The US Tax Service (IRS) will pay up to $ 625,000 for a tool to efficiently track transactions on Lightning Network or Monero.
The agency noted an increase in the use of tools that increase confidentiality, in the interests of criminals.
Blockchain forensics and transaction monitoring have increased dramatically in recent years, but there is still no reliable solution for LN or XMR tracing
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The US Internal Revenue Service is offering up to $ 625,000 to anyone who can successfully trace Bitcoin Code transactions from Lightning Network or Monero . Submitted last week, this request is indicative of an increase in the number of legal and illegal uses of privacy protection tools.
The agency said the aim of the bonus is to promote innovative responses to the challenges facing law enforcement agencies. She notes that the “IRS Pilot” is very different from how the government traditionally buys technology.
U.S. Federal Government Tackles Cryptocurrencies That Boost Privacy
As stated in the tender, the IRS has set a deadline for bids for September 16th. It also presents a two-phase approach.
The first phase will provide up to $ 500,000 for up to eight months of development. In this proof of concept phase, the contractor must demonstrate reliable tracking results on actual cryptocurrency transactions on Lightning Network or Monero. This includes identifying the sending and receiving address.
The second phase provides for an additional $ 125,000 and 120 days of development. The contractor will then add new functionalities and improve the performance of the system developed during the previous phase.
The chosen contractor must demonstrate that its solution works for transactions carried out in 2020. In addition, the solution must support open interoperability standards and must not depend on external suppliers.
Growing use of privacy protection solutions threatens US federal power
As part of the tender, the IRS mentions the growing use of Monero. The agency noted that in April 2020, Ransomware as a Service’s Sodinokibi group began requesting that future payments be made with the anonymity-focused XMR currency. The group said concerns about the privacy protection of its old payment method, BTC, were behind the move.
Beyond the increase in the number of Monero users, the IRS highlighted the growth of the Lightning Network. The second phase of Bitcoin’s scaling solution not only enables micro-transactions, but also further obscures the sender and receiver of transactions. This is possible by only recording the opening and closing of a channel on the Bitcoin blockchain.
The federal agency mentions that there is already some form of Lightning Network monitoring mode for Bitcoin. However, there are none for its implementations on other networks such as Litecoin or Ethereum (Raiden).
Blockchain forensics has come a long way in recent years. BeInCrypto.com has already reported numerous cases involving data provided by companies such as Chainalysis, among others.
One of those companies, CipherTrace, appears to be in a good position to respond to the recent IRS request. The company recently announced the development of its own Monero tracker:
CipherTrace Announces World’s First Monero Tracing Capabilities for Law Enforcement, Governments and Virtual Asset Service Providers.
However, even Monero enthusiasts and CipherTrace enthusiasts alike point out the limitations of this monitoring solution.
CipherTrace said the project “laid the groundwork” for greater transparency for Monero, but there was still work to be done. For his part, security technician Seth Simmons said the ad is not original. He also added that nothing in CipherTrace’s solution exceeds the capabilities of Monero developers.
In June 2020, Chainalysis announced the addition of Dash and Zcash privacy currencies to its suite of compliance tools, but has yet to include Monero tracking in its services.