The European Union Agency for Law Enforcement Cooperation (Europol) has voiced serious worries in a recent paper on the criminal element exploitation of layer-2 blockchain technologies and crypto mining. The government cautions that these technologies could seriously complicate law enforcement investigations, therefore impairing their capacity to track illegal money and recover pilfers of stolen goods.
Crypto Mining: A Lucrative Laundering Scheme?
The study by Europol emphasises the rising trend of criminals hiding the source of their obtained wealth by means of crypto mining activities. Integration of illegal income into mining operations helps thieves to properly wash their money and even create extra income throughout the process.
The FBI has found unusual activity in mining pools, especially those used by ransomware operators who expand their illegal activities on these platforms.
“Pool mining schemes have also been used by scammers to run their Ponzi schemes,” the report states. “For example, the BitClub Network promised earnings through pool mining, while these pools did not actually exist; defrauded investors lost hundreds of millions of euros.”
Layer-2 Solutions: A Double-Edged Sword
Although layer-2 blockchain solutions have been heralded as a way to increase scalability and lower transaction costs, Europol regards them as a possible hazard to law enforcement initiatives. The agency issues a warning: the growing use of zero-knowledge proofs and other layer-2 technologies might make tracking fund flow on the blockchain much more difficult.”
The paper notes, without specifying the particular difficulties these solutions could create, these technologies could generate more issues for law enforcement investigations.
Europol Report: The SLIP39 Conundrum
Europol also underlines the possible issues with the SLIP39 standard, sometimes referred to as Shamir Backup, which many hardware crypto wallets utilise. With each recovery share of 20 words, this standard lets one create several mnemonic phrases rather than a single mnemonic phrase.
Restoring a wallet requires a user-defined amount of these shares, which adds still another level of difficulty for law enforcement officials trying to reclaim assets of a criminal. “The task of recovering a criminal’s wallet could be complicated significantly due of the SLIP39 standard,” the paper says.
Is Crypto Mining Criminal In Nature?
Although Europol’s worries are legitimate, layer-2 solutions and crypto mining are not intrinsically illegal in character. These technologies could completely transform the financial sector and have several justified uses. Like any strong instrument, though, there is the chance of abuse by rogue actors.
Europol advocates further cooperation among law enforcement authorities, regulators, and the crypto sector to meet these difficulties. Working jointly to create strong anti-money laundering (AML) and counter-terrorism financing (CTF) policies, together encouraging innovation in the crypto field, it could be feasible to balance security with advancement.
Europol, Eurojust, European Commission’s Directorate-General for Migration and Home Affairs (DG HOME), European Commission’s Joint Research Centre (JRC), 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 (EU-LISA) produced the report.
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