- IRS has launched an attack on the Blockchain and cryptocurrency industry
- IRS targets Lightning Network, privacy tokens, and Schnorr signatures
- The government is concerned about the rise in the use of Crypto for criminal activity
Cryptocurrency News Today – in a move that doesn’t come as a surprise to anyone, the United States IRS-CI (Internal Revenue Service – Criminal Investigation) division is seeking more data on “privacy digital tokens” and technologies that obfuscate digital currency transactions. These can include some Blockchains created to operate anonymously, plus additions to popular assets like BTC and BCH that have altered how transactions are performed.
The IRS’s RFI (request for information) document published back on June 30, contains a call for demonstrations of technologies that could help it (the IRS) fight transaction and identity obfuscation.
The Government is Concerned About the Rise in the Use of Crypto for Criminal Activity
This move by the IRS is a clear signal the government knows these technologies and what they were invented for. The government is concerned about their increasing usage of criminal activity. Which is why it is prepared to trace illicit transactions. Showing that it can do so will help deter would-be bad actors from using them.
Many in Bitcoin SV’s (BSV) community, particularly Craig Wright, have long talked about how anonymity is untenable in digital currency transactions now and in the years to come. It is one of several reasons why BSV transactions occur on-chain and are auditable on a scalable network. The IRS will likely, inevitably gain the technology that will allow it to trace “private” transactions more efficiently or activate other moves to curb their usage.
Privacy Tokens, Lightning Network, and Schnorr Signatures
The IRS-CI (Internal Revenue Service – Cyber Crimes Cryptocurrency Initiative) has listed the digital assets and technologies below in its request:
“Monero (XRM), Grin (GRIN), Komodo (KMD), Zcash (ZEC), Dash (DASH), Verge (XVG), and Horizon (ZEN), privacy cryptos (example Monero (XMR), Dash (DASH), Zcash (ZEC), Grin (GRIN), Komodo (KMD), Horizon (ZEN)), and Verge (XVG). Layer 2 off-chain networks (Lightning Network (LN), Celer Network, and Raiden Network,). Side-chains (Plasma and OmiseGo). Tracing challenges that have occurred after the integration of BCH’s Schnorr Signature.”
The above list includes some of the most popular digital assets and Blockchain-based technologies today. These networks have in a bid to scale their networks or ensure that transactions are less traceable added additional steps.
The Lightning Network is known as the primary “Layer 2” network that handles the bulk of BTC transactions, and the Raiden Network does something similar for Ethereum. Bitcoin Cash started implementing its Schnorr signatures after the May 2019 hard fork. This was created as an alternative to ECDSA signatures created by BTC. It will make it harder to determine whether transactions are asset swaps, payment channels, smart contracts, or traditional payments.