On October 5th, the European Union's Europol, a supernational law enforcement agency, released a report that made it clear Bitcoin and cryptocurrencies are under their purview.
The report, titled the "Internet Organised Crime Threat Assessment" for 2020, covered how the internet and related technologies can be used to perpetrate crimes.
A key theme of the report were cryptocurrencies, which Europol sees as a chief concern. Catherine De Bolle, Executive Director of Europol, wrote in the report's foreword:
Europol is at the forefront of law enforcement innovation and offers various policing solutions in relation to encryption, cryptocurrencies and other challenges.
After highlighting the crimes enabled through cryptocurrencies, such as exchange hacks and the use of extortion, Europol mentioned mixer technologies as a key tool for criminals. Mixers are protocols or platforms that allow users to obfuscate the origin of a UTXO by pooling assets with those by other users.
Europol specifically highlighted "privacy-enhanced wallet services using coinjoin concepts (for example Wasabi and Samurai wallets [sic])," along with centralized mixer services.
Along with calling out Bitcoin mixer technologies, Europol highlighted privacy-centric coins such as Monero and decentralized marketplace protocols as a risk.
Specifically mentioned is OpenBazaar, a cryptocurrency-focused marketplace that allows users to buy and sell a variety of goods without paying fees or routing information through a central party. Europol fears that these platforms are being used by "criminals" to sell "their illegal goods."
This marks a blow to OpenBazaar, which recently revealed that it is running on fumes due to a lack of funding. The service, developed and maintained by OB1, currently only has funding to operate until the end of 2020. Pressure from Europol and other agencies would unlikely help OpenBazaar's cause.
This latest report from Europol comes shortly after the Financial Action Task Force (FATF) released its own report highlighting Bitcoin mixers as a threat to their goals to mitigate money laundering.
The United States Internal Revenue Service is also paying developers hundreds of thousands of dollars to develop systems to deanonymize the Lightning Network, along with "cryptocurrency obfuscation technologies." By "obfuscation technologies," the tax agency is presumably referencing Bitcoin mixers. Entities that successfully manage to crack these technologies will receive $625,000.
The regulation of cryptocurrency service providers is rapidly approaching.
As previously reported by the BTC Times, the FATF is expected to enforce the adoption of the "Travel Rule" on virtual asset service providers (VASPs).
The Travel Rule is a guideline that requires financial institutions to share customer information with one another for transactions valued over $3,000. This rule has previously been applied to institutions such as banks and brokerages. The FATF alleges that cryptocurrency service providers, such as exchanges or custodial wallets, should be added to the list of firms required to comply with this rule.
Once implemented, users wishing to buy, sell, or transfer more than $3,000 worth of bitcoin on an exchange will need to expect their information to be shared with other institutions.
Of note, non-custodial wallets and privacy-enhancing services like CoinJoin providers should be exempt from this rule.
In a similar vein, the European Union is expected to integrate a new anti-money laundering standard called 6AMLD that will likely affect VASPs with minimal know your customer compliance at the moment.
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