European law authorities are raising concerns over the use of privacy coins, Layer-2 networks, and crypto mixers in criminal activities, according to a recent report by the EU Innovation Hub for Internal Security. The report, a collaboration between Europol, Eurojust, and other EU agencies, highlights the challenges faced by law enforcement in tracking and recovering illicit digital assets moved via decentralized methods.
Cryptocurrencies, which heavily rely on public-private key cryptography, are increasingly being used for money laundering and other criminal activities. Technologies such as zero-knowledge proofs, Layer-2 networks, and privacy coins like Monero, Dash, and Zcash are making it difficult for law enforcement to trace illicit funds. These technologies obscure transaction details and enhance privacy, making it challenging for authorities to track the movement of funds.
The report emphasizes the need for law enforcement to keep up with technological advancements and collaborate closely with crypto exchanges and custodial wallet providers. Access to suspects’ private keys is crucial for overcoming encryption challenges and effectively tackling the misuse of digital assets for criminal purposes. The report also calls for continued research into user-controlled encryption and the potential impact of quantum computing on cryptographic protocols.
Policymakers are urged to prioritize funding to enhance law enforcement’s capabilities in countering the use of cryptocurrencies for illegal activities. The report underscores the importance of staying ahead of technological developments and fostering collaboration with industry stakeholders to address the challenges posed by privacy coins, Layer-2 networks, and crypto mixers.
