12th June 2024 > > The EU.

tl;dr

The EU’s record is somewhat mixed, even with MiCA.

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Curious Cryptos’ Commentary – The EU

Born out of the world-beating crypto legislation MiCA, the EU Innovation Hub (shush now at the back, you do not need to shout “oxymoron” quite that loudly) has issued its inaugural report, and it is of value:

https://www.europol.europa.eu/cms/sites/default/files/documents/EU_Innovation_Hub_First%20Report%20on%20Encryption.pdf

Under “Policy overview” the first two sentences are most encouraging:

“In our increasingly digital and interconnected world, the need to strike a balance between individual privacy and public security has become a paramount topic of discussion. The fundamental right of personal data protection should go hand in hand with the fundamental rights of security and integrity of the person.”

If only everyone believed that to be true (looking at you Convicted Criminal Christine Lagarde), this would be the death-knell of CBDCs.

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At 56-pages long, the report is a summary of the interface between the technological developments that are accelerating all around us, and how those developments might challenge the legislative and regulatory framework within the EU for cryptography, biometrics, quantum computing, AI, amongst others.

A lot of it is very interesting.

But, with only a small window in which to keep your attention, I will focus on just the crypto elements of this report, with one exception.

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Firstly, and sadly unsurprisingly, that old trope about money-laundering takes centre stage:

“For example, cryptocurrencies are widely used for laundering criminal proceeds …”

I can’t see any mention of the money-launderers’ vehicle of choice, the EUR 500 note. I guess that must have been an accidental oversight by the authors, an omission which will surely be corrected in future reports.

A worrying suggestion is made:

“… the use of custodial wallets, where the user does not hold their own private key, create (sic) opportunities for cooperation between law enforcement authorities, exchanges and service providers to seize crypto assets that are suspected to be of criminal nature.”

A move to ban self-custodial wallets is bound to fail, but what I am concerned about here is the word “suspected”. What happened to the concept of innocent until proven guilty? Or am I being just a little old-fashioned for today’s technocratic elite?

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A very useful, if very scary, observation appears on page 19:

“The concept of ‘store now, decrypt later’ refers to the possibility of criminals, state actors, and other entities harvesting sensitive encrypted information today, with a view to decrypting it in the future once universal quantum computers become available.”

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Page 23 discusses the issues around “Data obfuscation of cryptocurrency transactions”.

The first port of call are privacy coins, such as Monero and Zcash. The CCC has long taken the stance that owning even a small number of privacy coins for investment purposes is not a wise decision. Declaring capital gains which include privacy coins is likely to attract more detailed investigation of your tax affairs than otherwise. Tax returns that include significant crypto activities are going to be complicated and prone to errors, honest though those errors may be. The taxman will treat any mistakes made in a brutal fashion.

But there is another reason for not getting involved with privacy coins. Even a cursory exploration of the dark web shows that Monero is a common currency used for the distribution of illegal narcotics. Unlike cash or BTC, I find it hard to think of any justification other than tax avoidance or trading in illicit substances for using privacy coins, but I am very happy to be corrected on this point.

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Mixers get a mention, but only a cursory one, and only in passing, which surprises me.

There are legitimate reasons for using mixers, though the enforcement actions of the US and Holland against the developers of Tornado Cash suggest that my view is not widely shared. Much like cryptos, mixers are not going to go away. Imprisoning developers of freely available code will simply drive that development underground, and into the arms of malicious actors.

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There’s plenty of other stuff which I think is important for us all to understand better. I wholeheartedly urge you to give this report a decent read-through.