IRS bounty crypto

Thanks to Coin Telegraph for this:

The United States Internal Revenue Service has offered a bounty of up to $625,000 to anyone who can break purportedly untraceable privacy coins such as Monero (XMR) as well as trace transactions on Bitcoin’s (BTC) Lightning Network.

The official proposal, published last week, says the IRS will accept submissions in the form of working prototypes until Sept. 16. If accepted, applicants will receive an initial payment of $500,000.

This grant will allow applicants to develop their prototype into a working concept over the next 8 months. Once the pilot test is completed and approved by the government, a further $125,000 grant will be awarded.

“IRS-CI is seeking a solution with one or more contractors to provide innovative solutions for tracing and attribution of privacy coins, such as expert tools, data, source code, algorithms, and software development services.”

IRS bounty crypto

The announcement defines the initiative’s primary objectives as helping IRS Criminal Investigation, or CI, special agents to trace transactions — including identifying wallets, transaction dates and times — and amounts transferred. The agency hopes to use the tools to predict the future transactions of flagged addresses. The final products must also provide CI full control, with the ability to further develop or modify them so that the organization does not have to rely on any external vendors.

While Bitcoin has been ranked as the number one crypto choice among criminals, a great deal of darknet markets transactions are conducted using the privacy coin Monero (XMR).

Monero is one of the virtual currencies preferred among criminal organizations over more traceable crypto assets like Bitcoin. The IRS noted that XMR is being used for all future ransom demands and transactions by ransomware group Sodinokibi due to its “privacy concerns.”

Demand for privacy coins among criminal syndicates has grown as authorities have increased their crypto forensics capabilities and employ the skills of private contractors such as Chainalysis.

In recent years, Chainalysis has assisted law enforcement in tracking Bitcoin and other cryptocurrency transactions to successfully fight child abuse, money laundering and terrorist financing. Last month, Chainalysis was integral in the takedown of three terrorist organizations.

IRS bounty crypto

Privacy coins are a key strategy to help criminals obfuscate their transactions, with the IRS stating:

“Currently, there are limited investigative resources for tracing transactions involving privacy cryptocurrency coins such as Monero or other off-chain transactions that provide privacy to illicit actors.”

Blockchain analytics firm CipherTrace claims to have a new tool that can trace Monero transactions, although its capabilities are yet to be confirmed. The company announced that the tool, which took more than a year to develop, will be used by the U.S. Department of Homeland Security. CipherTrace chief financial analyst John Jeffries said the tool can track stolen Monero used for illegal transactions back to the source, such as in ransomware cases.

Pilot IRS Cryptocurrency Tracing

IRS bounty crypto

Features of Monero

Monero was launched in 2014 and is one of the most popular cryptocurrencies in terms of market capitalization. It is a bitcoin fork with several anonymity features. Monero transactions are completely anonymous. The three most important features are Ring Signatures, Ring Confidential Transactions (RingCT), and Stealth Addresses.

Ring Signatures

A ring signature is a digital signature that can be performed by any member of a group of users that each have keys. A message signed with a ring signature is endorsed by someone in a particular group without revealing which of the group members’ keys was used to produce the signature.

Ring Confidential Transactions (RingCT)

RingCT is how transaction amounts are hidden in Monero. It is an improved version of ring signatures and was implemented in 2017. RingCT allows for hidden amounts, origins and destinations of transactions with reasonable efficiency and verifiable, trustless coin generation. It is now mandatory for all transactions on the network.

Stealth Addresses

Stealth Addresses allows the sender to create random one-time addresses for every transaction on behalf of the recipient. Monero users have a public address that is shown on the blockchain, but their transactions will be passed through stealth addresses. Only the sender and receiver can determine where a payment was sent.

Monero is currently implementing BulletProofs instead of RingCT to reduce transaction sizes. Their roadmap is available here.


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