The US Internal Revenue Service (IRS) is going all out against sizable cryptocurrency projects with Monero and Lightning now being explicitly named as targets. According to an official offer from the federal tax agency, the organization has offered a huge bounty of more than $650,000 to hackers who can compromise Monero (XMR) and lightning cryptocurrency networks or find a backdoor for them.
Why Monero and Lightning are being Targeted?
While other cryptocurrencies including major ones like Bitcoin, Ethereum, XRP, Litecoin, etc are also not viewed favourably by the IRS, it is the threat of privacy-focused cryptocurrencies that they consider a big threat. Bitcoin is especially becoming relatively easy to trace because of its widespread adoption and Know Your Customer (KYC) and Anti Money Laundering (AML) adoption. However, some cryptocurrencies especially privacy-focused ones are now especially being targeted because their transaction process is anonymous and they have no direct link between the sender and the receiver like a regular cryptocurrency project.
As per the official announcement which came as a surprise to many, prototypes will be accepted that can hack into either Monero or Lightning or both. After initial testing and approval, participants will be paid $500,000 directly even before scaling itself. The amount will be dedicated for the scaling process and upon the completion of a successful project, a further $125,000 will be paid bringing the total compensation to be around $625,000.
According to the IRS post:
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.”
The main objective of this exercise is to help find a loophole in the transactional capability of privacy-focused coins and identify the transactions coming from flagged addresses and then tracing them through a dedicated system. IRS has been after privacy focused coins for a while now. Dash, Monero, Lightning, etc are all the innovators of this sector that has a small but dedicated following within the crypto community especially when Bitcoin is being tagged, flagged and traced around the world.
According to the IRS, most of the ransomware activities are being undertaken through Monero (XMR) because of its anonymity features. Monero is among the top 20 cryptocurrencies in the world. Different organizations are working to undermine the security of these blockchain-focused currencies. A software firm by the name of CipherTrace claims the development of a Monero tracing application but that capability hasn’t yet been proven. IRS is now trying to bring all the potential projects on the table and is offering handsome rewards in order to do so.
However, conventional fiat money like USD is still the most widely used medium of exchange for criminals and IRS doesn’t seem to be doing anything about it. Maybe IRS is looking to develop its anti-blockchain/anti crypto arm to help identify any potential weaknesses of the decentralized systems. They can then identify the persons of interest easily, thus affecting the overall credibility of the system.
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