The IRS Wants to Buy Tools to Trace Privacy-Focused Cryptocurrency Monero

The agency is offering up to $1 million dollars for developers who can create technologies to track Monero and Bitcoin Lightning Network transactions.
September 11, 2020, 4:32pm
monero
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Despite its popularity among drug dealers on the dark web or hackers demanding hefty ransoms to unlock their victims' computers, Bitcoin has never been too hard to trace for feds and cops chasing supposedly anonymous cybercriminals on the internet. That's why more tech-savvy criminals use cryptocurrencies like Monero, which promise more anonymity.

As criminals start to embrace new technologies, the cops are following suit. The United States Internal Revenue Service is now offering up to $625,000 for new tools to track down criminals using the privacy-focused Monero cryptocurrency and new blockchain technology such as the Bitcoin Lightning Network

The IRS published a request for proposals last week, with a deadline for September 16.

"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," the IRS wrote.

The agency is looking for new solutions to help its IRS-Criminal Investigations agents trace transactions made with Monero or other privacy-preserving cryptocurrency, as well as on the Lightning network. The IRS wants to be able to see these tools' algorithms and source code to integrate them into their existing solutions, and—ideally—minimize the involvement of external vendors, according to the request for proposals.

"We are looking for solutions which provide the best results for tracing obfuscated cryptocurrency transactions using Monero and/or Lightning," the IRS wrote.

The IRS plans to pay whoever comes up with a solution that fits its requirements $500,000 in a first phase of software development and proof of concept that will last eight months, and an additional $125,000 for a second phase of testing and initial deployment that will last 120 days. The agency isn't planning to pick only one proposal, as it plans to spend around $1 million "in FY20 [fiscal year 2020] funding across all solutions."

The developers who win the contract will work closely with IRS agents to develop the technology, which the developers will be able to offer elsewhere as well, as the IRS "does not intend to request retention of any intellectual property," but just the chance to continue using the solutions with a "non-exclusive perpetual royalty-free license to any source code developed with this funding," according to the document.

“Privacy coins continue to be a challenge to law enforcement due to their increased anonymity and specific technological enhancements.” an IRS spokesperson said in an emailed statement. “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. The pilot will look to leverage the knowledge of public/private sector and academia to address these specific challenges.”

There are several companies that offer cryptocurrency tracing technologies, such as Chainalysis, CipherTrace, and Neutrino, a startup that was acquired by Coinbase.

This story was updated to include a statement from the IRS.