Academic paper suggests governments should attack public blockchains

An academic paper titled: “Reconciliation of Anti-Money Laundering Instruments and European Data Protection Requirements in Permissionless Blockchain Spaces” published in the Journal of Cybersecurity suggests that governments should target cryptocurrencies — especially privacy preserving chains — to combat money laundering.

The author of the paper outlined several methods of undermining trust in permissionless blockchains including 51% attacks, price suppression, and Sybil attacks — a type of malicious activity in which a single user creates multiple accounts to manipulate a network. The author asserted:

“The users’ confidence in the networks may be significantly undermined by successful attacks on networks which could undermine the trust of the blockchain community in the ability of the network’s protocol to ensure smooth operation.”

However, the paper also argued that these methods should only be used as a “last resort” to combat money laundering after other policy initiatives such as blacklisting wallet addresses, flagging transactions, sanctions, and other regulations have been exhausted.

Ultimately, any approach taken should attempt to balance the need to ensure regulatory compliance under existing laws, promote innovation, and the need to protect individual user privacy, the author concluded.

Although the paper was published in 2021, its findings recently came into sharper focus after several users theorized that some of the same tactics discussed are currently being used to manipulate the price of Monero (XMR) — a privacy-enhancing cryptocurrency named in the academic paper.

Related: Kraken to end Monero support in European Economic Area

Money laundering: just an excuse to impose tighter control?

In 2022, United Nations officials revealed that terrorist organizations predominantly use cash to finance illicit activities — an assertion later corroborated by a report from the United States Treasury, which found that criminal organizations prefer fiat currency to crypto.

Moreover, the May 2024 US Treasury report also admitted that even when digital assets were used for illicit activities, they tended to be used to perpetuate age-old schemes that could have been committed using cash or other asset classes.

Still, this has not stopped the United States government from cracking down on crypto mixers and other privacy-enhancing tools. On Sept. 26, 2024, a US judge ruled that the case against Tornado Cash co-founder Roman Storm could move forward.

The government crackdown on these privacy-enhancing tools has sparked a debate about the viability of these services, as many users ask whether crypto mixers can survive under the current regulatory regime.

Magazine: Terrorism and Israel-Gaza war weaponized to destroy crypto