The U.S. Internal Revenue Service (IRS) has offered a bounty of up to $625,000 to anyone who can crack allegedly untraceable privacy currencies such as Monero (XMR) and track transactions on the Bitcoin (BTC) lightning network.

The official proposal released last week says the IRS will accept submissions in the form of working prototypes until Sept. 16. If accepted, applicants will receive an initial payment of $500,000.

The grant will allow applicants to develop their prototype into a working concept over the next eight months. Once the pilot test is completed and approved by the government, a further $125,000 will be awarded.

IRS-CI is seeking solutions from one or more contractors to provide innovative solutions for the tracking and attribution of privacy coins, such as expert tools, data, source code, algorithms, and software development services.

The announcement defines the primary goal of the initiative as helping IRS Criminal Investigation (CI) special agents track transactions, including identifying wallets, the date and time of the transaction, and the amount of the transfer. The agency hopes to use these tools to predict future transactions at tagged addresses. The final product must also provide CI with complete control and the ability to further develop or modify them, so the agency doesn’t have to rely on any outside vendors.

Monero is one of the virtual currencies preferred by criminal organizations over more traceable cryptographic assets such as Bitcoin. The IRS noted that all future extortion demands and transactions by the extortion software group Sodinokibi will use XMR due to its “privacy concerns”.

As authorities increase their encryption forensics capabilities and adopt the capabilities of private contractors such as Chainalysis, the demand for privacy coins by criminal groups has increased. In recent years, Chainalysis has assisted law enforcement in tracking bitcoin and other cryptocurrency transactions, successfully combating child abuse, money laundering and terrorist financing. Last month, Chainalysis was integral in the operation to take down three terrorist groups.

Privacy coins are an important strategy to help criminals confuse transactions, the IRS said.

Currently, there are limited investigative resources for tracking transactions involving privacy cryptocurrency coins, such as Monero or other off-chain transactions that provide privacy to illegal actors.

CypherTrace, a blockchain analytics firm, claims to have a new tool that can track Monero transactions, though its capabilities have yet to be confirmed. The company announced that the tool, which took more than a year to develop, will be used by the U.S. Department of Homeland Security.John Jeffries, chief financial analyst at CipherTrace, said the tool can track stolen Monero, the XMR used for illegal transactions, back to the source, such as in ransomware cases.

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2020-09-10