Europol Criticizes Crypto Mining and Layer-2 Solutions in New Report

European law enforcement agency Europol has criticized crypto mining and layer-2 blockchain solutions, asserting that they pose “additional problems for law enforcement investigations.”

In a recent 40-page report on cryptographic encryption, the Hague-based agency highlighted how crypto mining has become an attractive method for criminals to launder illicit proceeds. According to Europol, criminal actors can use mining operations to obscure illicit earnings, in some cases even generating further profits for criminals. Suspicious activity has been detected in mining pools as well, particularly those exploited by ransomware operators.

“[…] pool mining schemes have also been used by scammers to run their Ponzi schemes. 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.”

However, crypto mining alone isn’t the only threat that Europol sees in the crypto industry. Europol also raised concerns about the broader cryptocurrency landscape, emphasizing that the increasing use of zero-knowledge proofs and layer-2 applications on the blockchain could complicate the tracing of funds.

The agency warned that these technologies “might cause additional problems for law enforcement investigations,” though it didn’t specify the exact challenges these scaling technologies might introduce.

Furthermore, the report acknowledged that the task of recovering a criminal’s wallet could be “complicated significantly” due to the SLIP39 standard, commonly known as Shamir Backup. This standard, used by hardware crypto wallets, allows for the creation of multiple recovery shares instead of a single mnemonic phrase. Each recovery share consists of 20 words, and a user-defined number of these shares are required to restore a wallet, adding another layer of complexity for law enforcement, Europol claims.

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