Report: IRS Can Identify Individual Bitcoin Holdersbr>
A report indicates the US Internal Revenue Service (IRS) has developed new software that can identify the owners of digital wallets, a tactic in its ongoing plans to track down bitcoin and other cryptocurrency holders who haven’t reported capital gains.
The Daily Beast discovered a contract between the IRS and a company called Chainalysis to identify wallet-holders. In the report, the co-founder of Chainalysis claims to have information on 25 percent of all bitcoin addresses, and deplays millions of tags to track and identify transactions.
The Daily Beast quoted from a letter to the IRS: “Transactions in bitcoin are made with pseudonyms, which need to be tied to real-world identities in order to gain insights about the parties involved in a transaction and their purpose.” The letter went on to claim it has over four million tags on bitcoin addresses, all scraped from web forms and leaked data sources, including dark market forums and Mt. Gox deposit and withdrawal information.
Chainalysis is based in Switzerland and has a New York office. The deal between the IRS and Chainalysis is part of an ongoing IRS campaign to track bitcoin profits. The IRS is currently locked in battle with Coinbase over its customer records. In its court filings, the IRS claimed only 802 people declared a capital gain or loss from bitcoin in 2015, far below the number of Americans who bought the cryptocurrency.
Coinbase, Kraken and other exchanges have drawn ire from some tech-savvy users for not guarding against companies like Chainalysis or BitSeer from identifying individual users. Those concerned with privacy can switch to a more secure cryptocurrency, or can move to their own wallet outside of the exchanges.