Most Americans one time or the other have inquired into whether or not the American government is tracking how cryptocurrencies are used, this new report reveals that if you live or make trades in the United States, there is a big chance your transactions are being monitored.
According to the public record cited by the research firm, Diar, the United States Government agencies have jointly spent up to about $5.7 million hiring private contractors to conduct blockchain analysis which usually involves liking individual identity with their crypto asset.
Though critics of this report can pose arguments of anonymity, the report countered this advance, stating that most individuals using the digital currencies usually leave a trail while trading which will only take a diligent investigator to connect the dots and unravel the mystery behind the identity of the wallet owner.
The report shows that once a cryptocurrency user exposes the address generated by them to an untrusted individual, the user becomes vulnerable to the risk of having their entire wallet linked. This would usually not take too much delay before a forensic examiner competent in blockchain to rat the individual out.
Most often than not, this breach of anonymity usually occurs when a crypto user deposits or withdraws funds at an exchange which requires users identity authentication.
Another factor which is usually responsible for this breach is when users post their wallet addresses online under their real name or an identifiable alias or by merely transacting with an individual who has been unmasked.
Little wonder the top spender amongst United States government agencies is the Internal Revenue Service (IRS) which is the regulator and collector of federal income tax. The IRS has reportedly signed nothing less than nine contracts with virtual currencies forensic providers which costs the agency about $2.2 million and representing 38 per cent of the total spending of these services.
Rationale Behind Cryptocurrency Tracking
Last year, the IRS had a contractual agreement with a firm known for blockchain-tracing to reveal the identities of investors who have not been honest with the agency in the reports of their crypto investment income on their tax returns. The agency has also ramped up enforcement of alleged violations related to crypto assets. The agency went as far as slamming Coinbase with a suit requesting the crypto firm to hand over its customer database.
One must have expected the second largest spender in blockchain-tracing to be a ‘battle’ amongst Federal Bureau of Investigation (FBI), Drug Enforcement Agency (DEA), or Securities and Exchange Commission (SEC), but the second largest spender on the subject matter is none of them and remains a surprise.
According to the Diar report, the second-largest blockchain analytic client was the Immigration and Customs Enforcement (ICE), an agency in charge of government’s immigration policies and investigates criminal activities involving foreign nationals living in the United States. ICE was reported to have entered into a $1.5 worth of contracts (nine) while The Federal Bureau of Investigation follows with 12 contracts but a relatively low sum of $1.1 million.
Surprisingly, SEC Spends Less
It came as a surprise that the U.S. SEC, which is the agency behind the securities markets and the regulations, with its latest moves of charging cryptocurrency fraudsters and Initial Coin Offering (ICO) operators, have done considerably little to this effect, spending about $185,000 on tracing the flow of crypto funds.
It is ironical how spending has grown this year despite the decline experienced in the market where about 70% from its all-time high and interest among retail consumers has waned. According to the report, Chainanalysis seems the preferable blockchain analysis contractor of the United States government with a breakdown of $5.3 million — 93 per cent — of the $5.7 million paid out to these firms.
Another bright side of this tracing process is that blockchain-tracing firms are a necessary aspect of the emerging blockchain sector, this sector has become attractive to investors due to the fat government contract. Firms providing this service have collectively raised about $29 million with Chainalysis raising over $17 million singlehandedly.
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