The Internal Revenue Service (IRS) wants in on activities happening on Monero and Bitcoin’s Lightning Network. That’s why the Federal organization is inviting applications with demonstrated working prototypes that can break into the privacy coin network and trace transactions on BTC’s layer two chain. IRS will offer $625,000 for the same.
In an announcement dated September 4, the Internal Revenue Service, Criminal Investigation (IRS-CI), the largest Federal law enforcement agency in the United States Department of the Treasury, has put out a bounty contract for a working prototype that can break into the Monero and Bitcoin’s Lightning network.
The agency will accept applications until September 16 and will dish out a total of $625,000 in two phases to fund the development of the selected application. In the first phase, the IRS will pay $500,000, and the development team will have to deliver the ‘privacy cracking product prototype’ within eight months.
The payout for the remaining $125,000 will happen if the pilot run is successful, and the government okays the model.
IRS cited the usage of Monero and other privacy coins generally and in unlawful activities to justify its latest bounty move. But why Lightning?
The agency thinks that Bitcoin’s famed layer 2 network has grown tremendously since its inception in March 2018. The rising number of nodes on LN is a matter of concern since they are close to 10,000 (the approximate number of full nodes on the main BTC chain).
Also, the IRS quoted the lack of efficient tools that can break open into these cryptocurrency networks:
Currently, there are limited investigative resources for tracing transactions involving privacy cryptocurrency coins such as Monero, Layer 2 network protocol transactions such as Lightning Labs, or other off-chain transactions that provide privacy to illicit actors.
Broadly the Federal agency wants to snoop in and keep a track of all transactional activities occurring on Monero and the Lightning Network. But, there are a few specific objectives.
First is the ability to track transactions without external vendor support:
Provide information and technical capabilities for CI Special Agents to trace transaction inputs and outputs to a specific user and differentiate them from mixins/multisig actors for Monero and/or Lightning Layer 2 cryptocurrency transactions with minimal involvement of external vendors
Secondly, the IRS intends to track all privacy cryptocurrency network activities of specific parties (read bad actors) based on a single instance of Monero/Lightning Network usage:
Provide technology which, given information about specific parties and/or transactions in the Monero and/or Lightning networks, allows Special Agents to predict statistical likelihoods of other transaction inputs, outputs, metadata, and public identifiers with minimal involvement of external vendors
Lastly, the working solution must enable the IRS to improve upon the technology to make it usable within it’s ‘internal systems’:
Provide algorithms and source code to allow CI to further develop, modify, and integrate these capabilities with internal code and systems with minimal costs, licensing issues, or dependency on external vendors
The Federal agency has been working diligently to ramp up its cryptocurrency and blockchain analyzing abilities. A couple of days ago, the IRS signed a $250,000 contract with ‘Blockchain Analytics and Tax Services LLC.
The same will enable the agency to leverage the firm’s proprietary blockchain analysis tools to track activities on specifically privacy-focused cryptocurrency networks like Monero.
The article was first published on: Sep 11, 2020