The EU is targeting crypto privacy, Monero facing a significant challenge.

The European Union is taking a tougher stance against privacy tokens and crypto mixers. In a shocking report, it accuses them of facilitating illicit activities and threatens to strictly regulate them, at the risk of alienating the crypto community devoted to decentralization.

The EU is looking into the regulation of privacy tokens !

In its very first report on encryption, the EU Innovation Hub scrutinizes technologies that obscure crypto transactions. Created by several agencies including Europol and Eurojust, this consortium is concerned about the risks these tools pose to financial traceability and anti-money laundering efforts.

The report specifically names certain privacy cryptocurrencies like Monero, Zcash, Grin, or Dash. Their encryption protocol is said to render transactions completely opaque, complicating law enforcement surveillance efforts.

The latest innovations, such as Mimblewimble or zero-knowledge proofs, are criticized for their ability to conceal addresses, balances, and transaction flows.

Crypto mixers in the crosshairs

But it is the “mixing” services that are drawing the most criticism. These platforms obfuscate the trails by mixing different sources of crypto assets, posing a threat according to the EU in tracing illicit funds. “These tools have complicated tracing for years,” it reads, citing Tornado Cash as an example.

Although the EU recognizes that anonymous transactions remain traceable when private keys are known, it seems determined to better regulate this opaque aspect of the crypto ecosystem. This tough stance follows the conviction of the Tornado Cash developer for money laundering, despite the non-custodial nature of the protocol.

Regulators must now find the right balance between protecting privacy, which the report acknowledges as legitimate, and the ability to untangle illicit financial flows.

New stricter rules on confidential protocols and mixing services could soon emerge, risking to clash with the founding principles of cryptocurrencies.