IRS awards $1.25 million to Chainalysis and Integra FEC to crack Monero

October 1, 2020 Editor Monero 0

  • IRS has granted Integra FEC LLC and Chainalysis contracts worth more than $1.2 million in total to crack Monero. 
  • The first advance of the project has to be delivered within 8 months, according to the contract.

Chainalysis and Integra FEC LLC have been selected by the U.S. federal government’s Internal Revenue Service (IRS) to track Monero (XMR) transactions. A few days ago, the federal agency offered a $625,000 contract for companies to submit proposals for the development of a tool to crack the privacy features of Monero.

In total, both companies received orders estimated to be worth more than $1.2 million for the “Solution Challenge (SD) Three”: Cryptology Tracking,” as stated in the contract announcement. The Criminal Investigation Division of the Internal Revenue Service (IRS-CI) is a special task force in charge of investigating cyber-crime involving cryptocurrencies. Within the announcement, it revealed that it has limited capabilities and resources to pursue privacy coins and second layer payment solutions such as Bitcoin‘s Lightning Network and Ethereum‘s Raiden.

The contract awarded to Chainalysis and Integra FEC LLC stems from the agency’s need for tools to investigate “criminal activity on these networks”. The agency notes that there has been growth in two important areas. First, the number of users of the referred networks. Bitcoin’s LN alone has reached 10,000 nodes since its launch.

Secondly, the agency points to the growth in criminal activity (money laundering, sex trafficking, financial terrorism) in the darknet which could favor anonymous cryptocurrencies such as Monero. This statement corresponds to a report published by CipherTrace. The company revealed in early September that it developed a tool to track transactions on Monero as part of a contract with the U.S. Department of Homeland Security (DHS), however, its effectiveness has been questioned by the Monero community.

The IRS-CI stated the following about the activity on the darknet and Monero:

The use of privacy coins is becoming more popular for general use, and is also seeing an increase in use by illicit actors. For example, in April 2020 a RaaS (Ransomware as a Service) group called Sodinokibi (a former affiliate with the GrandCrab RaaS group) stated that future ransom request payments will be in Monero (XMR) rather than Bitcoin (BTC) due to transaction privacy concerns.

The development phases of the Monero tracking solution

As part of the contract, Chainalysis and Integra FEC LLC will be required to complete two phases. A Proof of Concept and Initial Work System to be completed in 8 months. During this time, the companies will be required to “produce useful results” in real-world situations for cryptocurrency criminal investigation. The companies, the federal agency clarifies, may offer solutions for tracking transactions on Monero or the other referred networks.

Then, companies must complete a second phase of testing and pilot deployment in 120 days. In this phase, they must “expand and add additional functionality and enhancements” to the phase 1 proposal. The entity expects that the proposed solution will allow them to track transactions to a specific user, identify specific transaction details, provide specific information on network activity. 2021, due to the contract delivery time and the success of the companies, could be the year that consolidates Monero’s position as the ultimate privacy monster or its failure in that regard.