What has been happening this week in the world of blockchain and cryptocurrencies? Current events and background reports in our weekly review.
Selected articles of the week:
Ethereum Foundation researcher Justin Drake thinks AI could break crypto signatures before quantum computers do. The scheme affected would be ECDSA, which Bitcoin and Ethereum use to sign transactions. The trigger is a release by OpenAI: 722 AI-generated mathematics manuscripts that nobody has independently verified yet. Drake considers elliptic curves especially vulnerable because of their algebraic structure. In the worst case, ECDSA could therefore fall in months rather than years. However, there is no evidence for this. As a precaution, Drake recommends a Bunker Mode. Because the public key only becomes visible during signing, remaining funds should move to a fresh address after each signature. In addition, companies such as Binance, Robinhood and Tether should harden their cold storage. Nevertheless, he advises against haste, since a rushed migration would do more harm than good. In the long run, Ethereum aims to move fully to hash-based cryptography.
Ethereum Foundation researcher Justin Drake calls for Bunker Mode because AI mathematics could break ECDSA before quantum computers do.
Without privacy, institutions stay away from the blockchain
On public blockchains, every balance and counterparty remains permanently visible. This is an obstacle for institutions, because no fund announces its trades publicly. Privacy therefore counts as the missing layer between crypto and institutions. Investors are already pricing this in. The privacy coin market grew from USD 6.2 billion to around USD 30 billion in one year. In contrast, the rest of the crypto market excluding stablecoins lost around 35%. The Canton Network shows one possible solution. There, positions remain hidden from competitors, although supervisors can access them when needed. Goldman Sachs, J.P. Morgan and US custodian DTCC already use it. Zcash, the largest privacy network, accounts for around USD 20 billion of the total. However, competition is growing. Ethereum puts privacy at the center of its 2026 roadmap, and Solana encrypts amounts with Confidential Balances. This could erode the premium of dedicated privacy coins like Zcash.
The privacy coins sector grew from USD 6.2 billion to USD 30 billion in one year, while institutions make privacy a precondition for moving on-chain.
ECB defends central bank money as the anchor of tokenization
Isabel Schnabel of the European Central Bank (ECB) Executive Board presented three models for blockchain-based central bank money in London. In the first, the central bank tokenizes bank reserves directly. The second keeps the existing payment system and links it to the blockchain via an interface. In the third, a private intermediary issues tokens fully backed by central bank reserves. For holders, however, they remain a private claim. All three aim to keep central bank money as the settlement anchor in tokenized markets. In practice, the ECB has gone further. It recently began linking blockchain platforms to its payment system. As a result, banks can settle tokenized securities trades directly in central bank money. At launch, 13 financial institutions joined, including Deutsche Bank and Santander. Moreover, the ECB plans to invest a small part of its own funds in such securities. However, it did not name an amount.
Isabel Schnabel of the ECB presented three models for central bank money onchain in London, ranging from direct issuance to private tokens.
FinCEN scraps planned reporting rules for mixers and wallets
The US anti-money laundering agency FinCEN has withdrawn two crypto proposals that never took effect. The first dates from December 2020 and concerned self-custody wallets, known as unhosted wallets. Financial institutions would have had to record counterparty data from USD 3,000 upward. The second proposal, from 2023, classified crypto mixing as a primary money laundering concern. Mixers blend the transactions of many users to obscure payment trails. The planned reports would also have included users’ IP addresses. FinCEN attributes the withdrawal to the Trump administration’s push to cut regulation. However, this is no all-clear. The agency still sees mixers as a money laundering risk and has not ruled out further action. In any case, nothing changes for Swiss institutions. FINMA already requires proof that the customer controls a self-hosted wallet, regardless of the amount. Meanwhile, a similar requirement applies in the EU from EUR 1,000.
FinCEN withdraws its 2023 crypto mixing rule and its 2020 unhosted wallet proposal, while the EU and Switzerland require proof of wallet ownership.
Strategies on decentralized exchanges
In addition: on decentralized exchanges, users trade against a token pool rather than each other. A fixed formula, not an order book, determines the price. This mechanism is called an automated market maker (AMM). The capital in the pool comes from investors known as liquidity providers. In return, they receive a share of the trading fees. Anyone who provides liquidity therefore holds a portfolio that rebalances itself with every trade. If a token rises, the pool sells part of it. If it falls, the pool buys more. At its core, an AMM thus works like an asset manager with a fixed investment rule. However, this comes at a price. When a token rises sharply, simply holding it would often have earned more. This difference, known as impermanent loss, grows with price volatility. Admittedly, fees can offset the loss. Nevertheless, providing liquidity is not a risk-free source of income.
Automated market makers manage liquidity pools like rule-based portfolios, with direct consequences for impermanent loss and hedging.
