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A brand new report from the EU has singled out Bitcoin’s Lightning Community and different layer 2 options as “information obfuscation” applied sciences that may very well be “abused by criminals.”
The First Report on Encryption by the EU Innovation Hub for Inside Safety, a “collaborative community of innovation labs” from throughout EU member states, argues that alongside applied sciences together with Mimblewimble, zero-knowledge (zk) proofs, coin mixers and privateness cash comparable to Monero and Zcash, “layer 2 options such because the lightning community may also be abused by criminals.”
The report notes that the Lightning Community’s “two-party multisignature fee channels won’t broadcast all transactions to the blockchain, however solely the opening and shutting of the channel,” including that it and different layer 2 options might trigger trigger “issues for legislation enforcement investigations.”
Privateness cash and legislation enforcement
The report additionally takes goal at coin mixers comparable to Twister Money, and privateness cash together with Monero, Zcash, Grin and Sprint.
It highlights their use of “zero-knowledge proofs and layer 2 options” that allow some transaction information to be obscured, which “considerably complicates tracing the origins of (illicit) cryptocurrency for legislation enforcement.”
Cryptographic protocol Mimblewimble, utilized by cryptocurrencies together with Grin, Beam and Litecoin, is taken into account a “complicating issue,” in legislation enforcement’s efforts to hint cryptocurrency transactions, although the report’s authors conced that, “transactions utilizing Mimblewimble will not be steadily encountered.”
Privateness cash have been topic to regulatory stress from governments in current months.
The EU’s Markets in Crypto Belongings (MiCA) framework, which comes into pressure on the finish of 2024, cracks down on interactions between crypto-asset service suppliers (CASPs) and privateness cash, prompting crypto exchanges comparable to Binance to delist them.
Crypto mixers have additionally come below stress from legislation enforcement businesses world wide, with Twister Money developer Alexey Pertsev discovered responsible of cash laundering by a Dutch courtroom.
In April, U.S. authorities arrested and charged the founders of Bitcoin mixer Samourai Pockets with conspiracy to commit cash laundering. The crackdown has had a chilling impact on different privateness instruments, with a number of coin mixing providers abandoning the U.S. within the wake of the Samourai Pockets arrests.
Edited by Stacy Elliott.