IRS Wants to Trace Anonymous Crypto Tokens Such as Monero

The Internal Revenue Service (IRS) is looking to trace Monero transactions and is currently conducting a call for proposals with $1 million allocated for fiscal year 2020.

Giving Regulators the Tools to Trace Monero and Bitcoin

While hackers demand hefty ransoms to unlock victims’ computers, Bitcoin has been crucial in finding anonymous cybercriminals who are allegedly being tracked online by investigators and police.

Subsequently, the more tech-savvy criminals are utilizing anonymity-enhanced cryptocurrencies such as Monero to bury their tracks. But with the rise of these newer privacy-focused cryptocurrencies, they become obvious to the public eye and a sure target for law enforcement.

The Internal Revenue Service (IRS) issued a call for proposals last week, with a deadline of September 16, and the agency is looking for new solutions to help its IRS investigators track transactions in Monero and other private accounts.

“We are looking for solutions which provide the best results for tracing obfuscated cryptocurrency transactions using Monero and/or Lightning,” the tax office said.

The IRS wants to see the algorithms and source code of these tools, integrate them into their existing solutions and ideally minimize the involvement of outside vendors in accordance with the call for proposals.

IRS Ready to Invest $1m in 2020 Alone

The agency plans to select only one proposal and intends to spend about $1 million on the solutions in fiscal year 2020 (FY2020). The IRS is offering to pay up to $500,000 to anyone who develops a solution that meets their requirements for the initial eight-month proof of concept phase, followed by an additional $125,000 for the 120-day testing and deployment phase.

While the IRS does not intend to request the retention of intellectual property, developers who receive the order can work with IRS agents to develop technologies they can offer elsewhere while continuing to use the solution with funding to develop the source code, as stated in the contract.

Currently, there are several companies that offer technology to track the technology behind cryptocurrencies, such as CipherTrace and Neutrino, a startup acquired by Coinbase.

Due to their increasing anonymity, data protection issues remain a challenge for law enforcement and the pilot project will seek to use public and private sector scientific knowledge to address specific challenges.

Limited investigative resources are available to detect transactions involving Bitcoin and other off-chain transactions that provide privacy to illegal actors.