Based on this, he states that it is possible for criminals to abuse these technologies. In this context, the report suggests that layer 2 solutions will cause “problems with law enforcement investigations.”
EU report: Bitcoin and these altcoins may cause problems!
The First Report on Encryption, produced by the EU Homeland Security Innovation Centre, a “collaborative network of innovation labs” in EU member states, found that technologies such as Mimblewimble, zero knowledge (zk) proof, coin mixers and privacy coins such as Monero (XMR) and Zcash (ZEC) In addition, he argues that “Layer 2 solutions such as Lightning Network can also be abused by criminals.”
The report states that Lightning Network “two-party multi-signature payment channels will not broadcast all transactions to the Blockchain, only the opening and closing of the channel.” Therefore, he notes that Bitcoin and other Layer-2s will cause “problems for law enforcement investigations.”
Crypto mixers and privacy coins are on target!
The report also targets coin mixers like Tornado Cash (TORN). In addition, it targets privacy coins such as Monero, Zcash, Grin and Dash (DASH). He underlines the use of “zk-proff and layer-2 solutions” that enable hiding some transaction data. This “makes it significantly more difficult for law enforcement to trace the origins of (illegal) cryptocurrency.”
Mimblewimble, the cryptographic protocol used by cryptocurrencies such as Grin (GRIN), Beam (BEAM), and Litecoin (LTC), is considered a “complicating factor” in law enforcement efforts to trace cryptocurrency transactions. However, the authors of the report admit that “transactions using Mimblewimble are not common.”
Privacy coins come under regulatory pressure from governments
cryptokoin.comAs you follow from, the EU’s Crypto Asset Markets (MiCA) framework, which will come into force at the end of 2024, restricts interactions between crypto asset service providers (CASPs) and privacy coins. Thus, it encourages crypto exchanges like Binance to delist these coins.
A Dutch court has found Tornado Cash developer Alexey Pertsev guilty of money laundering. Thus, crypto mixers have also come under pressure from law enforcement agencies around the world. In April, US authorities accused the founders of Bitcoin mixer Samourai Wallet of money laundering. He then took the founders to court and arrested them. Following the Samourai Wallet arrests, several coin mixing services have left the United States. Therefore, this pressure had a chilling effect on other privacy tools.
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