Bitcoin Lightning Network and Layer 2 Scaling Could Be ‘Abused by Criminals’, Says EU

A recent report from the EU has raised concerns about the potential for Bitcoin’s Lightning Network and other layer 2 solutions to be exploited by criminals. The report suggests that these technologies could be used for “data obfuscation,” making it difficult for law enforcement agencies to conduct investigations. In addition to the Lightning Network, the report identifies other technologies such as Mimblewimble, zero-knowledge proofs, coin mixers, and privacy coins like Monero and Zcash as being vulnerable to abuse. The use of zero-knowledge proofs and layer 2 solutions by privacy coins obscures transaction data, complicating efforts to trace illicit cryptocurrency activity. The EU’s Markets in Crypto Assets (MiCA) framework, set to take effect in 2024, will restrict interactions between crypto-asset service providers and privacy coins. Law enforcement has also targeted crypto mixers, with recent arrests and legal action against developers and founders involved in money laundering activities.