The UK government is so desperate to better trace cryptocurrencies that it's offering up $130k to any developer able to build software that can do the job.
Some cryptocurrencies are a lot more difficult to trace than others. Cryptocurrencies like Monero, Dash, and Zcash use things like ring signatures and zk-SNARKs to really cover up users' tracks. However, in general, cryptos are simply not as easy to trace as your typical bank payment – and governments see that as a problem.
One of the best ways to uncover criminal activity is to "follow the money," which is why cryptocurrencies have been used for things like ransomware and black market payments. Such transactions make up a small percentage of cryptocurrency usage, but it's a concern nonetheless.
Of course, what the UK government is primarily concerned about is people using cryptocurrencies for tax avoidance (while ignoring the many corporations and high-profile figures that avoid paying their fair share, but I digress…)
The government has issued a £100,000 ($130,000) contract for software that can identify when cryptocurrencies are used to avoid paying taxes. In particular, HMRC wants "a tool that will support intelligence gathering methods to identify and cluster cryptoasset transactions into linked transactions and identify those linked to cryptoasset service providers."
Cryptocurrencies the tool must support are the most popular ones: Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Ripple, Ethereum Classic, and Tether. Preferential treatment will be given to bids which pledge to support privacy coins like Monero, Zcash, and Dash.
While challenging, developers can probably find a way to track most of the required cryptocurrencies. The one which could pose a problem is Litecoin, which is currently seeking to implement "MimbleWimble" – a protocol aimed at vastly improving the privacy of transactions.
Last year, UK authorities reportedly demanded that cryptocurrency exchanges operating locally handed over customer data – along with their transactions – as part of a bid to get tax from those who owed it. Similarly, the US Internal Revenue Service sent around 10,000 letters to people who'd bought more than $20,000 of cryptocurrencies between 2013 and 2015.
If you're interested in the UK government's contract, the closing date for bids is January 31st. The contract starts on the 17th February 2020 and ends on the 16th February 2021.
You can find the full details and how to apply here.
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