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The US Internal Revenue Service (IRS) is looking for information and tools to help it trace transactions using private currencies, layer two protocols like Lightning Network, and side chains like Plasma and OmiseGo (OMG).
A June 30 inquiry published by the US Treasury Department reveals that the IRS Criminal Investigation Division is looking for proposals for “an interactive prototype” with a graphical user interface to analyze distributed ledger-based transactions involving coins. private and other privacy enhancements blockchain technologies.
IRS peeks into privacy
The document explicitly names Monero (XMR), Zcash (ZEC), Dash (DASH), Grin (GRIN), Komodo (KMD), Verge (XVG), and Horizen (ZEN) among the privacy coins the IRS hopes to target, in addition to the level two solutions Raiden Network, Celer Network and Lightning.
The IRS requires that you prototype detailed systems for “cluster transactions” from a single user using “privacy coins and obfuscation technologies”; compile a library of wallet addresses associated with “suspicious or known to be involved in nefarious activities”; and identify other addresses associated with said nefarious portfolios.
The agency also requires the system to include “a mechanism for sharing investigative research among investigators”, secure data export and import functionality, and estimates of proposed systems costs and return on investment.
Difficult to track privacy coins
Despite the bold ambitions of the IRS’s cryptocurrency tracking initiative, the agency acknowledges that few resources currently exist to track the movements and addresses of private coins:
“Currently, there are few investigative resources to track transactions involving privacy cryptocurrency coins, layer two network protocol transactions, side ledger transactions, or distributed ledger transactions that adopt signature algorithms that provide privacy to offenders.” .
The regulator also highlighted the dynamic nature of innovation in privacy-enhancing technologies, noting the challenges presented by Schnorr Signatures, which were partially implemented by Bitcoin Cash (BCH) last year.
The deadline for submitting prototypes is 14 July.
