Europol has raised concerns about Bitcoin mining, stating that it attracts criminal elements. The European law enforcement agency released a critical report on June 10, focusing on Bitcoin miners and layer-2 blockchain solutions. According to Europol, the use of mining operations could potentially be used to hide illegal profits, making them appealing to fraudsters and ransomware operators.
In a detailed 40-page report on cryptographic encryption, Europol expressed worries about the challenges posed by Bitcoin mining and layer-2 solutions for law enforcement investigations. Criminal actors may exploit mining operations to conceal illicit earnings and even generate additional profits for themselves.
The report highlighted specific cases, such as the BitClub Network, where mining pools were utilized to promote Ponzi schemes. Europol emphasized that the broader cryptocurrency sector also poses additional threats, especially with the increasing use of zero-knowledge proofs and layer-2 applications on the blockchain, making it difficult to trace funds.
Zero-knowledge proofs and layer-2 solutions enable transactions to occur without publicly revealing transactional data, Europol explained. This technology allows for the verification of information without disclosing it publicly. For example, the privacy coin Zcash utilizes zero-knowledge proofs to ensure wallet balance and transaction history accuracy without revealing them on the public blockchain.
Similarly, the crypto mixer Tornado Cash uses zero-knowledge proofs to enable users to withdraw funds without disclosing their original deposits. Despite being a noncustodial crypto mixing protocol, Tornado Cash developer Alexey Pertsev was convicted of money laundering in May 2024.
The Europol report also mentioned a hacker who moved around $48 million of stolen funds from Tornado Cash after exploiting Orbit Chain. Additionally, the report highlighted the SLIP39 standard technology, also known as Shamir Backup, which makes recovering a criminal’s wallet complicated by securely splitting a wallet’s recovery phrase into multiple parts.
While these technologies offer significant benefits, they can also be abused for criminal activities. Europol stressed the need for law enforcement strategies and tools to evolve alongside new forms of crime in the rapidly expanding crypto industry.