June 18, 2024
EU Innovation Hub Warns of Privacy Coin Security Risks
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EU Innovation Hub Warns of Privacy Coin Security Risks

The Dual-Use Nature of Cryptography

The EU Innovation Hub, a collaborative initiative that includes members from European Union agencies and member states, has unveiled its inaugural report on encryption. This comprehensive report highlights the “dual-use” nature of cryptographic technologies, acknowledging their potential to both protect individual privacy and pose risks to collective security.

The Good and Bad in Crypto

The report commends the foundational role of public-private cryptography in cryptocurrencies and nonfungible tokens (NFTs) for secure storage, mining, and transfers. However, it also raises concerns about the misuse of these technologies by bad actors who exploit protocols and privacy coins to evade law enforcement. Specifically, the EU Innovation Hub points to cryptocurrencies such as Monero, Zcash, Grin (GRIN), and Dash, along with layer-2 initiatives and zero-knowledge proofs, as tools that can “obscure” blockchain visibility. According to the report, “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.”

Decrypting Hidden Trails

The report underscores the challenges law enforcement faces in tracing illicit activities involving crypto mixers like Tornado Cash. These services are often used by hackers and scammers to launder stolen funds and deter traceability. Nonetheless, the report notes that law enforcement can still investigate these transactions if they gain access to the suspect’s private keys: “All of these developments can still be investigated by law enforcement authorities when access to the private keys of the suspect is gained.”

Implications for Open-Source Developers

The EU Innovation Hub’s report was crafted by six prominent members: Europol, Eurojust, the European Commission’s Directorate-General for Migration and Home Affairs, the European Commission’s Joint Research Center, the European Council’s Counter-Terrorism Coordinator, and the European Union Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security, and Justice. A notable case highlighted in the report is that of Alexey Pertsev, the developer of the cryptocurrency mixing protocol Tornado Cash, who was convicted of money laundering in May. This case sets a significant precedent for open-source code developers, as Tornado Cash is a noncustodial protocol, meaning it does not hold or control the processed funds.

Balancing privacy and security

The EU Innovation Hub’s report illuminates the complex landscape of cryptographic technologies, where the line between enhancing privacy and enabling illicit activities is often blurred. As the European Union continues to navigate this intricate balance, the emphasis remains on developing robust frameworks that can simultaneously protect individual privacy and ensure collective security.

Image by Clker-Free-Vector-Images from Pixabay

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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