Monero and Bitcoin targeted by the IRS

  • The Internal Revenue Service (IRS) wants to have the ability to track anonymous crypto currencies in the future.
  • To this end, the authority is asking companies to informally comment and provide information regarding feasibility.
  • The paper reveals the expectations and fears of the investigators, but also the strengths and weaknesses of individual crypto currencies.

It is no longer a secret. Monero (XMR) and other “privacy coins” are causing investigating authorities a lot of headaches. Unlike conventional Bitcoin transactions, they sometimes conceal the sender, the recipient and also the amount involved.

Now the US tax authorities IRS is asking international companies to send it information about what a system might look like that is capable of tracking such transactions. The request originates from the “CI Cyber Crime” department and it is therefore foreseeable that the authority probably wants to build up capacities in this area.

Although such a request for information is not initially formal in nature, it is a first step in that direction. Even more interesting, however, are the conclusions on what the Authority has to say about the state of play.

Monero becomes the first choice

Among other things, the IRS wants to have information that criminals will increasingly use Monero in the future. This is to be expected particularly in the ransomware sector, as the perpetrators have a strong interest in anonymous transactions. This assessment should even be based on concrete evidence.

Other crypto currencies such as Dash, Zcash or Grin are also of interest to the authorities. The paper acknowledges that leading companies in the field of block chain analysis have already launched initiatives to track Dash and Zcash.

This shows once again that probably only Monero is a haven for those who either want privacy or are in urgent need of it.

Scrounger signatures are a problem

The authority also considers the introduction of Schnorr signatures to be problematic. According to the paper, this is the case because the investigating authorities do not have standard software that can already handle them.

Of course, this does not rule out the possibility that there may not be specific applications for this, but it is obvious that the desire is for a product that can be integrated more widely. If Bitcoin were to follow suit and Schnorr were to integrate signatures, this would make future investigations more difficult.

But another part of the Bitcoin network is also of concern to the authorities.

Lightning Network is getting bigger

Although most companies have so far largely ignored the Lightning Network when it comes to transaction analysis, they want to change that. From the point of view of the IRS, 2-layer technology is becoming increasingly popular.

In the future, more and more users could rely on the software, so they don’t want to ignore this aspect of the technology, but want it covered. This trend can be seen in the growing number of network nodes.

A double-edged sword

Ultimately, crypto-currencies pose a challenge to society in terms of their transparency. Do you want to be able to monitor all transactions? And if so, who should be allowed to monitor them?

Bitcoin allows in principle anyone to do so. Provided one has the necessary knowledge and resources. This has the advantage that crimes with Bitcoin are actually not a good idea. On the contrary, if everyone were to rely on this technology, corruption and a successful black market would probably be more difficult to create.

On the other hand, all users are “naked”. Can all authorities and governments be trusted to use this data carefully? And what about future elections? Even if we can affirm our current reason of state, we don’t know what future generations or ourselves might see.

Privacy therefore remains a good that can only be protected by defending it absolutely.