The IRS Wants to Track & Trace Privacy Coins and the LN

[Abiky]

According to a news article from decrypt, the United States Internal Revenue Service (IRS) wants to have the ability to track & trace privacy-oriented cryptocurrencies like Monero and Zcash, as well as, Bitcoin's Lightning Network. Chainalysis is a well-known blockchain data collection company, which could give more power to the IRS with its surveillance tools. Imagine if they develop something to track and trace privacy coins and BTC's LN. It would greatly defeat crypto's anonymity and the ability to remove the middleman from the system. While I have nothing against paying taxes to the government, the fact that they can trace my transactions just as they would with banks accounts, greatly defeats crypto's purpose of separating "The State" from "Money".

What do you think the outcome of privacy coin and LN surveillance will be? Will the IRS be successful at spying on people's transactions in the future? Do you think other countries' tax agencies will do start doing the same? Your input will be greatly appreciated. Thanks in advance.

[1715580574]

1715580574

[1715580574]

1715580574

[1715580574]

1715580574

[1715580574]

1715580574

[Little Mouse]

Is it possible to break down Monero transaction? Once I had seen such an issue and that was because of a bug. With such major regulation in privacy coins, they are putting much attention to privacy coins. And if they get failed to trace, I think the usage of privacy coins will be increased.

[Abiky]

Is it possible to break down Monero transaction? Once I had seen such an issue and that was because of a bug. With such major regulation in privacy coins, they are putting much attention to privacy coins. And if they get failed to trace, I think the usage of privacy coins will be increased.

AFAIK, it's almost impossible to be able to track Monero transactions on the blockchain. But who knows? Maybe someone skilled enough exploits XMR's weaknesses to government agencies. If that happens, I believe that XMR developers will quickly hard fork the chain in order to maintain privacy as much as possible. That's the beauty of decentralization and open source. While XMR will be extremely difficult to trace, I think that the IRS will be able to successfully track and trace transactions on the Lightning Network. So far, there aren't any privacy mechanisms for LN transactions (someone correct me if I'm wrong). Besides that, LN nodes are known to link your IP address when opening/closing channels. This could greatly undermine people's privacy, allowing governments to easily track and trace people's transactions.

While the IRS' excuse is to trace people for taxation purposes, there could be more to it than "meets the eye". We all know that governments don't want to lose control over people's money. Cryptocurrencies provide an "escape route" against the world's monetary system subject to manipulation, and fraud. I'd be surprised to see a Blockchain analytics company like Chainalysis, bring governments the ability to track and trace privacy coins and the LN in the future. It will be a huge blow to the entire crypto/Blockchain space. Just my opinion

[DarkDays]

Good luck with that. They'd have to break some of the most effective privacy and obfuscation systems ever designed to do so. Can't imagine that the IRS has the capabilities to crack Ring CT signature or ZCash's zk-SNARKs. They can't even track offshore funds, how the fuck are they going to track anonymized transactions?

I think they're just scare mongering, hoping that they can scare some people out of using these privacy coins just in case theyhave some sort of magic deanonymization tool.

[dudusix9]

Why are some of these entities so hungry to track all these crypto holdings? Goodluck on breaking it down lol.

Does this mean that they're scared of the potential and that the IRS already wants to take over?

In terms of traceability, even businesses are already starting to take that seriously. An example is a CBD company using blockchain from NEM for tracing their crops. This might be the future we're seeing, especially with that FOMO kicking in.

[holly.ball8]

This is why cryptos aiming for the anonymity and privacy will become the hottest thing for fed to go after. When it becomes like that, do you think it can keep those features anymore? Anyone using those cryptos will be marked by fed and fbi one way or another.

[Baofeng]

And that is why there are a lot of heat on privacy coins since 2018 and it seems that IRS is taking one step further but I don't know how they are going to break down privacy coins like Monero or bitcoin being mix in a bitcoin tumbler? I don't think it will be successful though.

As for the tax, they should target Centralised Exchange (if they hadn't done so), for tax. Because it's going to be very messy for both parties if they target privacy coins and those crypto investors who wanted their anonymity here.

[key4co.in]

Very rich decrypt article I must say, thanks OP for sharing. I think it will be very difficult for the IRS to track privacy coin transactions and even if they succeed, privacy coin projects will develop more revamped features to ruin the effort of IRS. I'm not really a holder of privacy coins though, but I like the concept.

[btc_angela]

Is it possible to break down Monero transaction? Once I had seen such an issue and that was because of a bug. With such major regulation in privacy coins, they are putting much attention to privacy coins. And if they get failed to trace, I think the usage of privacy coins will be increased.

I think that's what Monero is pride for, their coins are not that easy to break down as it has layered itself with security and privacy protocols.

What do you think the outcome of privacy coin and LN surveillance will be? Will the IRS be successful at spying on people's transactions in the future? Do you think other countries' tax agencies will do start doing the same? Your input will be greatly appreciated. Thanks in advance.

If they have the right tools, then they can spy on us. But I think it will be mostly US base though, I don't think that crypto friendly countries will adhere to this.

[stadus]

Unfortunately they don't have the ability to track privacy coins, so I'm afraid their solution to that is to completely get rid of it by banning it.
This could be a big threat for the privacy coin, we have a good marketcap of privacy coins, hopefully what I think would not happen.

[shata]

I think IRS will make use of their advantages by doing their efforts on partnering exchanges where some transactions are well monitored and giving policies in favor of the latter. Some or most of exchanges required their users with KYC and with that transactions being associated will be taxed, if this what IRS wants.

However, IRS didn't request to trace privacy coins only in order to imposed tax but to monitor illegal transactions and illecit activities associated with privacy coins. This will be an additional data for criminal divisions.

[Abiky]

Unfortunately they don't have the ability to track privacy coins, so I'm afraid their solution to that is to completely get rid of it by banning it.
This could be a big threat for the privacy coin, we have a good marketcap of privacy coins, hopefully what I think would not happen.

That's certainly true, mate. But we have to admit, nothing is perfect. If the IRS manages to exploit privacy coins' flaws or weaknesses, they'll be able to effectively track & trace transactions on the Blockchain. There's nothing stopping them from funding a prominent groups of hackers in order to gain access to privacy coins' transaction records. While something like this is rather complicated to achieve, it's not impossible. Remember: "when there's a will, there's a way". Anything could happen in the future, so devs working on privacy coins' core Blockchain network should expect the worse.

As far as the Lightning Network (LN) goes, I think it's much easier to track & trace off-chain transactions by performing a deep analysis of nodes' IP addresses. These IPs can be obtained from people opening/closing channels in the LN. The second-layer solution for scalability needs to adopt some sort of privacy mechanism to prevent surveillance from governments and other third parties. While there's nothing against tracing transactions for taxation purposes, we all know what the true intentions of the government are. Their main excuse is that crypto is used for money laundering and tax evasion. While Fiat is used at a large scale for this, governments don't seen to care about it. The USA being highly strict against crypto and Blockchain, has been trying to track & trace its citizens on the Blockchain with every tool at its disposal (like Chainalysis). I think the only way the IRS will be successful is by collecting data from centralized exchanges. Other than that, they won't have any luck. If all else fails, they could simply ban the use of privacy coins (and possibly the LN) altogether. But it'll still be possible to use crypto because of its decentralized and censorship-resistant design. Just my thoughts

[peterlustig]

I think track and trace is not possible at least for next few years. Even if they ban it in the future won't we still be able to use them? Yes, we won't be able to trade them on US-based exchanges but, we will still be able to transact using Monero because it is a decentralized coin, right?

[masterrex]

Privacy coins like Monero and Zcash are popular because of its cutting edge capability on the field of privacy. but now that the government has initiated an action to tract the Privacy coins transactions I think its a major blow to those privacy focus cryptocurrencies because it might results to scrutiny and delisting in cryptocurrency exchange not just the US base but maybe Including Europe as well, as we notice IRS is the US Internal Revenue Service If I'm not wrong IRS wants to TAX those people who are using the Privacy focus cryptocurrencies like Monero and Zcash. 

[Abiky]

I think track and trace is not possible at least for next few years. Even if they ban it in the future won't we still be able to use them? Yes, we won't be able to trade them on US-based exchanges but, we will still be able to transact using Monero because it is a decentralized coin, right?

There's no need to worry about being tracked with privacy coins, since it's practically impossible to do so. If by any chance government agencies like the IRS or the Federal Tax Service of Russia are able to "crack" privacy coin's anonymity, developers can quickly solve this problem by releasing a new version of the coin. It's only a matter of time before the whole network does a hard fork smoothly. As far as the Lightning Network goes, I think that there's lot of work to be done in order to improve privacy over off-chain transactions. As I've said earlier, IP addresses can be linked from LN's nodes. Governments could simply track & trace routing nodes on the LN in order to hunt down individuals "off-chain" (see this article for more info: https://www.coindesk.com/researchers-surface-privacy-vulnerabilities-in-bitcoin-lightning-network-payments). I wouldn't be surprised to see governments tackling other cryptocurrencies as well, due to their ever-increasing popularity in the mainstream world.

As long as a cryptocurrency remains outside the scope of governments and other third-parties (especially privacy coins), there's no reason to worry about being "spied" by these entities. I think there's nothing wrong with tracing crypto users for taxation purposes. But the fact that there's a "hidden agenda" behind all of this, makes me quite worried. After all, governments want to stay in power no matter what. Since crypto promises the decentralization of money, it often becomes the #1 target of governments and central banks alike. This means that they'll do everything they can to try to stop people from using crypto in the mainstream world. For what I know, crypto taxation is still a hotly-debated topic. Governments might as well end up banning crypto in its entirety if they're unable to track & trace every blockchain network for taxation purposes. Just my opinion

[qazgroup]

According to a news article from decrypt, the United States Internal Revenue Service (IRS) wants to have the ability to track & trace privacy-oriented cryptocurrencies like Monero and Zcash, as well as, Bitcoin's Lightning Network. Chainalysis is a well-known blockchain data collection company, which could give more power to the IRS with its surveillance tools. Imagine if they develop something to track and trace privacy coins and BTC's LN. It would greatly defeat crypto's anonymity and the ability to remove the middleman from the system. While I have nothing against paying taxes to the government, the fact that they can trace my transactions just as they would with banks accounts, greatly defeats crypto's purpose of separating "The State" from "Money".

What do you think the outcome of privacy coin and LN surveillance will be? Will the IRS be successful at spying on people's transactions in the future? Do you think other countries' tax agencies will do start doing the same? Your input will be greatly appreciated. Thanks in advance.

If it will be done to stop crime or tracing criminals then it will be ok, it will even be ok if they want to confirm the issues related to taxes but for anyother purpose they should not use it and i think even if they do so new coins will come up that they will not be able to track or the older coins will also implement some upgrades to fail the agencies, who knows lets just wait and see.

[kingzpro]

I do not think that it will make much difference so even if they are able to track all transactions of cryprocurrencies but you are not doing anything wrong so they cannot harm you in anyway so just cheer up even if they track all crypto transactions it will be something to bother for the bad guys only.